<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1998
REGISTRATION NO. 333-64107
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PLAINS ALL AMERICAN PIPELINE, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 486110 76-0582150
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
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500 DALLAS, SUITE 700
HOUSTON, TEXAS 77002
(713) 654-1414
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MICHAEL R. PATTERSON
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
PLAINS ALL AMERICAN INC.
500 DALLAS, SUITE 700
HOUSTON, TEXAS 77002
(713) 654-1414
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
ANDREWS & KURTH L.L.P. BAKER & BOTTS, L.L.P.
600 TRAVIS, SUITE 4200 3000 ONE SHELL PLAZA
HOUSTON, TEXAS 77002 910 LOUISIANA
(713) 220-4200 HOUSTON, TEXAS 77002
ATTN: DAVID P. OELMAN (713) 229-1234
DAN A. FLECKMAN ATTN: JOSHUA DAVIDSON
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. THESE +
+SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE +
+TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 3, 1998
12,782,609 COMMON UNITS
PLAINS ALL AMERICAN PIPELINE, L.P.
REPRESENTING LIMITED PARTNER INTERESTS
[LOGO OF PLAINS ALL AMERICAN APPEARS HERE]
--------
The Common Units offered hereby represent limited partner interests in Plains
All American Pipeline, L.P., a Delaware limited partnership (the
"Partnership"). The Partnership was recently formed to acquire and operate the
midstream crude oil business and assets of Plains Resources Inc. ("Plains
Resources"). The Partnership is engaged in interstate and intrastate crude oil
pipeline transportation and crude oil terminalling and storage activities and
gathering and marketing activities.
The Partnership intends, to the extent it has sufficient cash available from
operations, to distribute to each holder of Common Units at least $0.45 per
Common Unit per quarter (the "Minimum Quarterly Distribution") or $1.80 per
Common Unit on an annualized basis. During the Subordination Period, which will
generally not end prior to December 31, 2003, the Common Unitholders will have
the right to receive arrearages on the Common Units if the full Minimum
Quarterly Distribution is not paid in any quarter. Plains All American Inc., a
wholly owned subsidiary of Plains Resources, is the general partner (the
"General Partner") of the Partnership and has broad discretion in making cash
distributions and in establishing reserves. A glossary of certain terms used in
this Prospectus is included as Appendix C to this Prospectus.
LIMITED PARTNER INTERESTS ARE INHERENTLY DIFFERENT FROM CAPITAL STOCK OF A
CORPORATION. PURCHASERS OF COMMON UNITS SHOULD CONSIDER EACH OF THE FACTORS
DESCRIBED UNDER "RISK FACTORS," STARTING ON PAGE 26 OF THIS PROSPECTUS, IN
EVALUATING AN INVESTMENT IN THE PARTNERSHIP, INCLUDING BUT NOT LIMITED TO, THE
FOLLOWING:
. THE MINIMUM QUARTERLY DISTRIBUTION IS NOT GUARANTEED, AND THE ACTUAL
AMOUNT OF CASH DISTRIBUTIONS WILL DEPEND ON THE PARTNERSHIP'S FUTURE
OPERATING PERFORMANCE, THE TERMS OF THE PARTNERSHIP'S INDEBTEDNESS, THE
FUNDING OF RESERVES, THE LEVEL OF OPERATING AND CAPITAL EXPENDITURES AND
OTHER MATTERS WITHIN THE DISCRETION OF THE GENERAL PARTNER.
(Continued on page iii)
Prior to this offering, there has been no public market for the Common Units.
It is currently estimated that the initial public offering price will be
between $19.50 and $20.50 per Common Unit. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. The Common Units have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, under the symbol "PAA."
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) PARTNERSHIP(2)
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<S> <C> <C> <C>
Per Common Unit $ $ $
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Total(3) $ $ $
</TABLE>
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(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $ payable by the Partnership.
(3) The Partnership has granted the Underwriters a 30-day option to purchase
up to 1,917,391 additional Common Units on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. To the
extent such option is exercised by the Underwriters, the Partnership will
use such net proceeds to redeem Common Units from the General Partner. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Partnership will be $ ,
$ and $ , respectively. See "Underwriting."
--------
The Common Units are being offered by the several Underwriters named herein,
subject to prior sale, when, as and if accepted by them and subject to certain
conditions. It is expected that certificates for the Common Units offered
hereby will be available for delivery on or about , 1998, at the office
of Salomon Smith Barney Inc., 333 West 34th Street, New York, New York 10001.
--------
SALOMON SMITH BARNEY PAINEWEBBER INCORPORATED
A.G. EDWARDS & SONS, INC.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
ING BARING FURMAN SELZ LLC
, 1998
<PAGE>
[MAP ILLUSTRATING LOCATION OF PARTNERSHIP'S ASSETS, INCLUDING THE ALL AMERICAN
PIPELINE, THE SJV GATHERING SYSTEM AND THE CUSHING TERMINAL]
(ii)
<PAGE>
(continued from cover page)
. HOLDERS OF COMMON UNITS WILL HAVE ONLY LIMITED VOTING RIGHTS, AND THE
GENERAL PARTNER WILL MANAGE AND OPERATE THE PARTNERSHIP. THE GENERAL
PARTNER AND ITS AFFILIATES WILL OWN SUFFICIENT COMMON UNITS AND
SUBORDINATED UNITS TO PREVENT ITS REMOVAL AS GENERAL PARTNER.
. THE PARTNERSHIP'S REVENUES AND PROFITABILITY ARE AFFECTED BY VARIOUS
FACTORS, INCLUDING THE VOLUME OF CRUDE OIL DISCOVERED AND PRODUCED FROM
OFFSHORE AND ONSHORE CALIFORNIA FIELDS, DEMAND FOR SUPPLIES OF CRUDE OIL
BY REFINERIES IN THE MIDWEST, THE EFFECTS OF COMPETITION FROM OTHER
SOURCES OF CRUDE OIL AND THE VOLUME OF CRUDE OIL TERMINALLED, STORED,
GATHERED AND MARKETED BY THE PARTNERSHIP. THE VOLUME OF CRUDE OIL
PRODUCED FROM OFFSHORE CALIFORNIA HAS DECLINED IN RECENT YEARS.
. THE PARTNERSHIP WILL DISTRIBUTE APPROXIMATELY $142.3 MILLION OF THE
PROCEEDS OF THIS OFFERING TO THE GENERAL PARTNER.
. CONFLICTS OF INTEREST MAY ARISE BETWEEN (I) THE GENERAL PARTNER AND ITS
AFFILIATES AND (II) THE PARTNERSHIP AND THE UNITHOLDERS. UNDER CERTAIN
CIRCUMSTANCES, THE GENERAL PARTNER'S AFFILIATES, INCLUDING PLAINS
RESOURCES, ARE PERMITTED TO COMPETE WITH THE PARTNERSHIP. THE PARTNERSHIP
AGREEMENT LIMITS THE LIABILITY AND REDUCES THE FIDUCIARY DUTIES OF THE
GENERAL PARTNER.
. THE FEDERAL INCOME TAX BENEFITS OF AN INVESTMENT IN THE PARTNERSHIP
DEPEND ON THE CLASSIFICATION OF THE PARTNERSHIP AS A PARTNERSHIP FOR
FEDERAL INCOME TAX PURPOSES. THE PARTNERSHIP WILL NOT OBTAIN A RULING
FROM THE INTERNAL REVENUE SERVICE ON THAT ISSUE.
To enhance the Partnership's ability to pay the Minimum Quarterly
Distribution on the Common Units during the Subordination Period, which will
generally extend from the closing of this offering through at least December
31, 2003, each holder of Common Units will be entitled to receive the Minimum
Quarterly Distribution, plus any arrearages thereon, before any distributions
are made on the outstanding subordinated limited partner interests of the
Partnership (the "Subordinated Units"). All of the Subordinated Units and
6,817,391 Common Units will be held by a wholly-owned subsidiary of the
General Partner. Upon expiration of the Subordination Period, all Subordinated
Units will convert into Common Units on a one-for-one basis and will
thereafter participate pro rata with the other Common Units in distributions
of cash. Under certain circumstances, up to 50% of the Subordinated Units may
convert into Common Units prior to the expiration of the Subordination Period.
See "Cash Distribution Policy."
The Common Units offered hereby will represent an aggregate 42.6% interest
(49.0% if the Underwriters' over-allotment option is exercised in full) in the
Partnership and its subsidiary operating partnerships, Plains Marketing, L.P.
and All American, L.P., which will hold all of the Partnership's operating
assets and which are collectively referred to herein as the "Operating
Partnership." The General Partner and its affiliates will own an aggregate 2%
general partner interest in the Partnership and the Operating Partnership and
the right to receive certain Incentive Distributions. In addition, a wholly-
owned subsidiary of the General Partner will own 6,817,391 Common Units and
9,800,000 Subordinated Units, representing an aggregate 55.4% limited partner
interest in the Partnership and the Operating Partnership (4,900,000 Common
Units and 9,800,000 Subordinated Units representing an aggregate 49.0% limited
partner interest in the Partnership and the Operating Partnership if the
Underwriters' over-allotment option is exercised in full). The Common Units
and the Subordinated Units are collectively referred to herein as the "Units."
Holders of the Common Units and the Subordinated Units are collectively
referred to herein as "Unitholders."
The sale of the Common Units offered hereby is subject to, among other
things, the concurrent completion of the refinancing of certain indebtedness
of the General Partner. See "The Transactions."
The Partnership will furnish or make available to record holders of Common
Units (i) within 120 days after the close of each fiscal year of the
Partnership an annual report containing audited financial statements and a
report thereon by its independent public accountants and (ii) within 90 days
after the close of each quarter (other than the fourth quarter), certain
summary financial information. The Partnership will also furnish each
Unitholder with tax information within 90 days after the close of each
calendar year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON UNITS,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE-
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
(iii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY......................................................... 1
Plains All American Pipeline, L.P......................................... 1
The Transactions.......................................................... 5
Summary Selected Pro Forma Financial and Operating Data................... 7
Summary of Risk Factors................................................... 9
Cash Available for Distribution........................................... 14
Partnership Structure and Management...................................... 16
The Offering.............................................................. 18
Summary of Tax Considerations............................................. 23
FORWARD-LOOKING STATEMENTS................................................. 26
RISK FACTORS............................................................... 26
Risks Inherent in an Investment in the Partnership........................ 26
Risks Inherent in the Partnership's Business.............................. 30
Conflicts of Interest and Fiduciary Responsibilities...................... 34
Tax Risks................................................................. 37
THE TRANSACTIONS........................................................... 40
USE OF PROCEEDS............................................................ 41
CAPITALIZATION............................................................. 42
DILUTION................................................................... 43
CASH DISTRIBUTION POLICY................................................... 44
General................................................................... 44
Quarterly Distributions of Available Cash................................. 45
Distributions from Operating Surplus during Subordination Period.......... 45
Distributions from Operating Surplus after Subordination Period........... 47
Incentive Distributions--Hypothetical Annualized Yield.................... 47
Distributions from Capital Surplus........................................ 48
Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels................................................................... 49
Distributions of Cash Upon Liquidation.................................... 49
CASH AVAILABLE FOR DISTRIBUTION............................................ 52
SELECTED PRO FORMA FINANCIAL AND OPERATING DATA............................ 54
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA........................... 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................ 60
General................................................................... 60
The Partnership........................................................... 61
Analysis of Pro Forma Results of Operations............................. 61
Capital Resources, Liquidity and Financial Condition.................... 63
Year 2000............................................................... 65
Wingfoot.................................................................. 66
Results of Operations................................................... 66
Credit Arrangements with Goodyear....................................... 69
Plains Midstream Subsidiaries............................................. 70
Results of Operations................................................... 70
BUSINESS................................................................... 74
General................................................................... 74
Market Overview........................................................... 75
Business Strategy and Competitive Strengths............................... 76
Crude Oil Pipeline Operations............................................. 77
Terminalling and Storage Activities and Gathering and Marketing
Activities............................................................... 82
Customers................................................................. 87
Competition............................................................... 87
Regulation................................................................ 88
</TABLE>
<TABLE>
<S> <C>
Environmental Regulation.................................................. 90
Environmental Remediation................................................. 92
Operational Hazards and Insurance......................................... 92
Title to Properties....................................................... 93
Employees................................................................. 94
Legal Proceedings......................................................... 94
MANAGEMENT................................................................. 95
Partnership Management.................................................... 95
Directors and Executive Officers of the General Partner................... 95
Reimbursement of Expenses of the General Partner and its Affiliates....... 96
Executive Compensation.................................................... 96
Employment Agreement...................................................... 97
Long-Term Incentive Plan.................................................. 98
Management Incentive Plan................................................. 99
Compensation of Directors................................................. 99
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 100
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 101
Rights of the General Partner............................................. 101
Agreements Governing the Transactions..................................... 101
Relationship with Plains Resources........................................ 101
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES....................... 102
Conflicts of Interest..................................................... 102
Fiduciary and Other Duties................................................ 105
DESCRIPTION OF THE COMMON UNITS............................................ 108
The Units................................................................. 108
Transfer Agent and Registrar.............................................. 108
Transfer of Common Units.................................................. 108
DESCRIPTION OF SUBORDINATED UNITS.......................................... 110
Conversion of Subordinated Units.......................................... 110
Limited Voting Rights..................................................... 110
Distributions Upon Liquidation............................................ 111
THE PARTNERSHIP AGREEMENT.................................................. 112
Organization and Duration................................................. 112
Purpose................................................................... 112
Power of Attorney......................................................... 112
Capital Contributions..................................................... 113
Limited Liability......................................................... 113
Issuance of Additional Securities......................................... 113
Amendment of Partnership Agreement........................................ 114
Merger, Sale or Other Disposition of Assets............................... 115
Termination and Dissolution............................................... 116
Liquidation and Distribution of Proceeds.................................. 116
Withdrawal or Removal of the General Partner.............................. 116
Transfer of General Partner Interest and Incentive Distribution Rights.... 118
Change of Management Provisions........................................... 118
Limited Call Right........................................................ 118
Meetings; Voting.......................................................... 119
Status as Limited Partner or Assignee..................................... 119
Non-citizen Assignees; Redemption......................................... 120
Indemnification........................................................... 120
Books and Reports......................................................... 120
Right to Inspect Partnership Books and Records............................ 121
Registration Rights....................................................... 121
UNITS ELIGIBLE FOR FUTURE SALE............................................. 122
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
TAX CONSIDERATIONS......................................................... 124
Legal Opinions and Advice................................................. 124
Tax Rates................................................................. 124
Partnership Status........................................................ 125
Limited Partner Status.................................................... 126
Tax Consequences of Unit Ownership........................................ 126
Allocation of Partnership Income, Gain, Loss and Deduction................ 129
Tax Treatment of Operations............................................... 129
Disposition of Common Units............................................... 132
Uniformity of Units....................................................... 134
Tax-Exempt Organizations and Certain Other Investors...................... 135
Administrative Matters.................................................... 136
State, Local and Other Tax Considerations................................. 138
INVESTMENT IN THE PARTNERSHIP BY EMPLOYEE BENEFIT PLANS.................... 140
UNDERWRITING............................................................... 141
VALIDITY OF THE COMMON UNITS............................................... 143
EXPERTS.................................................................... 143
AVAILABLE INFORMATION...................................................... 144
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
Appendix A--Form of Amended and Restated Agreement of Limited Partnership.. A-1
Appendix B--Form of Application for Transfer of Common Units............... B-1
Appendix C--Glossary of Certain Terms...................................... C-1
Appendix D--Pro Forma Available Cash from Operating Surplus................ D-1
</TABLE>
(v)
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and historical and pro forma
financial data appearing elsewhere in this Prospectus. Except as the context
otherwise requires, references to and descriptions of the assets, business,
operations and financial results of the Partnership include the All American
crude oil pipeline and other assets which were recently purchased by the
General Partner from The Goodyear Tire & Rubber Company ("Goodyear"), and the
terminalling and storage and gathering and marketing assets, business and
operations formerly owned by certain subsidiaries of Plains Resources. The
transactions related to the formation of the Partnership, this offering and the
other transactions to occur in connection with this offering are referred to in
this Prospectus as the "Transactions." Unless otherwise specified, the
information in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised. A glossary of certain terms used in this Prospectus is
included as Appendix C to this Prospectus. Capitalized terms not otherwise
defined herein have the meanings given in the glossary.
PLAINS ALL AMERICAN PIPELINE, L.P.
THE PARTNERSHIP
Plains All American Pipeline, L.P. (the "Partnership") was recently formed to
acquire and operate the midstream crude oil business and assets of Plains
Resources Inc. ("Plains Resources"). The Partnership is engaged in interstate
and intrastate crude oil pipeline transportation and crude oil terminalling and
storage activities and gathering and marketing activities. The Partnership's
operations are concentrated in California, Texas, Oklahoma, Louisiana and the
Gulf of Mexico.
The Partnership owns and operates a 1,233-mile seasonally heated, 30-inch,
common carrier crude oil pipeline extending from California to West Texas (the
"All American Pipeline") and a 45-mile, 16-inch, crude oil gathering system in
the San Joaquin Valley of California (the "SJV Gathering System"), both of
which it purchased from Goodyear in July 1998 for approximately $400 million.
The All American Pipeline is one of the newest interstate crude oil pipelines
in the United States, having been constructed by Goodyear between 1985 and 1987
at a cost of approximately $1.6 billion, and is the largest capacity crude oil
pipeline connecting California and Texas, with a design capacity of 300,000
barrels per day of heavy crude oil. In West Texas, the All American Pipeline
interconnects with other crude oil pipelines that serve the Gulf Coast and
Cushing, Oklahoma, the largest crude oil trading hub in the United States and
the designated delivery point for New York Mercantile Exchange ("NYMEX") crude
oil futures contracts (the "Cushing Interchange").
Production currently transported on the All American Pipeline originates from
the Santa Ynez field operated by Exxon and the Point Arguello field operated by
Chevron, both offshore California, and from the San Joaquin Valley. Exxon and
Chevron, as well as Texaco and Oryx, which are other working interest owners,
are contractually obligated to ship all of their production from these offshore
fields on the All American Pipeline through August 2007. The SJV Gathering
System is used primarily to transport crude oil from fields in the San Joaquin
Valley to the All American Pipeline and to intrastate pipelines owned by third
parties. The capacity of the SJV Gathering System is approximately 140,000
barrels per day. In addition to transporting third-party volumes for a tariff,
the Partnership is engaged in certain merchant activities designed to capture
price differentials between the cost to purchase and transport crude oil to a
sales point and the price received for such crude oil at the sales point.
At the Cushing Interchange, the Partnership owns and operates a two million
barrel, above-ground crude oil terminalling and storage facility (the "Cushing
Terminal") that has an estimated daily throughput capacity of approximately
800,000 barrels per day. The Cushing Terminal was completed in 1993, making it
the most modern facility in the area, and includes state-of-the-art design
features. The Partnership has initiated an expansion project that will add one
million barrels of storage capacity at an aggregate cost of approximately $10
1
<PAGE>
million. The expansion project is expected to be completed by mid-1999. Upon
completion of the expansion project, management believes the Cushing Terminal
will be the third largest facility at the Cushing Interchange (and the largest
not owned by a major oil company) with an estimated 12% of that area's storage
capacity. The Partnership also owns 586,000 barrels of tank capacity along the
SJV Gathering System, 955,000 barrels of tank capacity along the All American
Pipeline and 360,000 barrels of tank capacity at Ingleside, Texas on the Gulf
Coast (the "Ingleside Terminal").
The Partnership's terminalling and storage operations generate revenue from
the Cushing Terminal through a combination of storage and throughput fees from
(i) refiners and gatherers seeking to segregate or custom blend crude oil for
refining feedstocks, (ii) pipelines, refiners and traders requiring segregated
tankage for foreign crude oil, (iii) traders who make or take delivery under
NYMEX contracts and (iv) producers seeking to increase their marketing
alternatives. The Cushing Terminal and the Partnership's other storage
facilities also facilitate the Partnership's merchant activities by enabling
the Partnership to buy and store crude oil when the price of crude oil in a
given month is less than the price of crude oil in a subsequent month (a
"contango" market) and to simultaneously sell crude oil futures contracts for
delivery of the crude oil in such subsequent month at the higher futures price,
thereby locking in a profit.
The Partnership's gathering and marketing operations include the purchase of
crude oil at the wellhead and the bulk purchase of crude oil at pipeline and
terminal facilities, the transportation of the crude oil on trucks, barges or
pipelines, and the subsequent resale or exchange of the crude oil at various
points along the crude oil distribution chain. The crude oil distribution chain
extends from the wellhead where crude oil moves by truck and gathering systems
to terminal and pipeline injection stations and major pipelines, and is
transported to major crude oil trading locations for ultimate consumption by
refineries. In many cases, the Partnership matches supply and demand needs by
performing a merchant function--generating gathering and marketing margins by
buying crude oil at competitive prices, efficiently transporting or exchanging
the crude oil along the distribution chain and marketing the crude oil to
refineries or other customers. When there is a higher demand than supply of
crude oil in the near term, the price of crude oil in a given month exceeds the
price of crude in a subsequent month (a "backward" market). A backward market
has a positive impact on marketing margins because crude oil gatherers can
continue to purchase crude oil from producers at a fixed premium to posted
prices while selling crude oil at a higher premium to such prices.
For the year ended December 31, 1997, the Partnership's pro forma gross
margin, EBITDA and net loss totaled $84.2 million, $78.2 million and $10.9
million, respectively. Excluding a $64.2 million non-cash impairment charge
incurred by Wingfoot in 1997, the Partnership's pro forma net income for 1997
would have been $53.3 million. For the nine months ended September 30, 1998,
the Partnership's pro forma gross margin, EBITDA and net income totaled $58.6
million, $54.5 million and $35.7 million, respectively. On a pro forma basis,
the All American Pipeline and the SJV Gathering System accounted for
approximately 72% of the Partnership's gross margin for the nine-month period
ended September 30, 1998, while the terminalling and storage activities and
gathering and marketing activities accounted for approximately 28%.
MARKET OVERVIEW
The Department of Energy segregates the United States into five Petroleum
Administration Defense Districts ("PADDs") to facilitate continued crude oil
supply to key refining areas in the event of a national emergency. The oil
industry utilizes these districts in reporting statistics regarding crude oil
supply and demand. The All American Pipeline serves, directly or through
connecting lines, PADD V, which consists of seven western states, including
Alaska and Hawaii, PADD II, which consists of 15 states in the Midwest, and
PADD III, which consists of six states located in the South, principally
bordering the Gulf of Mexico.
Based on 1997 information provided by the Energy Information Administration,
only 17% of the total refinery demand for crude oil in PADD II can be supplied
with crude oil produced in PADD II, with the remainder (approximately 2.8
million barrels per day) provided by intra-U.S. transfers of domestic crude oil
production and imports from Canada and other foreign sources. Conversely, crude
oil production in California,
2
<PAGE>
together with crude oil supplies from Alaska and foreign sources, currently
exceeds demand by California refineries. Furthermore, the Partnership believes
that, based on public announcements by a number of major and independent oil
companies, production levels in California and Alaska may increase over the
next several years as a result of which excess supply would be available for
shipment to PADD II.
BUSINESS STRATEGY AND COMPETITIVE STRENGTHS
The Partnership's strategy is to capitalize on demand driven opportunities in
the Midwest refining markets in PADD II and supply driven opportunities in the
oil producing regions of California by combining the strategic location and
unique capabilities of its asset base with its extensive marketing and
distribution expertise to enhance and optimize its operating margins.
The Partnership intends to execute its business strategy by (i) increasing
throughput on the All American Pipeline through an aggressive lease gathering
program in the San Joaquin Valley and through additional connections with other
California crude pipelines and producers, (ii) realizing cost efficiencies
through operational improvements and potential strategic alliances, (iii)
utilizing the Cushing Terminal in conjunction with the Partnership's other
assets to profit from merchant activities that take advantage of crude oil
pricing and quality differentials and (iv) pursuing strategic and accretive
acquisitions of crude oil pipeline assets, gathering systems and terminalling
and storage facilities which complement the Partnership's existing asset base
and distribution capabilities.
The Partnership believes it is well positioned to capitalize on such
opportunities due to the following competitive strengths:
. Strategically Located, but Underutilized Pipeline Assets. The All
American Pipeline is the largest crude oil pipeline connecting California
to West Texas and, depending on the pipeline segment, is operating at
approximately 20% to 35% of its designed 300,000 barrel per day capacity.
If plans announced by a competing interstate crude oil pipeline to
convert to a gas transmission pipeline are implemented, the All American
Pipeline will be the only crude oil pipeline available to transport crude
oil from California to West Texas. The SJV Gathering System is one of the
largest crude oil gathering systems in the San Joaquin Valley of
California, one of the most prolific crude oil producing regions in the
lower 48 states. The SJV Gathering System is operating at approximately
60% of its total 140,000 barrel per day capacity. Because a major portion
of the All American Pipeline and the SJV Gathering System's operating
costs are fixed, any increased utilization should result in incremental
gross margin. In addition, because the All American Pipeline and the SJV
Gathering System are relatively new, the Partnership expects that the
maintenance capital expenditures required for these assets will be
modest.
. Versatility of Cushing Terminal. Completed in 1993, the Cushing Terminal
is the most modern terminalling and storage facility at the Cushing
Interchange, incorporating state-of-the-art environmental safeguards and
operational enhancements designed to safely and efficiently terminal,
store, blend and segregate large volumes and multiple varieties of both
foreign and domestic crude oil. The Cushing Terminal has the ability to
(i) sequentially store sweet and sour crude oil in the same tank without
compromising crude integrity, (ii) segregate up to 18 different varieties
of crude oil, (iii) receive and deliver crude oil at the connecting
pipelines' maximum operating capacities and (iv) operate with fewer
employees than its competitors due to its high level of automation. Due
to the Partnership's ownership of a significant portion of the
undeveloped land within the Cushing Interchange and its large manifold
and pumping system, the Cushing Terminal can be readily expanded, should
market conditions warrant, to support up to ten million barrels of tank
capacity.
. Specialized Crude Oil Market Knowledge. The marketing of crude oil is
complex and requires detailed current knowledge of crude oil sources and
end markets and a familiarity with a number of factors,
3
<PAGE>
including grades of crude oil, individual refinery demand for specific
grades of crude oil, area market price structures for the different
grades of crude oil, location of customers, availability of
transportation facilities and timing and costs (including storage)
involved in delivering crude oil to the appropriate customer. The
Partnership believes that its business relationships with participants in
all phases of the crude oil distribution chain, from crude oil producers
to refiners, as well as its own industry expertise, provide the
Partnership a comprehensive understanding of the U.S. crude oil markets.
The Partnership has existing business relationships with crude oil
producers representing over 80% of California production and
substantially all of the Midwest refiners. The Partnership believes that
its specialized crude oil market knowledge, in conjunction with its
unique asset base, will enable the Partnership to exploit inefficiencies
throughout the crude oil distribution chain.
. Counter-Cyclical Balance Among the Partnership's Business Activities. The
Partnership believes that the counter-cyclical nature of its terminalling
and storage assets, which typically prosper in contango crude oil
markets, and its gathering and marketing assets, which typically prosper
in backward crude oil markets, combined with the long-term nature of the
contracts on its All American Pipeline, will have a stabilizing effect on
the Partnership's cash flow from operations.
. Flexibility to Pursue Expansion and Acquisition Opportunities. The
Partnership will enter into a $225 million bank credit agreement
comprised of a $175 million term loan facility and a $50 million
revolving credit facility. Upon closing of this offering, the Partnership
will have total debt outstanding of $175 million and unused borrowing
capacity of $50 million. In combination with its ability to issue new
Units, the Partnership has significant resources to finance strategic
expansion and acquisition opportunities. These opportunities may include
the acquisition or expansion of crude oil pipeline assets, gathering
systems, terminalling and storage facilities, marketing entities and
other assets which the Partnership believes will contribute to the
successful execution of its business strategy. The Partnership is
currently adding one million barrels of capacity to the Cushing Terminal
at an estimated cost of approximately $10 million. Although the
Partnership routinely evaluates acquisition and expansion opportunities,
it has no other definitive plans for material acquisitions or expansions
at this time.
. Experienced Management Team. The Partnership's senior management team has
an average of more than 15 years industry experience, with an average of
over 10 years with the Partnership or its predecessors and affiliates. In
order to incentivize management and employees, the Partnership has
adopted a Long-Term Incentive Plan pursuant to which Common Units will be
awarded to employees of the General Partner in order to align their
economic interests with those of Common Unitholders. In addition, the
Partnership's Management Incentive Plan provides for cash bonuses to
operating personnel based on the financial performance of the
Partnership.
PLAINS RESOURCES
Plains Resources owns all of the capital stock of the General Partner. The
Partnership and Plains Resources will enter into an agreement (the "Marketing
Agreement") pursuant to which the Partnership will purchase for resale at
market prices all of Plains Resources' crude oil production for which it will
charge a fee of $0.20 per barrel. This fee may be adjusted every three years
based upon then existing market conditions. Plains Resources is an independent
energy company specializing in crude oil in both its upstream and midstream
segments and is publicly traded on the American Stock Exchange under the
symbol "PLX." For the first nine months of 1998, Plains Resources produced
approximately 24,700 barrels per day which would be subject to the Marketing
Agreement. Over 70% of Plains Resources' proved oil reserves are located in
California where the company is the second largest independent oil producer.
Plains Resources' total year end proved reserves have grown from 13.7 million
barrels of oil equivalent at January 1, 1992 to 161.7 million barrels of oil
equivalent at January 1, 1998.
4
<PAGE>
THE TRANSACTIONS
The net proceeds to the Partnership from the sale of Common Units offered
hereby are expected to be approximately $239.0 million (assuming an initial
public offering price of $20.00 per Common Unit and after deducting
underwriting discounts and commissions but before deducting expenses incurred
in connection with this offering). Concurrently with the closing of this
offering, the Plains Midstream Subsidiaries will be merged into Plains
Resources, which will sell the assets of these subsidiaries to the Partnership
in exchange for $93.7 million and the assumption of related indebtedness. At
the same time, the General Partner will convey all of its interest in the All
American Pipeline and the SJV Gathering System, which it acquired in July 1998
for approximately $400 million, to the Partnership in exchange for:
. 6,817,391 Common Units, 9,800,000 Subordinated Units and a 2% general
partner interest in the
Partnership and the Operating Partnership;
. the right to receive Incentive Distributions; and
. the assumption by the Operating Partnership of $175 million of
indebtedness incurred by the General Partner in connection with the
acquisition of the All American Pipeline and the SJV Gathering System.
The determination of the value of the assets and businesses conveyed to the
Partnership in exchange for cash, Units and the assumption of indebtedness was
determined by negotiations between Plains Resources and the General Partner and
representatives of the Underwriters. The assets and businesses conveyed to the
Partnership by the General Partner and Plains Resources constitute all of the
assets and businesses of the Partnership. Prior to this offering, there has
been no public market for the Common Units of the Partnership. See
"Underwriting" for a discussion of the establishment of the initial public
offering price of the Common Units.
In addition to the $93.7 million to be paid to Plains Resources, the
Partnership will distribute approximately $142.3 million to the General Partner
and will use approximately $3 million of the remaining proceeds to pay expenses
incurred in connection with the Transactions. The General Partner will use $110
million of the cash distributed to it to retire the remaining indebtedness
incurred in connection with the acquisition of the All American Pipeline and
the SJV Gathering System and the balance, $32.3 million, will be distributed or
loaned to Plains Resources, which will use the cash to repay indebtedness and
for other general corporate purposes.
In addition, concurrently with the closing of this offering, the Operating
Partnership will enter into a $225 million bank credit agreement (the "Bank
Credit Agreement") that will include a $175 million term loan facility (the
"Term Loan Facility") and a $50 million revolving credit facility (the
"Revolving Credit Facility"). The Partnership may borrow up to $50 million
under the Revolving Credit Facility for acquisitions, capital improvements,
working capital and general business purposes. At closing, the Operating
Partnership will have $175 million outstanding under the Term Loan Facility,
representing indebtedness assumed from the General Partner.
The Partnership will use the net proceeds from any exercise of the
Underwriters' over-allotment option to redeem Common Units from the General
Partner or its affiliates, on a pro rata basis, equal to the number of Common
Units issued upon the exercise of such option.
5
<PAGE>
The following table sets forth an estimated breakdown of the sources and uses
of funds contemplated by the Transactions:
<TABLE>
<CAPTION>
AMOUNTS
-------------
(IN MILLIONS)
<S> <C>
Sources of Funds
Net proceeds from Common Units offering (1)..................... $239.0
======
Uses of Funds
Purchase of assets from Plains Resources........................ $ 93.7
Payment of expenses of the Transactions......................... 3.0
Distributions to General Partner (2)............................ 142.3
------
Total......................................................... $239.0
======
</TABLE>
- --------
(1) After deducting underwriting discounts and commissions but before deducting
expenses incurred in connection with this offering.
(2) Includes reimbursement of capital expenditures to the General Partner.
The transactions referred to above and the others to occur in connection with
this offering are referred to herein as the "Transactions."
6
<PAGE>
SUMMARY SELECTED PRO FORMA FINANCIAL AND OPERATING DATA
The following unaudited Summary Selected Pro Forma Financial and Operating
Data are derived from the historical financial statements of Wingfoot Ventures
Seven, Inc. ("Wingfoot") (a wholly-owned subsidiary of Goodyear and the former
owner of the All American Pipeline and the SJV Gathering System) and the Plains
Midstream Subsidiaries (which reflect the historical operating results of the
Partnership's terminalling and storage activities and gathering and marketing
activities) as adjusted for the Transactions. Commencing July 30, 1998 (the
date of the acquisition of the All American Pipeline and the SJV Gathering
System from Goodyear), the results of operations of the All American Pipeline
and the SJV Gathering System are included in the results of operations of the
Plains Midstream Subsidiaries. For a discussion of the assumptions used in
preparing the Summary Selected Pro Forma Financial and Operating Data, see
"Plains All American Pipeline, L.P. Pro Forma Consolidated Financial
Statements." The following information should not be deemed indicative of
future operating results for the Partnership.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1997 1997 1998
------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER UNIT
AND BARREL AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................... $1,746,491 $1,284,102 $1,194,648
Cost of sales and operations............... 1,662,282 1,217,572 1,136,062
---------- ---------- ----------
Gross margin............................... 84,209 66,530 58,586
General and administrative expenses........ 6,182 4,628 4,765
Depreciation and amortization.............. 10,516 7,887 8,067
Impairment of pipeline assets(1)........... 64,173 -- --
---------- ---------- ----------
Operating income........................... 3,338 54,015 45,754
Interest expense........................... 14,383 10,681 10,722
Other income .............................. 138 105 652
---------- ---------- ----------
Pro forma net income (loss)(1)............. $ (10,907) $ 43,439 $ 35,684
========== ========== ==========
Pro forma net income (loss) per Unit(1)(2). $ (.36) $ 1.45 $ 1.19
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................ $ 8,000
Total assets............................... 581,568
Total long-term debt....................... 175,000
Partners' capital.......................... 268,514
OTHER DATA:
Gross margins:
Pipeline................................. $ 70,078 $ 56,475 $ 42,236
Terminalling and storage and gathering
and marketing........................... 14,131 10,055 16,350
EBITDA(3).................................. 78,165 62,007 54,473
Maintenance capital expenditures(4)........ 1,433 1,159 1,775
OPERATING DATA:
Volumes (barrels per day):
Pipeline:
Tariff(5)................................ 164,600 173,700 135,700
Margin(6)................................ 30,500 27,700 38,000
---------- ---------- ----------
Total pipeline.......................... 195,100 201,400 173,700
========== ========== ==========
Lease gathering(7)........................ 94,000 91,800 109,500
Bulk purchases(8)......................... 48,500 45,900 93,800
Terminal throughput(9).................... 76,700 77,700 79,000
</TABLE>
7
<PAGE>
- --------
(1) The pro forma financial statements for the year ended December 31, 1997
include a non-cash impairment charge of $64.2 million related to the
writedown of property and equipment by Wingfoot in connection with the
sale of Wingfoot by Goodyear to the General Partner. Based on the
Partnership's purchase price allocation to property and equipment, an
impairment charge would not have been required had the Partnership
actually acquired Wingfoot effective January 1, 1997. Excluding this
impairment charge, the Partnership's pro forma net income for 1997 would
have been $53.3 million. In addition, the pro forma information does not
include approximately $0.9 million of general and administrative expenses
that the General Partner believes will be incurred by the Partnership as a
result of its being a separate public entity.
(2) Net income per Unit is computed by dividing the limited partners' 98%
interest in net income by the number of Common and Subordinated Units
expected to be outstanding at the closing of this offering.
(3) EBITDA means earnings before interest expense, income taxes, depreciation
and amortization. EBITDA provides additional information for evaluating
the Partnership's ability to make the Minimum Quarterly Distribution and
is presented solely as a supplemental measure. EBITDA is not a measurement
presented in accordance with generally accepted accounting principles
("GAAP") and is not intended to be used in lieu of GAAP presentations of
results of operations and cash provided by operating activities. The
Partnership's EBITDA may not be comparable to EBITDA of other entities as
other entities may not calculate EBITDA in the same manner as the
Partnership.
(4) Maintenance capital expenditures are capital expenditures made to replace
partially or fully depreciated assets to maintain the existing operating
capacity of existing assets or extend their useful lives. Capital
expenditures made to expand the Partnership's existing capacity, whether
through construction or acquisition, are not considered maintenance
capital expenditures. Repair and maintenance expenditures associated with
existing assets that do not extend the useful life or expand operating
capacity are charged to expense as incurred.
(5) Represents crude oil deliveries on the All American Pipeline for the
account of third parties.
(6) Represents crude oil deliveries on the All American Pipeline and the SJV
Gathering System for the account of affiliated entities.
(7) Represents barrels of crude oil purchased at the wellhead, including
volumes which would have been purchased under the Marketing Agreement.
(8) Represents barrels of crude oil purchased at collection points, terminals
and pipelines.
(9) Represents total crude oil barrels delivered from the Cushing Terminal and
the Ingleside Terminal.
8
<PAGE>
SUMMARY OF RISK FACTORS
Limited partner interests are inherently different from capital stock of a
corporation, although many of the business risks to which the Partnership will
be subject are similar to those that would be faced by a corporation engaged in
a similar business. Prospective purchasers of the Common Units should consider
the following risk factors in evaluating an investment in the Common Units.
RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP
. The Minimum Quarterly Distribution is not guaranteed. The actual amount
of cash distributions may fluctuate and will depend on the Partnership's
future results of operations. Cash distributions are dependent primarily
on cash flow, including cash flow from reserves and working capital
borrowings, and not solely on profitability, which is affected by non-
cash items. Therefore, cash distributions might be made during periods
when the Partnership records losses and might not be made during periods
when the Partnership records profits. Decisions of the General Partner
with respect to the amount and timing of asset purchases and sales, cash
expenditures, borrowings, issuances of additional Units and the creation,
reduction or increase of reserves will affect the amount of Available
Cash. Because the Partnership's terminalling and storage activities and
gathering and marketing activities are cyclical, it is likely that the
General Partner will make additions to reserves during certain quarters
in order to fund operating expenses, interest and principal payments and
cash distributions to Unitholders in future quarters.
. On a pro forma basis as of September 30, 1998, the Partnership's total
long-term indebtedness would have been $175 million, representing
approximately 39% of the Partnership's total capitalization (defined as
total long-term debt plus total partners' capital). The Partnership's
leverage may adversely affect the ability of the Partnership to finance
its future operations and capital needs, limit its ability to pursue
acquisitions and other business opportunities and make its results of
operations more susceptible to adverse economic or operating conditions.
In addition, the Partnership will have $50 million of unused borrowing
capacity under the Revolving Credit Facility at the closing of this
offering. Future borrowings could result in a significant increase in the
Partnership's leverage.
. The terms of the Partnership's indebtedness will prohibit the Partnership
from making distributions to Unitholders during an event of default and
will contain various limitations on the Partnership's ability to incur
indebtedness and to engage in certain transactions that could reduce the
ability of the Partnership to capitalize on business opportunities that
arise in the course of its business.
. In establishing the terms of this offering, including the number and
initial offering price of the Common Units, the number of Common Units
and Subordinated Units to be received by the General Partner and its
affiliates and the Minimum Quarterly Distribution, the Partnership has
relied on certain assumptions concerning its future operations. Although
the Partnership believes its assumptions are within a range of
reasonableness, whether the assumptions are realized is not, in many
cases, within the control of the Partnership or the General Partner and
cannot be predicted with any degree of certainty. If the Partnership's
assumptions are not realized, the actual Available Cash from Operating
Surplus generated by the Partnership could be substantially less than
that currently expected and may be less in any quarter than that required
to make the Minimum Quarterly Distribution.
. The General Partner will manage and operate the Partnership. Holders of
Common Units will have no right to elect the General Partner on an annual
or other continuing basis, and will have only limited voting rights on
matters affecting the Partnership's business. The General Partner may not
be removed except upon the vote of the holders of at least 66 2/3% of the
outstanding Units (including Units owned by the General Partner and its
affiliates) and upon the election of a successor general partner by the
holders of a Unit Majority. The ownership of an aggregate of 56.5% of the
combined Common Units
9
<PAGE>
and Subordinated Units by the General Partner and its affiliates gives
the General Partner the ability to prevent its removal. As a result,
holders of Common Units will have limited influence on matters affecting
the operations of the Partnership.
. Subject to certain limitations, the Partnership may issue additional
Common Units and other interests in the Partnership, the effect of which
may be to dilute the value of the interests of the then-existing holders
of Common Units in the net assets of the Partnership, dilute the
interests of holders of Common Units in distributions by the Partnership
and reduce the support provided by the subordination feature of the
Subordinated Units.
. The Partnership's Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement") contains certain provisions that may have
the effect of discouraging a person or group from attempting to remove
the General Partner or otherwise change the management of the
Partnership. The effect of these provisions may be to diminish the price
at which the Common Units will trade under certain circumstances.
. Prior to making any distribution on the Common Units, the Partnership
will reimburse the General Partner and its affiliates (including officers
and directors of the General Partner) for all expenses incurred by the
General Partner and its affiliates on behalf of the Partnership
(including wages, salaries, incentive compensation and the cost of
employee benefit plans paid or provided to employees, officers and
directors of the General Partner), which expenses will be determined by
the General Partner in its sole discretion. In addition, the General
Partner and its affiliates may provide services to the Partnership for
which the Partnership will be charged reasonable fees as determined by
the General Partner. The reimbursement of such expenses and the payment
of any such fees could adversely affect the ability of the Partnership to
make distributions.
. Prior to this offering, there has been no public market for the Common
Units. The initial public offering price for the Common Units will be
determined through negotiations between the General Partner and the
representatives of the Underwriters. No assurance can be given as to the
market prices at which the Common Units will trade.
. If at any time not more than 20% of the outstanding Common Units are held
by persons other than the General Partner and its affiliates, the General
Partner will have the right, which it may assign to any of its affiliates
or the Partnership, to acquire all, but not less than all, of the
remaining Common Units held by such unaffiliated persons at a price
generally equal to the then-current market price of Common Units. As a
consequence, a holder of Common Units may be required to sell his Common
Units at a time when he may not desire to sell them or at a price that is
less than the price he would desire to receive upon such sale. A holder
may also incur a tax liability upon such sale.
. Under certain circumstances, holders of the Common Units could lose their
limited liability and could become liable for amounts improperly
distributed to them by the Partnership.
. Holders of the Common Units have not been represented by counsel in
connection with this offering, including the preparation of the
Partnership Agreement or the other agreements referred to herein or in
establishing the terms of this offering.
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
. The profitability of the All American Pipeline is dependent upon an
adequate supply of crude oil from fields located offshore and onshore
California. A significant portion of the Partnership's gross margin is
derived from the Santa Ynez and Point Arguello fields located offshore
California. Volumes received from these two fields have declined from a
daily average of 152,000 barrels in 1995 to 96,000 barrels for the first
nine months of 1998. The Partnership expects that there will continue to
be natural declines in production from each of these fields. In addition,
as a result of the mid-1996 repeal of the export ban
10
<PAGE>
on crude oil produced from the Alaskan North Slope, the volume of Alaskan
North Slope crude oil shipped to California has declined and such crude
oil is no longer transported on the All American Pipeline. The
Partnership believes it is unlikely that there will be future shipments
of Alaskan North Slope crude oil on the All American Pipeline.
. The success of the Partnership's business strategy to increase
utilization on its pipelines is dependent upon the Partnership's
obtaining additional supply from increased production from California
producers, an aggressive lease gathering program in the San Joaquin
Valley and additional connections with other California crude oil
pipelines. There can be no assurance that production of crude oil in
California will rise to sufficient levels, or that the Partnership will
be successful in increasing volumes gathered at the wellhead or the
number of connections with other pipelines, to cause a material increase
in utilization rates on the Partnership's pipelines.
. A portion of the Partnership's operations are dependent upon demand for
crude oil by refiners in the Midwest and on the Gulf Coast and any
decrease in this demand could adversely affect the Partnership.
. The All American Pipeline encounters competition from foreign oil imports
and other pipelines that serve the California market and the refining
centers in the Midwest and on the Gulf Coast. The Partnership also faces
intense competition in its terminalling and storage activities and
gathering and marketing activities.
. The profitability of the Partnership's gathering and marketing activities
depends primarily on the volumes of crude oil it purchases and gathers.
The Partnership must continue to contract for new supplies of crude oil
to offset volumes lost due to declines in production or volumes lost to
competitors.
. Generally, as the Partnership purchases crude oil, it establishes a
margin by selling crude oil for physical delivery to third parties, or by
entering into a future delivery obligation with respect to futures
contracts on the NYMEX. Through these transactions, the Partnership seeks
to maintain a position that is substantially balanced between crude oil
purchases, on the one hand, and sales or future delivery obligations, on
the other hand and not to speculate on price changes. These price risk
management strategies cannot, however, eliminate all price risks. Any
event that disrupts the Partnership's anticipated physical supplies of
crude oil, such as the shut-in of production or other supply
interruptions, may expose it to risk of loss resulting from price
changes.
. The Partnership's operations are subject to federal and state
environmental laws. Compliance with these laws could result in
substantial costs and liabilities to the Partnership. The transportation
and storage of crude oil results in a risk that crude oil and other
hydrocarbons may suddenly or gradually be released into the environment,
potentially causing substantial expenditures for a response action,
significant government penalties, liability for natural resource damages
to government agencies, personal injury or property damages to private
parties and significant business interruption.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
. The General Partner and its affiliates may have conflicts of interest
with the Partnership and its limited partners. The Partnership Agreement
contains certain provisions that limit the liability and reduce the
fiduciary duties of the General Partner to the Unitholders, as well as
provisions that may restrict the remedies available to Unitholders for
actions that might, without such limitations, constitute breaches of
fiduciary duty. Holders of Common Units are deemed to have consented to
certain actions and conflicts of interest that might otherwise be deemed
a breach of fiduciary or other duties under applicable state law.
. Decisions of the General Partner with respect to the amount and timing of
asset purchases and sales, cash expenditures, borrowings, issuances of
additional Units and the creation, reduction or increase of
11
<PAGE>
reserves in any quarter will affect whether, or the extent to which,
there is sufficient Available Cash from the Partnership's Operating
Surplus to meet the Minimum Quarterly Distribution and Target
Distribution Levels on all Units in a given quarter or in subsequent
quarters. In addition, actions by the General Partner may have the effect
of enabling the General Partner to receive distributions on the
Subordinated Units or Incentive Distributions or hastening the expiration
of the Subordination Period or the conversion of Subordinated Units into
Common Units.
. Except for the restrictions set forth in an agreement (the "Omnibus
Agreement") to be entered into at closing between the Partnership and
Plains Resources, Plains Resources and its affiliates (other than the
General Partner) will not be prohibited from engaging in other businesses
or activities, including those that might be in direct competition with
the Partnership. There can be no assurance that there will not be
competition between the Partnership and affiliates of the General
Partner, including Plains Resources.
. Certain of the officers of the General Partner, who will provide services
to the Partnership, will not be required to work full time on the affairs
of the Partnership. Such officers may devote significant time to the
affairs of the General Partner's affiliates and will be compensated by
these affiliates for the services rendered to them. There may be
significant conflicts between the Partnership and affiliates of the
General Partner regarding the availability of such officers of the
General Partner to manage the Partnership.
TAX RISKS
. The availability to a holder of Common Units of the federal income tax
benefits of an investment in the Partnership depends, in large part, on
the classification of the Partnership as a partnership for federal income
tax purposes. Assuming the accuracy of certain factual matters as to
which the General Partner and the Partnership have made representations,
Andrews & Kurth L.L.P., special counsel to the General Partner and the
Partnership, is of the opinion that, under current law, the Partnership
will be classified as a partnership for federal income tax purposes.
. No ruling has been requested from the Internal Revenue Service (the
"IRS") with respect to the classification of the Partnership as a
partnership for federal income tax purposes or any other matter affecting
the Partnership.
. A Unitholder will be required to pay income taxes on his allocable share
of the Partnership's income, whether or not he receives cash
distributions from the Partnership.
. It is anticipated that through December 31, 2003, a Unitholder may
receive substantial distributions that would reduce such holder's tax
basis, with the result that such holder may recognize substantial taxable
gain upon a sale of such holder's Units, even if the sale price is less
than the original cost. Some part of that gain will likely be ordinary
income.
. Investment in Common Units by certain tax-exempt entities, regulated
investment companies and foreign persons raises issues unique to such
persons. For example, virtually all of the taxable income derived by most
organizations exempt from federal income tax (including individual
retirement accounts ("IRAs") and other retirement plans) from the
ownership of a Common Unit will be unrelated business taxable income and
thus will be taxable to such a Unitholder.
. In the case of taxpayers subject to the passive loss rules (generally,
individuals and closely held corporations), any losses generated by the
Partnership will generally only be available to offset future income
generated by the Partnership and cannot be used to offset income from
other activities, including other passive activities or investments.
Passive losses which are not deductible because they exceed the
Unitholder's income generated by the Partnership may be deducted in full
when the Unitholder disposes of his entire investment in the Partnership
in a fully taxable transaction to an unrelated party.
12
<PAGE>
. The General Partner has applied to register the Partnership as a "tax
shelter" with the Secretary of the Treasury. No assurance can be given
that the Partnership will not be audited by the IRS or that tax
adjustments will not be made. Any adjustments in the Partnership's tax
returns will lead to adjustments in the Unitholders' tax returns and may
lead to audits of the Unitholders' tax returns and adjustments of items
unrelated to the Partnership.
. The Partnership will adopt certain depreciation and amortization
conventions that do not conform with all aspects of certain proposed and
final Treasury regulations. A successful challenge to those conventions
by the IRS could adversely affect the amount of tax benefits available to
a purchaser of Common Units or could affect the timing of such tax
benefits or the amount of gain from the sale of Common Units and could
have a negative impact on the value of the Common Units or result in
audit adjustments to the tax returns of Unitholders.
. A Unitholder will likely be required to file state and local income tax
returns and pay state and local income taxes in some or all of the
various jurisdictions in which the Partnership does business or owns
property. The Partnership will initially own property and conduct
business in Arizona, California, Oklahoma, Kansas, New Mexico, Illinois,
Texas, Louisiana, Alabama, Mississippi and Florida. Of those, only Texas
and Florida do not currently impose a personal income tax.
See "Risk Factors," "Cash Distribution Policy," "Cash Available for
Distribution," "Conflicts of Interest and Fiduciary Responsibilities," "The
Partnership Agreement" and "Tax Considerations" for a more detailed description
of these and other risk factors and conflicts of interest that should be
considered in evaluating an investment in the Common Units.
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CASH AVAILABLE FOR DISTRIBUTION
Based on the amount of working capital that the Partnership is expected to
have at the time it commences operations and the ability to make Working
Capital Borrowings under the Revolving Credit Facility, the Partnership
believes that it should have sufficient Available Cash from the Partnership's
Operating Surplus to enable it to distribute the Minimum Quarterly Distribution
on the Common Units and Subordinated Units to be outstanding immediately after
the consummation of this offering with respect to each quarter at least through
the quarter ending December 31, 1999. Operating Surplus generally consists of
cash generated from operations after deducting related expenditures and other
items, plus the Partnership's cash balance at the closing of this offering,
plus $25 million. The Partnership's belief is based on a number of assumptions,
including the assumptions that:
. the average daily volume of crude oil transported on the All American
Pipeline and SJV Gathering System will not be less than the average daily
volume transported during the nine months ended September 30, 1998;
. the tariffs charged by the Partnership will not decline from current
levels;
. the gross margins from the Partnership's terminalling and storage
activities and gathering and marketing activities in the aggregate will
continue at not less than the same levels experienced during the nine
months ended September 30, 1998 on an annualized basis;
. any loss of gross margin from a reduction in storage activities due to a
change in the market from contango to backward will be offset by an
increase in marketing margins;
. no material accidents or other events will occur that disrupt the All
American Pipeline, the SJV Gathering System, the Partnership's
terminalling or storage facilities, or pipelines with which they have
significant interconnections; and
. market, regulatory and overall economic conditions will not change
substantially.
Although the Partnership believes such assumptions are within a range of
reasonableness, whether the assumptions are realized is not, in a number of
cases, within the control of the Partnership and cannot be predicted with any
degree of certainty. In the event that the Partnership's assumptions are not
realized, the actual Available Cash from the Partnership's Operating Surplus
generated by the Partnership could be substantially less than that currently
expected and could, therefore, be insufficient to permit the Partnership to
make cash distributions at the levels described above. See "Risk Factors--Risks
Inherent in an Investment in the Partnership--Partnership Assumptions
Concerning Future Operations May Not Be Realized." In addition, the terms of
the Partnership's indebtedness will restrict the ability of the Partnership to
distribute cash to Unitholders in the event of a default under the terms of
such indebtedness. Accordingly, no assurance can be given that distributions of
the Minimum Quarterly Distribution or any other amounts will be made. See "Cash
Distribution Policy," "Cash Available for Distribution" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
Partnership does not intend to update the expression of belief set forth above.
The amount of Available Cash from the Partnership's Operating Surplus needed
to distribute the Minimum Quarterly Distribution for four quarters on the
Common Units and Subordinated Units to be outstanding immediately after this
offering and on the combined 2% general partner interest is approximately $54.0
million ($35.3 million for the Common Units, $17.6 million for the Subordinated
Units and $1.1 million for the combined 2% general partner interest). The
amount of pro forma Available Cash from the Partnership's Operating Surplus
generated during 1997 and for the twelve months ended September 30, 1998 was
approximately $62.3 million and $54.2 million, respectively. Such amounts would
have been sufficient to cover the Minimum Quarterly Distribution during such
periods on all of the Common Units, Subordinated Units and the related
distribution on the general partner interest. However, such amounts do not
include approximately $0.9 million of incremental general and administrative
expenses that the General Partner believes will be incurred by
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the Partnership as a result of it being a separate public entity. The amounts
of pro forma Available Cash from the Partnership's Operating Surplus set forth
above were derived from the pro forma and historical financial statements of
the Partnership in the manner set forth in Appendix D. The pro forma
adjustments are based upon currently available information and certain
estimates and assumptions. The pro forma financial statements do not purport to
present the results of operations of the Partnership had the Transactions
actually been completed as of the dates indicated. Furthermore, Available Cash
from the Partnership's Operating Surplus as defined in the Partnership
Agreement is a cash accounting concept, while the Partnership's historical and
pro forma financial statements have been prepared on an accrual basis. As a
consequence, the amount of pro forma Available Cash from the Partnership's
Operating Surplus shown above should only be viewed as a general indication of
the amount of Available Cash from the Partnership's Operating Surplus that
might in fact have been generated by the Partnership had it been formed in
earlier periods. For definitions of Available Cash and Operating Surplus, see
the Glossary.
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PARTNERSHIP STRUCTURE AND MANAGEMENT
The operations of the Partnership will be conducted through, and the
operating assets will be owned by, the Operating Partnership. Upon consummation
of the Transactions, the Partnership will own a 98.9899% limited partner
interest in the Operating Partnership and the General Partner will own a 1%
general partner interest in the Partnership and a 1.0111% general partner
interest in the Operating Partnership. The General Partner, therefore, will own
an aggregate 2% general partner interest in the Partnership and the Operating
Partnership on a combined basis.
Following this offering, the senior executives who currently manage the
Partnership's business will manage and operate the Partnership's business as
the senior executives of the General Partner. The General Partner will not
receive any management fee or other compensation in connection with its
management of the Partnership, but will be reimbursed for all direct and
indirect expenses incurred on behalf of the Partnership (including wages,
salaries, incentive compensation and the cost of employee benefit plans paid or
provided to employees, officers and directors of the General Partner) and all
other necessary or appropriate expenses allocable to the Partnership or
otherwise reasonably incurred by the General Partner and its affiliates in
connection with the operation of the Partnership's business.
Conflicts of interest may arise between the General Partner and its
affiliates, on the one hand, and the Partnership, the Operating Partnership and
the Unitholders, on the other, including conflicts relating to the compensation
of the directors, officers and employees of the General Partner and the
determination of fees and expenses that are allocable to the Partnership. The
General Partner will have a conflicts committee (the "Conflicts Committee"),
consisting of two independent members of its Board of Directors, that will be
available at the General Partner's discretion to review matters involving
conflicts of interest. See "Management" and "Conflicts of Interest and
Fiduciary Responsibilities."
The Partnership's principal executive offices are located at 500 Dallas,
Suite 700, Houston, Texas 77002 and its phone number is (713) 654-1414.
The following charts depict the organization and ownership of the Partnership
and the Operating Partnership after giving effect to the consummation of the
Transactions, including the sale of the Common Units offered hereby, and
assuming that the Underwriters' over-allotment option is not exercised. The
percentages reflected in the organization chart represent the approximate
ownership interest in each of the Partnership and the Operating Partnership
individually and not on an aggregate basis. Except for the organization chart,
the ownership percentages referred to in this Prospectus reflect the
approximate effective ownership interest of the Unitholders in the Partnership
and the Operating Partnership on a combined basis. The 2% ownership of the
General Partner referred to in this Prospectus reflects the approximate
effective ownership interest of the General Partner in the Partnership and the
Operating Partnership on a combined basis.
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[CHART APPEARS HERE]
17
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THE OFFERING
Securities Offered.......... 12,782,609 Common Units (14,700,000 Common Units
if the Underwriters' over-allotment option is
exercised in full).
Units to be Outstanding
After This Offering........ 19,600,000 Common Units and 9,800,000
Subordinated Units, representing an aggregate
65.3% and 32.7% limited partner interest in the
Partnership, respectively. If the Underwriters'
over-allotment option is exercised in full,
1,917,391 additional Common Units will be issued
by the Partnership. The net proceeds from any
exercise of the Underwriters' over-allotment
option will be used to redeem Common Units from
the General Partner or its affiliates.
Distributions of Available
Cash....................... Available Cash will generally be distributed 98%
to Unitholders and 2% to the General Partner
within 45 days after the end of each quarter. If
distributions of Available Cash from the
Partnership's Operating Surplus exceed the
Minimum Quarterly Distribution and certain other
specified target levels ("Target Distribution
Levels"), the General Partner will receive a
percentage of such excess distributions that will
increase to up to 50% of the excess distributions
above the highest Target Distribution Level. See
"Cash Distribution Policy--Incentive
Distributions--Hypothetical Annualized Yield."
Subordinated Units..... The Subordinated Units that will be issued to the
General Partner are entitled to receive the
Minimum Quarterly Distribution only after the
Common Units have received the Minimum Quarterly
Distribution plus any arrearages thereon. The
Subordinated Units are not entitled to
arrearages. Upon expiration of the Subordination
Period, which will generally not occur prior to
December 31, 2003, the Subordinated Units will
convert into Common Units on a one-for-one basis
and will thereafter participate pro rata with the
other Common Units in distributions of Available
Cash. The Subordinated Units are also
subordinated to the Common Units upon liquidation
and have fewer voting rights than the Common
Units.
Distributions to Common and
Subordinated Unitholders... The Partnership intends, to the extent there is
sufficient Available Cash from the Partnership's
Operating Surplus, to distribute to each holder
of Common Units at least the Minimum Quarterly
Distribution of $0.45 per Common Unit per
quarter. The Minimum Quarterly Distribution is
not guaranteed and is subject to adjustment as
described under "Cash Distribution Policy--
Adjustment of Minimum Quarterly Distribution and
Target Distribution Levels."
The first distribution to the Unitholders will be
made within 45 days after the quarter ending
December 31, 1998. The Minimum Quarterly
Distribution for the period from the closing of
this offering through December 31, 1998 will be
adjusted downward based on the actual length of
such period.
With respect to each quarter during the
Subordination Period, which will generally not
end prior to December 31, 2003, the Common
Unitholders will generally have the right to
receive the Minimum
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Quarterly Distribution, plus any arrearages
thereon ("Common Unit Arrearages"), and the
General Partner will have the right to receive
the related distribution on its general partner
interest, before any distribution of Available
Cash from the Partnership's Operating Surplus is
made to the Subordinated Unitholders. This
subordination feature will enhance the
Partnership's ability to distribute the Minimum
Quarterly Distribution on the Common Units during
the Subordination Period. Subordinated Units will
not accrue distribution arrearages. Upon
expiration of the Subordination Period, Common
Units will no longer accrue distribution
arrearages. See "Cash Distribution Policy."
Subordination Period........ The Subordination Period will generally extend
from the closing of this offering until the first
day of any quarter beginning after December 31,
2003 provided that certain financial tests have
been satisfied. Generally, these tests will have
been satisfied when the Partnership has paid from
Operating Surplus, and generated from Adjusted
Operating Surplus, the Minimum Quarterly
Distribution on all Units and the general partner
interest for the three preceding four-quarter
periods. Upon expiration of the Subordination
Period, all remaining Subordinated Units will
convert into Common Units on a one-for-one basis
and will thereafter participate pro rata with the
other Common Units in distributions of Available
Cash. See "Cash Distribution Policy--
Distributions from Operating Surplus during
Subordination Period."
Early Conversion of
Subordinated Units......... If the tests for conversion set forth above have
been met for any quarter ending on or after
December 31, 2001, 25% of the Subordinated Units
will convert into Common Units. If such tests
have been met for any quarter ending on or after
December 31, 2002, an additional 25% of the
Subordinated Units will convert into Common
Units.
The early conversion of the second 25% of
Subordinated Units may not occur until at least
one year following the early conversion of the
first 25% of Subordinated Units. See "Cash
Distribution Policy--Distributions from Operating
Surplus during Subordination Period."
Incentive Distributions..... If quarterly distributions of Available Cash
exceed the Minimum Quarterly Distribution or the
Target Distribution Levels, the General Partner
will receive distributions which are generally
equal to 15%, then 25% and then 50% of the
distributions of Available Cash that exceed the
Minimum Quarterly Distribution or such Target
Distribution Levels. The Target Distribution
Levels are based on the amounts of Available Cash
from the Partnership's Operating Surplus
distributed with respect to a given quarter that
exceed distributions made with respect to the
Minimum Quarterly Distribution and Common Unit
Arrearages, if any. See "Cash Distribution
Policy--Incentive Distributions--Hypothetical
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Annualized Yield." The distributions to the
General Partner described above that are in
excess of its combined 2% interest are referred
to herein as the "Incentive Distributions."
Adjustment of Minimum
Quarterly Distribution and
Target Distribution
Levels..................... The Minimum Quarterly Distribution and the Target
Distribution Levels are subject to downward
adjustments in the event that the Unitholders
receive distributions of Available Cash from the
Partnership's Capital Surplus (generally, cash
generated by certain borrowings or sales of
assets) or legislation is enacted or existing law
is modified or interpreted by the relevant
governmental authority in a manner that causes
the Partnership to be treated as an association
taxable as a corporation or otherwise taxable as
an entity for federal, state or local income tax
purposes. If, as a result of distributions of
Available Cash from the Partnership's Capital
Surplus, the Unitholders receive a full return of
the initial public offering price of the Common
Units and any unpaid Common Unit Arrearages, the
distributions of Available Cash payable to the
General Partner will increase to 50% of all
amounts distributed thereafter. See "Cash
Distribution Policy--General," "--Distributions
from Capital Surplus" and "--Adjustment of
Minimum Quarterly Distribution and Target
Distribution Levels."
Partnership's Ability to
Issue Additional Units..... The Partnership Agreement generally authorizes
the Partnership to issue an unlimited number of
additional limited partner interests of the
Partnership for such consideration and on such
terms and conditions as shall be established by
the General Partner in its sole discretion
without the approval of the Unitholders. During
the Subordination Period, however, the
Partnership may not issue equity securities
ranking prior or senior to the Common Units or an
aggregate of more than 9,800,000 Common Units
(which number excludes Common Units issued upon
exercise of the over-allotment option, conversion
of Subordinated Units, pursuant to employee
benefit plans, to repay certain indebtedness, or
in connection with the making of certain
acquisitions or capital improvements that are
accretive on a per Unit basis) or an equivalent
number of securities ranking on a parity with the
Common Units, without the approval of the holders
of a Unit Majority. A Unit Majority means, during
the Subordination Period, at least a majority of
the outstanding Common Units (excluding Common
Units held by the General Partner and its
affiliates), voting as a class, and at least a
majority of the outstanding Subordinated Units,
voting as a class, and, after the Subordination
Period, at least a majority of the outstanding
Common Units. See "The Partnership Agreement--
Issuance of Additional Securities."
Limited Call Right.......... If at any time not more than 20% of the
outstanding Common Units are held by persons
other than the General Partner and its
affiliates, the General Partner may purchase all
of the remaining Common
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Units at a price generally equal to the then
current market price of the Common Units. See
"The Partnership Agreement--Limited Call Right."
Limited Voting Rights....... Unitholders will not have voting rights except
with respect to the following matters, for which
the Partnership Agreement in most cases requires
the approval of a Unit Majority: (i) a sale or
exchange of all or substantially all of the
Partnership's assets, (ii) the removal or the
withdrawal of the General Partner, (iii) the
election of a successor General Partner, (iv) a
dissolution or reconstitution of the Partnership,
(v) a merger of the Partnership, (vi) issuance of
limited partner interests in certain
circumstances, (vii) approval of certain actions
of the General Partner (including the transfer by
the General Partner of its general partner
interest or Incentive Distribution Rights under
certain circumstances) and (viii) certain
amendments to the Partnership Agreement,
including any amendment that would cause the
Partnership to be treated as an association
taxable as a corporation. Holders of Subordinated
Units will generally vote as a class separate
from the holders of Common Units. Under the
Partnership Agreement, the General Partner
generally will be permitted to effect amendments
to the Partnership Agreement that do not
materially adversely affect Unitholders. See "The
Partnership Agreement."
Loss of Voting Rights in
Certain Circumstances...... Any person or group (other than the General
Partner and its affiliates or a direct transferee
of the General Partner or its affiliates) that
acquires beneficial ownership of 20% or more of
the Common Units will lose its voting rights with
respect to all of its Common Units. See "The
Partnership Agreement--Change of Management
Provisions."
Removal and Withdrawal of
the General Partner........ Subject to certain conditions, the General
Partner may be removed upon the approval of the
holders of at least 66 2/3% of the outstanding
Units (including Units held by the General
Partner and its affiliates) and the election of a
successor general partner by the vote of the
holders of a Unit Majority. A meeting of holders
of the Common Units may be called only by the
General Partner or by the holders of 20% or more
of the outstanding Common Units. The ownership of
an aggregate of 56.5% of the combined Common
Units and the Subordinated Units by the General
Partner and its affiliates gives the General
Partner the ability to prevent its removal. The
General Partner has agreed not to voluntarily
withdraw as general partner of the Partnership
and the Operating Partnership prior to December
31, 2008, subject to limited exceptions, without
obtaining the approval of at least a majority of
the outstanding Common Units (excluding Common
Units held by the General Partner and its
affiliates) and furnishing an Opinion of Counsel
(as defined in the Glossary). See "The
Partnership Agreement--Withdrawal or Removal of
the General Partner" and "--Meetings; Voting."
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Consequences of Removal of
General Partner in Certain
Circumstances.............. If the General Partner is removed other than for
Cause, (i) the Subordination Period will end and
all outstanding Subordinated Units will
immediately convert into Common Units on a one-
for-one basis, (ii) any existing Common Unit
Arrearages will be extinguished and (iii) the
General Partner will have the right to convert
its general partner interest (and its right to
receive Incentive Distributions) into Common
Units or to receive cash in exchange for such
interests. See "The Partnership Agreement--Change
of Management Provisions."
Distributions Upon
Liquidation................ If the Partnership liquidates during the
Subordination Period, under certain circumstances
holders of outstanding Common Units will be
entitled to receive more per Unit in liquidating
distributions than holders of outstanding
Subordinated Units. The per Unit difference will
be dependent upon the amount of gain or loss
recognized by the Partnership in liquidating its
assets and will be limited to the Unrecovered
Capital of a Common Unit and any Common Unit
Arrearages thereon. Under certain circumstances
there may be insufficient gain for the holders of
Common Units to fully recover all such amounts,
even though there may be cash available for
distribution to holders of Subordinated Units.
Following conversion of the Subordinated Units
into Common Units, all Units will be treated the
same upon liquidation of the Partnership. See
"Cash Distribution Policy--Distributions of Cash
Upon Liquidation."
Use of Proceeds............. The net proceeds to the Partnership from the sale
of Common Units offered hereby will be
approximately $239.0 million, after deducting
underwriting discounts and commissions but before
deducting expenses incurred in connection with
this offering. The net proceeds of this offering
will be applied to (i) purchase certain of the
Plains Midstream Subsidiaries' assets from Plains
Resources for approximately $93.7 million, (ii)
pay approximately $3.0 million of expenses of the
Transactions and (iii) make a distribution of
approximately $142.3 million to the General
Partner. The Partnership will use the net
proceeds from any exercise of the Underwriters'
over-allotment option to redeem Common Units from
the General Partner. See "Use of Proceeds."
Listing..................... The Common Units have been approved for listing
on the New York Stock Exchange (the "NYSE"),
subject to official notice of issuance.
NYSE Symbol............ "PAA."
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SUMMARY OF TAX CONSIDERATIONS
The tax consequences of an investment in the Partnership to a particular
investor will depend in part on the investor's own tax circumstances. Each
prospective investor should consult his own tax advisor about the U.S. federal,
state and local tax consequences of an investment in Common Units.
The following is a brief summary of material tax consequences of owning and
disposing of Common Units. The following discussion, insofar as it relates to
U.S. federal income tax laws, is based upon the opinion of Andrews & Kurth
L.L.P., special counsel to the General Partner and the Partnership ("Counsel"),
described in "Tax Considerations." This summary is qualified by the discussion
in "Tax Considerations," particularly the qualifications on the opinions of
Counsel described therein.
PARTNERSHIP STATUS; CASH DISTRIBUTIONS
In the opinion of Counsel, the Partnership will be classified for federal
income tax purposes as a partnership, and the beneficial owners of Common Units
will generally be considered partners in the Partnership. Accordingly, the
Partnership will pay no federal income taxes, and a Common Unitholder will be
required to report on his federal income tax return his share of the
Partnership's income, gains, losses and deductions. In general, cash
distributions to a Common Unitholder will be taxable only if, and to the extent
that, they exceed the tax basis in his Common Units.
PARTNERSHIP ALLOCATIONS
In general, income and loss of the Partnership will be allocated to the
General Partner and the Unitholders for each taxable year in accordance with
their respective percentage interests in the Partnership, as determined
annually and prorated on a monthly basis and subsequently apportioned among the
General Partner and the Unitholders of record as of the opening of the first
business day of the month to which they relate, even though Unitholders may
dispose of their Units during the month in question. At any time and to the
extent that distributions are made on the Common Units and not on the
Subordinated Units, or that Incentive Distributions are made to the General
Partner, gross income will be allocated to the recipients to the extent of such
distributions. A Unitholder will be required to take into account, in
determining his federal income tax liability, his share of income generated by
the Partnership for each taxable year of the Partnership ending within or with
the Unitholder's taxable year even if cash distributions are not made to him.
As a consequence, a Unitholder's share of taxable income of the Partnership
(and possibly the income tax payable by him with respect to such income) may
exceed the cash actually distributed to him.
RATIO OF TAXABLE INCOME TO DISTRIBUTIONS
The Partnership estimates that a purchaser of Common Units in this offering
who owns them through December 31, 2003, will be allocated, on a cumulative
basis, an amount of federal taxable income for such period that will be
approximately 30% of the cash distributed with respect to that period. The
Partnership further estimates that for taxable years after the taxable year
ending December 31, 2003, the taxable income allocable to them may represent a
significantly higher percentage (and could under certain circumstances exceed
the amount) of cash distributed to the Unitholders. These estimates are based
upon the assumption that the gross income from operations will approximate the
amount required to make the Minimum Quarterly Distribution with respect to all
Units and other assumptions with respect to capital expenditures, cash flow and
anticipated cash distributions. These estimates and assumptions are subject to,
among other things, numerous business, economic, regulatory, competitive and
political uncertainties which are beyond the control of the Partnership.
Further, the estimates are based on current tax law and certain tax reporting
positions that the Partnership intends to adopt and with which the IRS could
disagree. Accordingly, no assurance can be given that the estimates will prove
to be correct. The actual percentages could be higher or lower than as
described above and any differences could be material. See "Tax
Considerations--Tax Consequences of Unit Ownership--Ratio of Taxable Income to
Distributions," and "--Tax Treatment of Operations."
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BASIS OF COMMON UNITS
A Unitholder's initial tax basis for a Common Unit purchased in this offering
will generally be the amount paid for the Common Unit. A Unitholder's basis
will generally be increased by his share of Partnership income and decreased by
his share of Partnership losses and distributions.
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES
In the case of taxpayers subject to the passive loss rules (generally,
individuals and closely held corporations), any Partnership losses will only be
available to offset future income generated by the Partnership and cannot be
used to offset income from other activities, including passive activities or
investments. Any losses unused by virtue of the passive loss rules may be fully
deducted when the Unitholder disposes of all of his Common Units in a taxable
transaction with an unrelated party.
SECTION 754 ELECTION
The Partnership intends to make the election provided for by Section 754 of
the Internal Revenue Code of 1986 (the "Code"), which will generally result in
a Unitholder being allocated income and deductions calculated by reference to
the portion of his purchase price attributable to each asset of the
Partnership.
DISPOSITION OF COMMON UNITS
A Unitholder who sells Common Units will recognize gain or loss equal to the
difference between the amount realized and the adjusted tax basis of those
Common Units. Thus, distributions of cash from the Partnership to a Unitholder
in excess of the income allocated to him will, in effect, become taxable income
if he sells the Common Units at a price greater than his adjusted tax basis
even if the price is less than his original cost. A portion of the amount
realized (whether or not representing gain) may be ordinary income.
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
In addition to federal income taxes, Unitholders will likely be subject to
other taxes, such as state and local income taxes, unincorporated business
taxes, and estate, inheritance or intangible taxes that are imposed by the
various jurisdictions in which a Unitholder resides or in which the Partnership
does business or owns property. Although an analysis of those various taxes is
not presented here, each prospective Unitholder should consider their potential
impact on his investment in the Partnership. The Partnership will initially own
property and conduct business in Arizona, California, Oklahoma, Kansas, New
Mexico, Illinois, Texas, Louisiana, Alabama, Mississippi and Florida. Of those,
only Texas and Florida do not currently impose a personal income tax. In
certain states, tax losses may not produce a tax benefit in the year incurred
(if, for example, the Partnership has no income from sources within that state)
and also may not be available to offset income in subsequent taxable years.
Some states may require the Partnership, or the Partnership may elect, to
withhold a percentage of income from amounts to be distributed to a Unitholder.
Withholding, the amount of which may be more or less than a particular
Unitholder's income tax liability owed to the state, may not relieve the
nonresident Unitholder from the obligation to file an income tax return.
Amounts withheld may be treated as if distributed to Unitholders for purposes
of determining the amounts distributed by the Partnership. Based on current law
and its estimate of future Partnership operations, the Partnership anticipates
that any amounts required to be withheld will not be material.
It is the responsibility of each prospective Unitholder to investigate the
legal and tax consequences, under the laws of pertinent states and localities,
of his investment in the Partnership. Accordingly, each prospective Unitholder
should consult, and must depend upon, his own tax counsel or other advisor with
regard to those matters. Further, it is the responsibility of each Unitholder
to file all U.S. federal, state and local tax returns that may be required of
such Unitholder. Counsel has not rendered an opinion on the state or local tax
consequences of an investment in the Partnership.
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OWNERSHIP OF COMMON UNITS BY TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER
INVESTORS
An investment in Common Units by tax-exempt organizations (including IRAs and
other retirement plans), regulated investment companies (mutual funds) and
foreign persons raises issues unique to such persons. Virtually all of the
Partnership income allocated to a Unitholder which is a tax-exempt organization
will be unrelated business taxable income and, thus will be taxable to such
Unitholder. Furthermore, no significant amount of the Partnership's gross
income will be qualifying income for purposes of determining whether a
Unitholder will qualify as a regulated investment company, and a Unitholder who
is a nonresident alien, foreign corporation or other foreign person will be
regarded as being engaged in a trade or business in the U.S. as a result of
ownership of a Common Unit and, thus, will be required to file federal income
tax returns and to pay tax on such Unitholder's share of Partnership taxable
income. Furthermore, distributions to foreign Unitholders will be subject to
federal income tax withholding. See "Tax Considerations--Tax-Exempt
Organizations and Certain Other Investors."
TAX SHELTER REGISTRATION
The Code generally requires that "tax shelters" be registered with the
Secretary of the Treasury. It is arguable that the Partnership is not subject
to this registration requirement. Nevertheless, the Partnership will be
registered as a tax shelter with the Secretary of the Treasury. ISSUANCE OF THE
REGISTRATION NUMBER DOES NOT INDICATE THAT AN INVESTMENT IN THE PARTNERSHIP OR
THE CLAIMED TAX BENEFITS HAS BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS.
See "Tax Considerations--Administrative Matters--Registration as a Tax
Shelter."
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FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements and information that are
based on the beliefs of the Partnership and the General Partner, as well as
assumptions made by, and information currently available to, the Partnership
and the General Partner. All statements, other than statements of historical
fact, included in this Prospectus are forward-looking statements, including,
but not limited to, statements identified by the words "anticipate,"
"believe," "estimate," "expect," "plan," "intend" and "forecast" and similar
expressions and statements regarding the Partnership's business strategy,
plans and objectives of management of the Partnership for future operations.
Such statements reflect the current views of the Partnership and the General
Partner with respect to future events, based on what they believe are
reasonable assumptions. These statements, however, are subject to certain
risks, uncertainties and assumptions, including, but not limited to, the risk
factors described in this Prospectus. If one or more of these risks or
uncertainties materialize, or if underlying assumptions prove incorrect,
actual results may vary materially from those in the forward-looking
statements. The Partnership does not intend to update these forward-looking
statements and information.
RISK FACTORS
Limited partner interests are inherently different from capital stock of a
corporation, although many of the business risks to which the Partnership will
be subject are similar to those that would be faced by a corporation engaged
in a similar business. Prospective purchasers of the Common Units should
consider the following risk factors in evaluating an investment in the Common
Units.
RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP
Cash Distributions Are Not Guaranteed and May Fluctuate with Partnership
Performance
Although the Partnership will distribute all of its Available Cash, there
can be no assurance regarding the amounts of Available Cash to be generated by
the Partnership and the Partnership cannot guarantee that the Minimum
Quarterly Distribution will be paid. The actual amounts of cash distributions
may fluctuate and will depend upon numerous factors, including cash flow
generated by operations, required principal and interest payments on the
Partnership's debt, the costs of acquisitions (including related debt service
payments), restrictions contained in the Partnership's debt instruments,
issuances of debt and equity securities by the Partnership, fluctuations in
working capital, capital expenditures, adjustments in reserves, prevailing
economic conditions and financial, business and other factors, a number of
which will be beyond the control of the Partnership and the General Partner.
Cash distributions are dependent primarily on cash flow, including cash flow
from reserves and working capital borrowings, and not solely on profitability,
which is affected by non-cash items. Therefore, cash distributions might be
made during periods when the Partnership records losses and might not be made
during periods when the Partnership records profits.
The amount of Available Cash from Operating Surplus required to distribute
the Minimum Quarterly Distribution for four quarters on the Common Units and
Subordinated Units to be outstanding immediately after this offering and on
the combined 2% general partner interest is approximately $54.0 million ($35.3
million for the Common Units, $17.6 million for the Subordinated Units and
$1.1 million for the combined 2% general partner interest). The amount of pro
forma Available Cash from Operating Surplus generated during fiscal 1997 and
for the twelve month period ended September 30, 1998 was approximately $62.3
million and $54.2 million, respectively. Such amounts would have been
sufficient to cover the Minimum Quarterly Distribution for such periods on all
of the Common Units and Subordinated Units and the related distribution on the
general partner interest. However, such amounts do not include approximately
$0.9 million of incremental general and administrative expenses that the
General Partner believes will be incurred by the Partnership as a result of it
being a separate public entity. For the calculation of pro forma Available
Cash from Operating Surplus, see "Cash Available for Distribution" and
Appendix D.
The Partnership Agreement gives the General Partner broad discretion in
establishing reserves for the proper conduct of the Partnership's business
that will affect the amount of Available Cash. Because the Partnership's
terminalling and storage activities and gathering and marketing activities are
cyclical, it is likely that the General
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Partner will make additions to reserves during certain quarters in order to
fund operating expenses, interest and principal payments and cash
distributions to Unitholders in future quarters. The effect of the
establishment of such operating reserves is to increase the likelihood that
the Minimum Quarterly Distribution will be paid in any given quarter but to
decrease the likelihood that any amount in excess of the Minimum Quarterly
Distribution will be paid in such quarter. As a result of these and other
factors, there can be no assurance regarding the actual levels of cash
distributions to Unitholders by the Partnership.
The Partnership's Indebtedness May Limit the Partnership's Ability to Make
Distributions and May Affect its Operations
On a pro forma basis at September 30, 1998, the Partnership's total long-
term indebtedness would have been $175 million, representing approximately 39%
of the Partnership's total capitalization (defined as total long-term debt
plus total partners' capital). The Partnership's leverage may (i) adversely
affect the ability of the Partnership to finance its future operations and
capital needs, (ii) limit its ability to pursue acquisitions and other
business opportunities and (iii) make its results of operations more
susceptible to adverse economic or operating conditions. Furthermore, the
payment of principal and interest on the Partnership's indebtedness will
reduce the cash available for distribution on the Units. In addition, the
Partnership will have $50 million of unused borrowing capacity under the
Revolving Credit Facility at the closing of this Offering. Future borrowings,
whether under the Bank Credit Agreement or otherwise, could result in a
significant increase in the Partnership's leverage.
In addition, the Partnership will be prohibited from making cash
distributions during an event of default under the Bank Credit Agreement.
Furthermore, various limitations in the Bank Credit Agreement on the
Partnership's ability to incur indebtedness and to engage in certain
transactions could reduce the ability of the Partnership to capitalize on
business opportunities that arise in the course of its business. Any
subsequent refinancing of the Bank Credit Agreement or any new indebtedness
could have similar or greater restrictions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--The Partnership--
Capital Resources, Liquidity and Financial Condition."
Partnership Assumptions Concerning Future Operations May Not Be Realized
In establishing the terms of this offering, including the number and initial
offering price of the Common Units, the number of Common Units and
Subordinated Units to be received by the General Partner and its affiliates
and the Minimum Quarterly Distribution, the Partnership has relied on certain
assumptions concerning its future operations, including the assumptions that:
. the average daily volume of crude oil transported on the All American
Pipeline and the SJV Gathering System will not be less than the average
daily volume transported during the nine months ended September 30, 1998;
. the tariffs charged by the Partnership will not decline from current
levels;
. the gross margins from the Partnership's terminalling and storage
activities and gathering and marketing activities in the aggregate will
continue at not less than the same levels experienced during the nine
months ended September 30, 1998 on an annualized basis;
. any loss of gross margin from a reduction in storage activities due to a
change in the market from contango to backward will be offset by an
increase in marketing margins;
. no material accidents or other events will occur that disrupt the All
American Pipeline, the SJV Gathering System, the Partnership's
terminalling or storage facilities, or pipelines with which they have
significant interconnections; and
. market, regulatory and overall economic conditions will not change
substantially.
Although the Partnership believes its assumptions are within a range of
reasonableness, whether the assumptions are realized is not, in many cases,
within the control of the Partnership or the General Partner and cannot be
predicted with any degree of certainty. In the event that the Partnership's
assumptions are not realized,
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the actual Available Cash from Operating Surplus generated by the Partnership
could be substantially less than that currently expected and may be less in
any quarter than that required to make the Minimum Quarterly Distribution. See
"Cash Available for Distribution."
Unitholders Will Have Limited Voting Rights
The General Partner will manage and operate the Partnership. Unlike the
holders of common stock in a corporation, holders of Common Units will have
only limited voting rights on matters affecting the Partnership's business.
Holders of Common Units will have no right to elect the General Partner on an
annual or other continuing basis, and the General Partner may not be removed
except pursuant to the vote of the holders of at least 66 2/3% of the
outstanding Units (including Units owned by the General Partner and its
affiliates) and upon the election of a successor general partner by the vote
of the holders of a Unit Majority. The ownership of an aggregate of 56.5% of
the combined Common Units and Subordinated Units by the General Partner and
its affiliates gives the General Partner the ability to prevent its removal.
In addition, all of the other matters requiring the approval of the Common
Unitholders during the Subordination Period must first be proposed by the
General Partner and submitted to the Unitholders for a vote. The Partnership
Agreement also contains provisions limiting the ability of Unitholders to call
meetings of Unitholders or to acquire information about the Partnership's
operations, as well as other provisions limiting the Unitholders' ability to
influence the manner or direction of management. Further, if any person or
group (other than the General Partner or its affiliates or a direct transferee
of the General Partner or its affiliates) acquires beneficial ownership of 20%
or more of any class of Units then outstanding, such person or group will lose
voting rights with respect to all of its Units. As a result, holders of Common
Units will have limited influence on matters affecting the operation of the
Partnership, and third parties may find it difficult to attempt to gain
control, or influence the activities, of the Partnership. See "The Partnership
Agreement."
The Partnership May Issue Additional Common Units Thereby Diluting Existing
Unitholders' Interests
During the Subordination Period, the General Partner has broad discretion,
without the approval of Unitholders, to cause the Partnership to issue up to
an additional 9,800,000 Common Units (in addition to Common Units issued upon
the exercise of the Underwriters' over-allotment option, upon conversion of
Subordinated Units, pursuant to employee benefit plans, to repay certain
indebtedness, upon the conversion of the general partner interests and
Incentive Distribution Rights as a result of the withdrawal of the General
Partner or in connection with the making of certain acquisitions or capital
improvements that are accretive on a per Unit basis) or an equivalent number
of securities ranking on a parity with the Common Units. After the end of the
Subordination Period, the Partnership may issue an unlimited number of limited
partner interests of any type without the approval of the Unitholders. Based
on the circumstances of each case, the issuance of additional Common Units or
securities ranking senior to or on a parity with the Common Units may dilute
the value of the interests of the then-existing holders of Common Units in the
net assets of the Partnership, dilute the interests of holders of Common Units
in distributions by the Partnership and reduce the support provided by the
subordination feature of the Subordinated Units. The Partnership Agreement
does not give the holders of Common Units the right to approve the issuance by
the Partnership of equity securities ranking junior to the Common Units at any
time.
Issuance of Additional Common Units, Including Upon Conversion of
Subordinated Units, Will Increase Risk that the Partnership Will Be Unable to
Pay the Full Minimum Quarterly Distribution on All Common Units
The ability of the Partnership to pay the full Minimum Quarterly
Distribution on all the Common Units may be reduced by any increase in the
number of outstanding Common Units, whether as a result of the conversion of
Subordinated Units, upon the conversion of the general partner interests and
the right to receive Incentive Distributions or as a result of the withdrawal
of the General Partner or future issuances of Common Units. Any of these
actions will increase the percentage of the aggregate Minimum Quarterly
Distribution payable to the Common Unitholders and decrease the percentage of
the aggregate Minimum Quarterly Distribution payable to the Subordinated
Unitholders, which will in turn have the effect of (i) reducing the amount of
support provided by the subordination feature of the Subordinated Units and
(ii) increasing the risk that the Partnership will be unable to pay the
Minimum Quarterly Distribution in full on all the Common Units.
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No Removal of the General Partner Without its Consent
Following this offering, the ownership of approximately 56.5% of the
combined Common Units and Subordinated Units by the General Partner and its
affiliates will effectively preclude the removal of the General Partner
without its consent. In addition, the Partnership Agreement contains certain
provisions that may have the effect of discouraging a person or group from
attempting to remove the General Partner or otherwise change the management of
the Partnership. If the General Partner is removed as general partner of the
Partnership under circumstances where Cause does not exist and Units held by
the General Partner and its affiliates are not voted in favor of such removal,
(i) the Subordination Period will end and all outstanding Subordinated Units
will immediately convert into Common Units on a one-for-one basis, (ii) any
existing Common Unit Arrearages will be extinguished and (iii) the General
Partner will have the right to convert its general partner interest (and its
rights to receive Incentive Distributions) into Common Units or to receive
cash in exchange for such interests. The effect of these provisions may be to
diminish the price at which the Common Units will trade under certain
circumstances. See "The Partnership Agreement--Withdrawal or Removal of the
General Partner" and "--Change of Management Provisions."
Purchasers of Common Units Will Experience Dilution
Purchasers of Common Units in this offering will experience immediate and
substantial dilution in net tangible book value of $11.32 per Common Unit from
the initial public offering price (assuming an initial public offering price
of $20.00 per Common Unit). See "Dilution."
Cost Reimbursements and Fees Due to the General Partner May Be Substantial
Prior to making any distribution on the Common Units, the Partnership will
reimburse the General Partner and its affiliates (including officers and
directors of the General Partner) for all expenses incurred by the General
Partner and its affiliates on behalf of the Partnership (including wages,
salaries, incentive compensation and the cost of employee benefit plans paid
or provided to employees, officers and directors of the General Partner),
which expenses will be determined by the General Partner in its sole
discretion. In addition, the General Partner and its affiliates may provide
services to the Partnership for which the Partnership will be charged
reasonable fees as determined by the General Partner. The reimbursement of
such expenses and the payment of any such fees could adversely affect the
ability of the Partnership to make distributions.
No Prior Public Market for Common Units
Prior to this offering, there has been no public market for the Common
Units. The initial public offering price for the Common Units will be
determined through negotiations between the General Partner and the
representatives of the Underwriters. For a description of the factors to be
considered in determining the initial public offering price, see
"Underwriting." No assurance can be given as to the market prices at which the
Common Units will trade. The Common Units have been approved for listing on
the New York Stock Exchange, subject to official notice of issuance, under the
symbol "PAA."
The General Partner Will Have a Limited Call Right with Respect to the Common
Units
If at any time not more than 20% of the issued and outstanding Common Units
are held by persons other than the General Partner and its affiliates, the
General Partner will have the right, which it may assign to any of its
affiliates or the Partnership, to acquire all, but not less than all, of the
remaining Common Units held by such unaffiliated persons at a price generally
equal to the then-current market price of the Common Units. As a consequence,
a holder of Common Units may be required to sell his Common Units at a time
when he may not desire to sell them or at a price that is less than the price
he would desire to receive upon such sale. A holder may also incur a tax
liability upon such sale. See "The Partnership Agreement--Limited Call Right."
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Unitholders May Not Have Limited Liability in Certain Circumstances;
Liability for Return of Certain Distributions
The limitations on the liability of holders of limited partner interests for
the obligations of a limited partnership have not been clearly established in
some states. If it were to be determined that the Partnership had been
conducting business in any state without compliance with the applicable
limited partnership statute, or that the right or the exercise of the right by
the Unitholders as a group to remove or replace the General Partner, to
approve certain amendments to the Partnership Agreement or to take other
action pursuant to the Partnership Agreement constituted participation in the
"control" of the Partnership's business, then the Unitholders could be held
liable in certain circumstances for the Partnership's obligations to the same
extent as a general partner. In addition, under certain circumstances a
Unitholder may be liable to the Partnership for the amount of a distribution
for a period of three years from the date of the distribution. See "The
Partnership Agreement--Limited Liability" for a discussion of the limitations
on liability and the implications thereof to a Unitholder.
Holders of Common Units Have Not Been Represented by Counsel
The holders of Common Units have not been represented by counsel in
connection with this offering, including the preparation of the Partnership
Agreement or the other agreements referred to herein or in establishing the
terms of this offering.
Possible Inability to Obtain Consents and Title Documents to Asset Transfers
The Plains Midstream Subsidiaries will be merged into Plains Resources and,
concurrently with the closing of this offering, Plains Resources will convey
the Plains Midstream Subsidiaries' assets to the Partnership. In addition, the
General Partner will convey all its interests in the All American Pipeline and
the SJV Gathering System to the Partnership. Certain of the transferors'
rights-of-way, leasehold interests in real and personal property and certain
of the transferors' permits, licenses and other rights are transferable to the
Partnership only with the consent of the lessor or other third party. The
failure by the Partnership to obtain any such consents could have a material
adverse effect on the Partnership. See "Business--Title to Properties."
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
Dependence of Pipeline Upon California Crude Oil Supply
The profitability of the All American Pipeline is dependent upon an adequate
supply of crude oil from fields located offshore and onshore California. A
significant portion of the Partnership's gross margin is derived from the
Santa Ynez and Point Arguello fields located offshore California. During the
first nine months of 1998, approximately $26 million, or 44%, of the
Partnership's gross margin was attributable to the Santa Ynez field and
approximately $10 million, or 16%, was attributable to the Point Arguello
field. Although the producers of most of the production from these fields have
entered into contracts with the Partnership pursuant to which they have agreed
to ship all of their production from these fields on the All American Pipeline
through August 2007, they are not obligated to produce or ship any minimum
volumes. Volumes received from the Santa Ynez and Point Arguello fields have
declined from 92,000 and 60,000 average daily barrels, respectively, in 1995
to 70,000 and 26,000 average daily barrels, respectively, for the first nine
months in 1998. The Partnership expects that there will continue to be natural
production declines from each of these fields. In addition, any production
disruption from these fields due to production problems, transportation
problems or other reasons would have a material adverse effect on the
Partnership.
As a result of the mid-1996 repeal of the export ban on crude oil produced
from the Alaskan North Slope, the volume of Alaskan North Slope crude oil
transported on the All American Pipeline declined to 2,000 barrels per day in
1997 compared to 16,000 barrels per day in 1996 and 26,000 barrels per day in
1995. Furthermore, in June 1998, the owner of the only pipeline capable of
delivering Alaskan North Slope crude oil to the All American
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Pipeline announced the proposed sale of the pipeline to a purchaser that has
publicly stated its intention to convert the pipeline to a natural gas
pipeline. As a result, the Partnership believes it is unlikely that there will
be future shipments of Alaskan North Slope crude oil on the All American
Pipeline. See "Business--Crude Oil Pipeline Operations."
The success of the Partnership's business strategy to increase utilization
on its pipelines is dependent upon the Partnership's obtaining additional
supply from increased production from California producers, an aggressive
lease gathering program in the San Joaquin Valley and additional connections
with other California crude oil pipelines. The ability of California producers
to increase production is dependent on the prevailing market price of oil, the
exploration and production budgets of the major and independent oil companies,
the depletion rate of existing reservoirs, the success of new wells drilled,
environmental concerns, regulatory initiatives and other matters beyond the
control of the General Partner. There can be no assurance that production of
crude oil in California will rise to sufficient levels to cause an increase in
the utilization rate of the Partnership's pipelines. The Partnership may be
unable to execute its strategy of increasing volumes on the All American
Pipeline if additional production in California does not materialize due to
economic, regulatory or other conditions which are beyond the Partnership's
control.
Reduced Demand Could Affect Shipments on the All American Pipeline
A portion of the Partnership's business is dependent on demand for crude oil
(in particular, California crude oil) in the geographic areas in which
deliveries are made by the All American Pipeline and on the ability and
willingness of shippers having access to the All American Pipeline to satisfy
such demand by deliveries through the All American Pipeline, and any decrease
in this demand could adversely affect the Partnership. Demand for crude oil is
dependent upon the impact of future economic conditions, fuel conservation
measures, alternative fuel requirements, governmental regulation or
technological advances in fuel economy and energy generation devices, all of
which could reduce such demand.
Competition
The All American Pipeline encounters competition from foreign oil imports
and other pipelines that serve the California market and the refining centers
in the Midwest and on the Gulf Coast. A new pipeline connecting the San
Joaquin Valley to refinery markets in the Los Angeles Basin area is currently
under construction by a third party with an anticipated completion date in
1999. The Partnership expects that certain volumes currently transported east
on the All American Pipeline may be redirected to Los Angeles through an
interconnect with this new pipeline.
The Partnership faces intense competition in its terminalling and storage
activities and gathering and marketing activities. Its competitors include
other crude oil pipelines, the major integrated oil companies, their marketing
affiliates and independent gatherers, brokers and marketers of widely varying
sizes, financial resources and experience. Some of these competitors have
capital resources many times greater than the Partnership's and control
substantially greater supplies of crude oil. See "Business--Competition."
Dependence of Volumes of Crude Oil For Gathering and Marketing Activities
The profitability of the Partnership's gathering and marketing activities
depends primarily on the volumes of crude oil it purchases in bulk at major
pipeline terminal points and the amount it gathers at the wellhead. To
maintain its volumes of crude oil purchased, the Partnership must continue to
contract for new supplies of crude oil to offset volumes lost because of
natural declines in crude oil production from depleting wells or volumes lost
to competitors. Replacement of lost volumes of crude oil is particularly
difficult in an environment where production is low and competition to gather
available production is intense. Generally, because producers experience
inconveniences in switching crude oil purchasers (such as delays in receipt of
proceeds while awaiting the preparation of new division orders), producers
typically do not change purchasers on the basis of minor
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variations in price. Thus, the Partnership may experience difficulty acquiring
crude oil at the wellhead in areas where there are existing relationships
between producers and other gatherers and purchasers of crude oil.
Sustained low crude oil prices could lead to a decline in drilling activity
and production levels or the shutting-in or abandonment of marginal wells. To
the extent that low crude oil prices result in lower volumes of crude oil
available for purchase at the wellhead, the Partnership may experience lower
margins as competition for available crude oil intensifies. In addition, a
sustained depression in crude oil prices could result in the bankruptcy of
certain producers. Although bankruptcy proceedings are not likely to terminate
production from oil wells, they may disrupt purchasing arrangements and have
other adverse consequences. Alternatively, sustained high crude oil prices can
limit the volume of crude oil purchases by the Partnership if sufficient
credit support for its activities is unavailable.
Certain of the Partnership's Price Risks Are Not Hedged
Generally, as the Partnership purchases crude oil, it establishes a margin
by selling crude oil for physical delivery to third party users, such as
independent refiners or major oil companies, or by entering into a future
delivery obligation with respect to futures contracts on the NYMEX. Through
these transactions, the Partnership seeks to maintain a position that is
substantially balanced between crude oil purchases, on the one hand, and sales
or future delivery obligations, on the other hand. It is the Partnership's
policy not to acquire and hold crude oil, futures contracts or derivative
products for the purpose of speculating on price changes. These price risk
management strategies cannot, however, eliminate all price risks. Any event
that disrupts the Partnership's anticipated physical supplies of crude oil may
expose it to risk of loss resulting from price changes. For example, if the
General Partner inaccurately forecasts the shut-in of production or other
supply interruptions as the result of depressed oil prices, mechanical
interruptions, abrupt production declines or apportionment of pipeline space
on common carrier pipelines, the Partnership might be unable to meet its
supply commitments with the barrels purchased at the wellhead. The Partnership
would be forced to make purchases elsewhere in order to meet its commitments,
and in the event prices change adversely, the Partnership's margins also may
be adversely affected. Moreover, the Partnership will be exposed to some risks
that are not hedged, including certain basis risks (the risk that price
differentials between delivery points, delivery periods or types of crude oil
will change) and price risks on certain portions of its inventory. For
accounting purposes, the Partnership may record losses on a portion of the
unhedged inventory due to market price declines, although such losses would
have no impact on cash flow as long as the Partnership is not forced to
liquidate such inventory.
The Partnership May Not Be Successful in Integrating its Operations
The General Partner acquired the All American Pipeline and the SJV Gathering
System in July 1998 and has operated it since that time. Although most of the
persons responsible for managing and operating the respective crude oil
terminalling and storage activities and gathering and marketing activities and
pipeline operations of the Plains Midstream Subsidiaries and the General
Partner prior to the formation of the Partnership will continue to be
responsible for managing and operating the Partnership's operations after the
offering, there can be no assurance that the Partnership will be able to
successfully integrate the All American Pipeline and the SJV Gathering System
with the Partnership's terminalling and storage activities and gathering and
marketing activities or institute the necessary systems and procedures to
successfully manage the combined enterprise on a profitable basis. The
inability of the Partnership to successfully integrate these operations would
have a material adverse effect on the Partnership's business, financial
condition and results of operations.
Risks of Acquisition Strategy
The Partnership intends to pursue acquisitions as one means of increasing
both the value of the Partnership's Units and its cash flow. The Partnership
cannot predict whether it will be successful in consummating any such
acquisitions or what the consequences of any such acquisitions would be.
Moreover, there can be no assurance that general economic or industry
conditions will be conducive to the Partnership's acquisition strategy, that
the
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Partnership will be able to identify and acquire any such assets or businesses
on economically acceptable terms, that any acquisitions will not be dilutive
to earnings and distributions to Unitholders or that any additional debt
incurred to finance an acquisition will not affect the ability of the
Partnership to make distributions to Unitholders. The Partnership is subject
to certain covenants in its Letter of Credit Facility and Bank Credit
Agreement that might restrict the ability of the Partnership to incur
indebtedness to finance acquisitions. The Partnership currently has no
commitments to acquire any material assets.
The Partnership's acquisition strategy involves numerous risks, including
difficulties inherent in the integration of operations and systems, the
diversion of management's attention from other business concerns and the
potential loss of key employees of acquired businesses. In addition, future
acquisitions also may involve the expenditure of significant funds. Depending
upon the nature, size and timing of future acquisitions, the Partnership may
be required to secure additional financing. There is no assurance that such
additional financing will be available to the Partnership on acceptable terms.
Credit Risks
The Partnership extends credit to customers in the ordinary course of its
gathering and marketing activities. In those cases where the Partnership
provides division order services for crude oil purchased at the wellhead, the
Partnership may be responsible for distribution of proceeds to all parties. In
other cases, the Partnership pays a portion of the production proceeds to an
operator who distributes these proceeds to the various interest owners. These
arrangements expose the Partnership to operator credit risk, and therefore it
must determine that operators have sufficient financial resources to make such
payments and distributions and to indemnify and defend the Partnership in case
of a protest, action or complaint. Even if the Partnership's credit review and
analysis mechanisms work properly, there can be no assurance that the
Partnership will not experience losses in dealings with other parties.
Risk of Environmental and Safety Costs and Liabilities
The operations of the Partnership are subject to federal and state laws and
regulations relating to environmental protection and operational safety.
Although the Partnership believes its operations are in substantial compliance
with applicable environmental and safety regulations, risks of substantial
costs and liabilities are inherent in pipeline, gathering, storage and
terminalling facilities operations, and there can be no assurance that such
costs and liabilities will not be incurred. Moreover, it is possible that
other developments, such as increasingly strict environmental and safety laws,
regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from the Partnership's operations, could result
in substantial costs and liabilities to the Partnership. If the Partnership
were not able to recover such resulting costs through insurance or increased
tariffs and revenues, cash distributions to Unitholders could be adversely
affected.
The transportation and storage of crude oil results in a risk that crude oil
and other hydrocarbons may be suddenly or gradually released into the
environment, potentially causing substantial expenditures for a response
action, significant government penalties, liability for natural resources
damages to government agencies, personal injury or property damages to private
parties and significant business interruption.
During 1997, the All American Pipeline experienced a leak in a segment of
its pipeline in California which resulted in an estimated 12,000 barrels of
crude oil being released into the soil. Immediate action was taken to repair
the pipeline leak, contain the spill and recover the released crude oil.
Approximately 43% of the volume was recovered and the Partnership has received
conditional approval from the Mojave District Regional Water Quality Board
(the "Water Board") to backfill the affected area and to enable natural
degradation to remedy the remaining volume in place. The Partnership has been
informed by the Water Board that if testing confirms natural degradation is
occurring to the satisfaction of the Water Board, final approval for the
Partnership's remediation plan should be granted. Agency approval or
disapproval is expected in the first quarter of 1999. If the Partnership's
plan is disapproved, a government mandated remediation of the spill could
require more significant expenditures, currently estimated to approximate
$350,000, although no assurance can be given that the actual cost could not
exceed such estimate.
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Prior to being acquired by the Partnership's predecessors in 1996, the
Ingleside Terminal experienced releases of refined petroleum products into the
soil and groundwater underlying the site due to activities on the property.
The Partnership is undertaking a voluntary state-administered remediation of
the contamination on the property, and to determine whether the contamination
extends outside the property boundaries. Costs associated with the remediation
of the Ingleside Terminal are not expected to exceed $250,000, although there
can be no assurance in that regard.
Dependence on Connections with Other Pipelines
The All American Pipeline is dependent upon its interconnections with other
crude oil pipelines to reach markets in the Midwest and the Gulf Coast.
Reduced throughput on these pipelines as a result of testing, line repair,
reduced operating pressures or other causes could result in reduced throughput
on the All American Pipeline which would adversely affect the Partnership's
profitability.
The Partnership's Activities Will Be Subject to Certain Operational Hazards
and Unforeseen Interruptions
The Partnership's operations are subject to certain operational hazards and
unforeseen interruptions, such as natural disasters, adverse weather,
accidents or other events beyond the General Partner's control. A casualty
occurrence might result in a loss of equipment or life, as well as injury and
extensive property or environmental damage. The Partnership will carry
insurance with respect to some, but not all, casualty occurrences and
disruptions. Plains Resources currently carries insurance for itself and all
of its affiliates, including the Partnership, covering general liability,
automobile liability and workers' compensation in an aggregate amount of up to
$150 million, certain aviation liability for non-owned aircraft of up to $10
million, property, flood and earthquake damage of up to $50 million,
environmental liability of up to $20 million (in addition to general liability
coverage) and business interruption insurance of up to $300,000 per day for a
maximum of 90 days. The Partnership expects to continue to carry insurance in
such amounts as it considers reasonable, but cannot ensure that this coverage
will be in the amounts and for the types of losses now covered or that such
amounts would be sufficient to prevent an unexpected loss from having a
material adverse effect on the Partnership's financial condition or results of
operations.
The Partnership Will Be Dependent Upon Key Personnel
The Partnership's management group includes certain key employees. The
failure of the Partnership to retain these key employees could adversely
affect its operations.
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
General
Conflicts of interest exist and may arise as a result of the relationships
between the General Partner and Plains Resources, its sole stockholder, and
its affiliates on the one hand, and the Partnership and its limited partners,
on the other. The directors and officers of the General Partner have fiduciary
duties to manage the General Partner, including its investments in its
subsidiaries and affiliates, in a manner beneficial to Plains Resources. At
the same time, the General Partner has fiduciary duties to manage the
Partnership in a manner beneficial to the Partnership and the Unitholders. The
Partnership Agreement contains certain provisions that allow the General
Partner to take into account the interests of parties in addition to the
Partnership in resolving conflicts of interest, thereby limiting its fiduciary
duty to the Unitholders, as well as provisions that may restrict the remedies
available to Unitholders for actions taken that might, without such
limitations, constitute breaches of fiduciary duty. The duty of the directors
and officers of the General Partner to Plains Resources may, therefore, come
into conflict with the duties of the General Partner to the Partnership and
the Unitholders. Conflicts of interest may arise with respect to the matters
discussed below, among others.
Conflicts Affecting Cash Distributions
Decisions of the General Partner with respect to the amount and timing of
asset purchases and sales, cash expenditures, borrowings, issuances of
additional Units and the creation, reduction or increase of reserves in any
34
<PAGE>
quarter will affect whether, or the extent to which, there is sufficient
Available Cash from the Partnership's Operating Surplus to meet the Minimum
Quarterly Distribution and Target Distribution Levels on all Units in a given
quarter or in subsequent quarters. In addition, actions by the General Partner
may have the effect of enabling the General Partner and its affiliates to
receive distributions on the Subordinated Units or Incentive Distributions or
hastening the expiration of the Subordination Period or the conversion of
Subordinated Units into Common Units.
Conflicts Relating to Employees
The Partnership will not have any employees and will rely solely on
employees of the General Partner and its affiliates.
Certain of the officers of the General Partner, who will provide services to
the Partnership, will not be required to work full time on the affairs of the
Partnership. Such officers may devote significant time to the affairs of the
General Partner's affiliates and will be compensated by these affiliates for
the services rendered to them. There may be significant conflicts between the
Partnership and affiliates of the General Partner regarding the availability
of such officers of the General Partner to manage the Partnership.
Conflicts Relating to Reimbursement of the General Partner
Under the terms of the Partnership Agreement, the Partnership will reimburse
the General Partner and its affiliates for costs incurred in managing and
operating the Partnership, including costs incurred in rendering corporate
staff and support services to the Partnership.
Conflicts Regarding the General Partner's Liability
Whenever possible, the General Partner intends to limit the Partnership's
liability under contractual arrangements to all or particular assets of the
Partnership, with the other party thereto to have no recourse against the
General Partner or its assets.
Conflicts Regarding Enforcement
Any agreements between the Partnership and the General Partner and its
affiliates will not grant to the holders of Common Units, separate and apart
from the Partnership, the right to enforce the obligations of the General
Partner and such affiliates in favor of the Partnership. Therefore, the
General Partner, in its capacity as the general partner of the Partnership,
will be primarily responsible for enforcing such obligations.
No Arm's-Length Negotiations
Under the terms of the Partnership Agreement, the General Partner is not
restricted from causing the Partnership to pay the General Partner or its
affiliates for any services rendered on terms that are fair and reasonable to
the Partnership or entering into additional contractual arrangements with any
of such entities on behalf of the Partnership. Neither the Partnership
Agreement nor any of the other agreements, contracts and arrangements between
the Partnership, on the one hand, and the General Partner and its affiliates,
on the other, are or will be the result of arm's-length negotiations.
General Partner's Right to Call For and Purchase Units
The General Partner may exercise its right to call for and purchase Units as
provided in the Partnership Agreement or assign such right to one of its
affiliates or the Partnership.
Potential for Competition from the General Partner's Affiliates
The Partnership Agreement provides that the General Partner will be
restricted from engaging in any business activities other than those
incidental to its ownership of interests in the Partnership. Except as
provided in the Partnership Agreement and an agreement (the "Omnibus
Agreement") to be entered into among the Partnership, the Operating
Partnership, the General Partner and Plains Resources, affiliates of the
General Partner will not be prohibited from engaging in other businesses or
activities, including those that might be in direct competition with the
Partnership. The Omnibus Agreement provides that, so long as the General
Partner is an affiliate of Plains Resources, neither Plains Resources nor any
of its affiliates (other than the General Partner
35
<PAGE>
and the Partnership and their controlled affiliates) (a "Plains Entity") will
engage in or acquire any business engaged in the following activities (a
"Restricted Business"): (a) crude oil storage, terminalling and gathering
activities in the lower 48 states for any party other than a Plains Entity or
the Partnership, (b) marketing activities, and (c) transportation of crude oil
by pipeline in the lower 48 states for any party other than a Plains Entity or
the Partnership. Notwithstanding the foregoing, a Plains Entity may engage in
a Restricted Business if:
(i) The Restricted Business was engaged in by the Plains Entity at
the closing of this offering.
(ii) The Restricted Business is conducted pursuant to and in
accordance with the terms of the Marketing Agreement or any other
arrangement entered into with the Partnership with the concurrence of
the Conflicts Committee.
(iii) The value of the assets acquired in a transaction that comprise
a Restricted Business does not exceed $10 million.
(iv) The value of the assets acquired in a transaction that comprise
a Restricted Business exceeds $10 million and the General Partner (with
the concurrence of the Conflicts Committee) has elected not to cause
the Partnership to pursue such opportunity.
Except as provided in the Omnibus Agreement, a Plains Entity will be free
to engage in any type of business activity whatsoever, including those that
may be in direct competition with the Partnership. The Omnibus Agreement
may not be amended without the concurrence of the Conflicts Committee.
The Omnibus Agreement may be terminated by Plains Resources upon a "change
of control" of Plains Resources. A "change of control" will be deemed to occur
upon (i) the sale of substantially all of the assets of Plains Resources, (ii)
the acquisition of more than 50% of the outstanding common equity of Plains
Resources by any entity or (iii) the consummation of a merger following which
the holders of Plains Resources' voting securities hold less than 50% of the
voting securities of the surviving entity. Accordingly, in the event of a
"change of control" of Plains Resources, the owner of the General Partner will
not be restricted from engaging in businesses which compete directly with the
Partnership. A sale or transfer of the general partner interest or capital
stock of the General Partner will result in the purchaser or transferee being
bound by the noncompetition provisions of the Omnibus Agreement.
Fiduciary Standards Applicable to and Indemnification of the General Partner
Unless provided for otherwise in a partnership agreement, Delaware law
generally requires a general partner of a Delaware limited partnership to
adhere to fiduciary duty standards under which it owes its limited partners
the highest duties of good faith, fairness and loyalty and which generally
prohibit such general partner from taking any action or engaging in any
transaction as to which it has a conflict of interest. The Partnership
Agreement expressly permits the General Partner to resolve conflicts of
interest between itself or its affiliates, on the one hand, and the
Partnership or the Unitholders, on the other, and to consider, in resolving
such conflicts of interest, the interests of other parties in addition to the
interests of the Unitholders. IN ADDITION, THE PARTNERSHIP AGREEMENT PROVIDES
THAT A PURCHASER OF COMMON UNITS IS DEEMED TO HAVE CONSENTED TO CERTAIN
CONFLICTS OF INTEREST AND ACTIONS OF THE GENERAL PARTNER AND ITS AFFILIATES
THAT MIGHT OTHERWISE BE PROHIBITED, INCLUDING THOSE DESCRIBED ABOVE, AND TO
HAVE AGREED THAT SUCH CONFLICTS OF INTEREST AND ACTIONS DO NOT CONSTITUTE A
BREACH BY THE GENERAL PARTNER OF ANY DUTY STATED OR IMPLIED BY LAW OR EQUITY.
THE GENERAL PARTNER WILL NOT BE IN BREACH OF ITS OBLIGATIONS UNDER THE
PARTNERSHIP AGREEMENT OR ITS DUTIES TO THE PARTNERSHIP OR THE UNITHOLDERS IF
THE RESOLUTION OF SUCH CONFLICT IS FAIR AND REASONABLE TO THE PARTNERSHIP. THE
LATITUDE GIVEN IN THE PARTNERSHIP AGREEMENT TO THE GENERAL PARTNER IN
RESOLVING CONFLICTS OF INTEREST MAY SIGNIFICANTLY LIMIT THE ABILITY OF A
UNITHOLDER TO CHALLENGE WHAT MIGHT OTHERWISE BE A BREACH OF FIDUCIARY DUTY.
The Partnership Agreement expressly limits the liability of the General
Partner by providing that the General Partner, its affiliates and its officers
and directors will not be liable for monetary damages to the Partnership, the
limited partners or assignees for errors of judgment or for any acts or
omissions if the General Partner and such
36
<PAGE>
other persons acted in good faith. In addition, the Partnership is required to
indemnify the General Partner, its affiliates and their respective officers,
directors, employees, agents and trustees to the fullest extent permitted by
law against liabilities, costs and expenses incurred by the General Partner or
such other persons, if the General Partner or such persons acted in good faith
and in a manner they reasonably believed to be in, or (in the case of a person
other than a General Partner) not opposed to, the best interests of the
Partnership and, with respect to any criminal proceedings, had no reasonable
cause to believe the conduct was unlawful.
The provisions of Delaware law that allow the common law fiduciary duties of
a general partner to be modified by a partnership agreement have not been
tested in a court of law, and the General Partner has not obtained an opinion
of counsel covering the provisions set forth in the Partnership Agreement that
purport to waive or restrict the fiduciary duties of the General Partner that
would be in effect under common law were it not for the Partnership Agreement.
See "Conflicts of Interest and Fiduciary Responsibilities--Conflicts of
Interest."
TAX RISKS
For a general discussion of the expected federal income tax consequences of
owning and disposing of Common Units, see "Tax Considerations."
Tax Treatment is Dependent on Partnership Status
The availability to a holder of Common Units of the federal income tax
benefits of an investment in the Partnership depends, in large part, on the
classification of the Partnership as a partnership for federal income tax
purposes. Assuming the accuracy of certain factual matters as to which the
General Partner and the Partnership have made representations, Counsel is of
the opinion that, under current law, the Partnership will be classified as a
partnership for federal income tax purposes. The IRS has made no determination
with respect to classification of the Partnership as a partnership for federal
income tax purposes. Instead, the Partnership intends to rely on such opinion
of Counsel (which is not binding on the IRS). Based upon the representations
of the Partnership and the General Partner and a review of the applicable
legal authorities, Counsel is of the opinion that at least 90% of the
Partnership's gross income will constitute "qualifying income." Whether the
Partnership will continue to be classified as a partnership in part depends,
therefore, on the Partnership's ability to meet this qualifying income test in
the future. See "Tax Considerations--Partnership Status."
If the Partnership were classified as an association taxable as a
corporation for federal income tax purposes, the Partnership would pay tax on
its income at corporate rates (currently a 35% federal rate), distributions
would generally be taxed again to the Unitholders as corporate distributions,
and no income, gains, losses or deductions would flow through to the
Unitholders. Because a tax would be imposed upon the Partnership as an entity,
the cash available for distribution to the holders of Common Units would be
substantially reduced. Treatment of the Partnership as an association taxable
as a corporation or otherwise as a taxable entity would result in a material
reduction in the anticipated cash flow and after-tax return to the holders of
Common Units and thus would likely result in a substantial reduction in the
value of the Common Units. See "Tax Considerations--Partnership Status."
There can be no assurance that the law will not be changed so as to cause
the Partnership to be treated as an association taxable as a corporation for
federal income tax purposes or otherwise to be subject to entity-level
taxation. The Partnership Agreement provides that, if a law is enacted or
existing law is modified or interpreted in a manner that subjects the
Partnership to taxation as a corporation or otherwise subjects the Partnership
to entity-level taxation for federal, state or local income tax purposes,
certain provisions of the Partnership Agreement will be subject to change,
including a decrease in the Minimum Quarterly Distribution and the Target
Distribution Levels to reflect the impact of such law on the Partnership. See
"Cash Distribution Policy--Adjustment of Minimum Quarterly Distribution and
Target Distribution Levels."
No IRS Ruling with Respect to Tax Consequences
No ruling has been requested from the IRS with respect to classification of
the Partnership as a partnership for federal income tax purposes or any other
matter affecting the Partnership. Accordingly, the IRS may adopt
37
<PAGE>
positions that differ from Counsel's conclusions expressed herein. It may be
necessary to resort to administrative or court proceedings in an effort to
sustain some or all of Counsel's conclusions, and some or all of such
conclusions ultimately may not be sustained. Any such contest with the IRS may
materially and adversely impact the market for the Common Units and the price
at which the Common Units trade. In addition, the costs of any contest with
the IRS will be borne directly or indirectly by some or all of the Unitholders
and the General Partner.
Tax Liability Exceeding Cash Distributions
A Unitholder will be required to pay federal income taxes and, in certain
cases, state and local income taxes on his allocable share of the
Partnership's income, whether or not he receives cash distributions from the
Partnership. There is no assurance that a Unitholder will receive cash
distributions equal to his allocable share of taxable income from the
Partnership or even the tax liability to him resulting from that income.
Further, a holder of Common Units may incur a tax liability, in excess of the
amount of cash received, upon the sale of his Common Units. See "Tax
Considerations--Tax Consequences of Unit Ownership" and "--Disposition of
Common Units."
Tax Gain or Loss on Disposition of Common Units
A Unitholder who sells Common Units will recognize gain or loss equal to the
difference between the amount realized and his adjusted tax basis in such
Common Units. Thus, prior Partnership distributions in excess of cumulative
net taxable income in respect of a Common Unit which decreased a Unitholder's
tax basis in such Common Unit will, in effect, become taxable income if the
Common Unit is sold at a price greater than the Unitholder's tax basis in such
Common Units, even if the price is less than his original cost. A portion of
the amount realized (whether or not representing gain) may be ordinary income.
Furthermore, should the IRS successfully contest certain conventions to be
used by the Partnership, a Unitholder could realize more gain on the sale of
Units than would be the case under such conventions without the benefit of
decreased income in prior years.
Ownership of Common Units by Tax-Exempt Organizations and Certain Other
Investors
Investment in Common Units by certain tax-exempt entities, regulated
investment companies (mutual funds) and foreign persons raises issues unique
to such persons. For example, virtually all of the taxable income derived by
most organizations exempt from federal income tax (including IRAs and other
retirement plans) from the ownership of a Common Unit will be unrelated
business taxable income and thus will be taxable to such a Unitholder. Very
little of the partnership's income will be qualifying income to a regulated
investment company. Distributions to foreign persons will be subject to
withholding. See "Tax Considerations--Tax-Exempt Organizations and Certain
Other Investors."
Limitations on Deductibility of Losses
In the case of taxpayers subject to the passive loss rules (generally,
individuals and closely held corporations), any losses generated by the
Partnership will generally only be available to offset future income generated
by the Partnership and cannot be used to offset income from other activities,
including other passive activities or investments. Passive losses which are
not deductible because they exceed the Unitholder's income generated by the
Partnership may be deducted in full when the Unitholder disposes of his entire
investment in the Partnership in a fully taxable transaction to an unrelated
party. Net passive income from the Partnership may be offset by unused
Partnership losses carried over from prior years, but not by losses from other
passive activities, including losses from other publicly traded partnerships.
See "Tax Considerations--Tax Consequences of Unit Ownership--Limitations on
Deductibility of Partnership Losses."
Tax Shelter Registration; Potential IRS Audit
The General Partner has applied to register the Partnership as a "tax
shelter" with the Secretary of the Treasury. No assurance can be given that
the Partnership will not be audited by the IRS or that tax adjustments
38
<PAGE>
will not be made. The rights of a Unitholder owning less than a 1% interest in
the Partnership to participate in the income tax audit process are very
limited. Further, any adjustments in the Partnership's tax returns will lead
to adjustments in the Unitholders' tax returns and may lead to audits of
Unitholders' tax returns and adjustments of items unrelated to the
Partnership. Each Unitholder would bear the cost of any expenses incurred in
connection with an examination of such Unitholder's personal tax return.
Possible Loss of Tax Benefits Relating to Non-uniformity of Common Units and
Nonconforming Depreciation Conventions
Because the Partnership cannot match transferors and transferees of Common
Units, uniformity of the economic and tax characteristics of the Common Units
to a purchaser of Common Units must be maintained. To maintain uniformity and
for other reasons, the Partnership will adopt certain depreciation and
amortization conventions that do not conform with all aspects of certain
proposed and final Treasury regulations. A successful challenge to those
conventions by the IRS could adversely affect the amount of tax benefits
available to a purchaser of Common Units or could affect the timing of such
tax benefits or the amount of gain from the sale of Common Units and could
have a negative impact on the value of the Common Units or result in audit
adjustments to the tax returns of Unitholders. See "Tax Considerations--
Uniformity of Units."
State, Local and Other Tax Considerations
In addition to federal income taxes, Unitholders will likely be subject to
other taxes, such as state and local taxes, unincorporated business taxes and
estate, inheritance or intangible taxes that are imposed by the various
jurisdictions in which the Partnership does business or owns property. A
Unitholder will likely be required to file state and local income tax returns
and pay state and local income taxes in some or all of the various
jurisdictions in which the Partnership does business or owns property and may
be subject to penalties for failure to comply with those requirements. The
Partnership will initially own property and conduct business in Arizona,
California, Oklahoma, Kansas, New Mexico, Illinois, Texas, Louisiana, Alabama,
Mississippi and Florida. Of those, only Texas and Florida do not currently
impose a personal income tax. It is the responsibility of each Unitholder to
file all U.S. federal, state and local tax returns that may be required of
such Unitholder. Counsel has not rendered an opinion on the state or local tax
consequences of an investment in the Partnership. See "Tax Considerations--
State, Local and Other Tax Considerations."
Reporting of Partnership Tax Information and Risk of Audits
The Partnership will furnish each holder of Common Units with a Schedule K-1
that sets forth his share of Partnership income, gains, losses and deductions.
In preparing these schedules, the Partnership will use various accounting and
reporting conventions and adopt various depreciation and amortization methods.
There is no assurance that these schedules will yield a result that conforms
to statutory or regulatory requirements or to administrative pronouncements of
the IRS. Further, the Partnership's tax return may be audited, and any such
audit could result in an audit of a Unitholder's individual tax return as well
as increased liabilities for taxes because of adjustments resulting from the
audit.
39
<PAGE>
THE TRANSACTIONS
The net proceeds to the Partnership from the sale of Common Units offered
hereby are expected to be approximately $239.0 million (assuming an initial
public offering price of $20.00 per Common Unit and after deducting
underwriting discounts and commissions but before deducting expenses incurred
in connection with this offering). Concurrently with the closing of this
offering, the Plains Midstream Subsidiaries will be merged into Plains
Resources, which will sell the assets of these subsidiaries to the Partnership
in exchange for $93.7 million and the assumption of related indebtedness. At
the same time, the General Partner will convey all of its interest in the All
American Pipeline and the SJV Gathering System, which it acquired in July 1998
for approximately $400 million, to the Partnership in exchange for:
. 6,817,391 Common Units, 9,800,000 Subordinated Units and a 2% general
partner interest in the Partnership and the Operating Partnership;
. the right to receive Incentive Distributions; and
. the assumption by the Operating Partnership of $175 million of
indebtedness incurred by the General Partner in connection with the
acquisition of the All American Pipeline and the SJV Gathering System.
The determination of the value of the assets and businesses conveyed to the
Partnership in exchange for cash, Units and the assumption of indebtedness was
determined by negotiations between Plains Resources and the General Partner
and representatives of the Underwriters. The assets and businesses conveyed to
the Partnership by the General Partner and Plains Resources constitute all of
the assets and businesses of the Partnership. Prior to this offering, there
has been no public market for the Common Units of the Partnership. See
"Underwriting" for a discussion of the establishment of the initial public
offering price of the Common Units.
In addition to the $93.7 million to be paid to Plains Resources, the
Partnership will distribute approximately $142.3 million to the General
Partner and will use approximately $3 million of the remaining proceeds to pay
expenses incurred in connection with the Transactions. The General Partner
will use $110 million of the cash distributed to it to retire the remaining
indebtedness incurred in connection with the acquisition of the All American
Pipeline and the SJV Gathering System and the balance, $32.3 million, will be
distributed or loaned to Plains Resources which will use the cash to repay
indebtedness and for other general corporate purposes.
In addition, concurrently with the closing of this offering, the Operating
Partnership will enter into the $225 million Bank Credit Agreement that will
include the $175 million Term Loan Facility and the $50 million Revolving
Credit Facility. The Partnership may borrow up to $50 million under the
Revolving Credit Facility for acquisitions, capital improvements, working
capital and general business purposes. At closing, the Operating Partnership
will have $175 million outstanding under the Term Loan Facility, representing
indebtedness assumed from the General Partner.
The Partnership will use the net proceeds from any exercise of the
Underwriters' over-allotment option to redeem Common Units from the General
Partner or its affiliates, on a pro rata basis, equal to the number of Common
Units issued upon the exercise of such option.
40
<PAGE>
USE OF PROCEEDS
The net proceeds to the Partnership from the sale of Common Units offered
hereby will be approximately $239.0 million, assuming an initial public
offering price of $20.00 per Common Unit, and after deducting underwriting
discounts and commissions but before deducting expenses incurred in connection
with this offering. The net proceeds of this offering will be applied to (i)
purchase the Plains Midstream Subsidiaries' assets from Plains Resources for
approximately $93.7 million, (ii) pay approximately $3.0 million of expenses
of the Transactions and (iii) make a distribution of approximately $142.3
million to the General Partner.
The General Partner will use $110 million of the cash distributed to it to
retire a portion of the indebtedness incurred in connection with the
acquisition of the All American Pipeline and the SJV Gathering System. Of this
indebtedness, $60 million bears interest at LIBOR plus a margin of 1.75% and
$50 million bears interest at LIBOR plus a margin of 2.75%. The indebtedness
has a final maturity in 2005. The remainder of the distribution to the General
Partner will be distributed or loaned to Plains Resources, which will use the
cash to repay indebtedness and for general corporate purposes.
The Partnership will use the net proceeds from any exercise of the
Underwriters' over-allotment option to redeem Common Units from the General
Partner or its affiliates, on a pro rata basis, equal to the number of Common
Units issued upon the exercise of such option.
41
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of Plains Midstream
Subsidiaries as of September 30, 1998, (ii) the pro forma adjustments required
to reflect the Transactions, including the sale of the Common Units offered
hereby (at an assumed initial public offering price of $20.00 per Common Unit)
and the application of the net proceeds therefrom as described in "Use of
Proceeds," and (iii) the pro forma capitalization of the Partnership as of
September 30, 1998. The table is derived from, should be read in conjunction
with, and is qualified in its entirety by reference to the historical and pro
forma financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
-----------------------------------
PRO
TRANSACTION FORMA, AS
HISTORICAL ADJUSTMENTS(1) ADJUSTED
---------- -------------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Bank Credit Agreement(2)................ $285,000 $(110,000) $ 175,000
Long-term debt due to affiliates........ 29,681 (29,681) --
-------- --------- ---------
Total long-term debt.................. 314,681 (139,681) 175,000
-------- --------- ---------
Combined equity........................... 122,630 (122,630) --
Partners' capital:
Common Unitholders(3)................... -- 305,242 305,242
Subordinated Unitholders................ -- 99,515 99,515
General Partner......................... -- (136,243) (136,243)
-------- --------- ---------
Total combined equity/partners'
capital.............................. 122,630 145,884 268,514
-------- --------- ---------
Total capitalization.................. $437,311 $ 6,203 $ 443,514
======== ========= =========
</TABLE>
- --------
(1) See Notes to Pro Forma Consolidated Financial Statements of Plains All
American Pipeline, L.P. for a discussion of the pro forma adjustments.
(2) In connection with the Transactions, the Operating Partnership will assume
$175 million of the $285 million of indebtedness incurred by the General
Partner in conjunction with the acquisition of the All American Pipeline
and the SJV Gathering System. The Bank Credit Agreement is an amendment
and restatement of the bank credit agreement pursuant to which such
acquisition was financed.
(3) Includes Common Units offered hereby, as well as Common Units retained by
the General Partner.
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<PAGE>
DILUTION
On a pro forma basis as of September 30, 1998 after giving effect to the
Transactions, the net tangible book value was $260.4 million or $8.68 per
Common Unit (assuming an initial public offering price of $20.00 per Common
Unit). Purchasers of Common Units in this offering will experience substantial
and immediate dilution in net tangible book value per Common Unit for
financial accounting purposes, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per Common Unit............ $ 20.00
Net tangible book value per Common Unit before the Offering
(1)(2).......................................................... $6.65
Increase in net tangible book value per Common Unit attributable
to new investors................................................ 2.03
-----
Less: Pro forma net tangible book value per Common Unit after the
Offering (2)(3)................................................. 8.68
-------
Immediate dilution in net tangible book value per Common Unit to
new investors................................................... $ 11.32
=======
</TABLE>
- --------
(1) Determined by dividing the number of Units (6,817,391 Common Units and
9,800,000 Subordinated Units and the 2% general partner interest having
dilutive effect equivalent to 600,000 Units) to be issued to the General
Partner for its contribution of assets and liabilities to the Partnership
into the net tangible book value of the contributed assets and
liabilities.
(2) The net tangible book value does not include intangible assets contributed
to the Partnership with a book value of $8.1 million ($0.47 per Unit).
(3) Determined by dividing the total number of Units (19,600,000 Common Units,
9,800,000 Subordinated Units and the 2% general partner interest having
dilutive effect equivalent to 600,000 Units) to be outstanding after the
offering made hereby into the pro forma net tangible book value of the
Partnership, after giving effect to the application of the net proceeds of
this offering.
The following table sets forth the number of Units that will be issued by
the Partnership and the total consideration to the Partnership contributed by
the General Partner and its affiliates in respect of their Units and by the
purchasers of Common Units in this offering upon the consummation of the
Transactions:
<TABLE>
<CAPTION>
UNITS ACQUIRED TOTAL CONSIDERATION
------------------ ---------------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ------------- -------
<S> <C> <C> <C> <C>
General Partner and its
affiliates(1)(2)..................... 17,217,391 57.4% $ 32,479,000 12.1%
New Investors......................... 12,782,609 42.6 236,035,000 87.9
---------- ----- ------------- -----
Total............................... 30,000,000 100.0% $ 268,514,000 100.0%
========== ===== ============= =====
</TABLE>
- --------
(1) Upon the consummation of the Transactions, the General Partner and its
affiliates will own an aggregate of 6,817,391 Common Units and 9,800,000
Subordinated Units and a 2% general partner interest in the Partnership
having a dilutive effect equivalent to 600,000 Units.
(2) The assets and liabilities contributed and sold by the Plains Midstream
Subsidiaries and Plains Resources will be recorded at historical cost
rather than fair value in accordance with generally accepted accounting
principles. These assets include $8.1 million of intangible assets. Total
book value of the consideration provided by the Plains Midstream
Subsidiaries and Plains Resources is as follows:
<TABLE>
<S> <C>
Book value of net assets transferred by the Plains Midstream
Subsidiaries at September 30, 1998.......................... $ 126,596,000
Debt retained by Plains Midstream Subsidiaries............... 141,918,000
Less: Distribution of portion of net proceeds from the Common
Units....................................................... (142,335,000)
Less: Purchase of assets from Plains Resources............... (93,700,000)
-------------
$ 32,479,000
=============
</TABLE>
43
<PAGE>
CASH DISTRIBUTION POLICY
GENERAL
Available Cash
The Partnership will distribute to its partners, on a quarterly basis, all
of its Available Cash in the manner described herein. Available Cash is
defined in the Glossary and generally means, with respect to any quarter of
the Partnership, all cash on hand at the end of such quarter less the amount
of cash reserves that is necessary or appropriate in the reasonable discretion
of the General Partner to (i) provide for the proper conduct of the
Partnership's business, (ii) comply with applicable law or any Partnership
debt instrument or other agreement, or (iii) provide funds for distributions
to Unitholders and the General Partner in respect of any one or more of the
next four quarters.
Operating Surplus and Capital Surplus
Cash distributions will be characterized as distributions from either
Operating Surplus or Capital Surplus. This distinction affects the amounts
distributed to Unitholders relative to the General Partner, and under certain
circumstances it determines whether holders of Subordinated Units receive any
distributions. See "--Quarterly Distributions of Available Cash."
Operating Surplus is defined in the Glossary and refers generally to (i) the
cash balance of the Partnership on the date the Partnership commences
operations, plus $25 million, plus all cash receipts of the Partnership from
its operations since the closing of the Transactions (excluding cash
constituting Capital Surplus), less (ii) all Partnership operating expenses,
debt service payments (including reserves therefor but not including payments
required in connection with the sale of assets or any refinancing with the
proceeds of new indebtedness or an equity offering), maintenance capital
expenditures and reserves established for future Partnership operations, in
each case since the closing of the Transactions.
Capital Surplus is also defined in the Glossary and will generally be
generated only by borrowings (other than Working Capital Borrowings), sales of
debt and equity securities and sales or other dispositions of assets for cash
(other than inventory, accounts receivable and other assets all as disposed of
in the ordinary course of business).
To avoid the difficulty of trying to determine whether Available Cash
distributed by the Partnership is from Operating Surplus or from Capital
Surplus, all Available Cash distributed by the Partnership from any source
will be treated as distributed from Operating Surplus until the sum of all
Available Cash distributed since the commencement of the Partnership equals
the Operating Surplus as of the end of the quarter prior to such distribution.
Any Available Cash in excess of such amount (irrespective of its source) will
be deemed to be from Capital Surplus and distributed accordingly.
If Available Cash from Capital Surplus is distributed in respect of each
Common Unit in an aggregate amount per Common Unit equal to the initial public
offering price of the Common Units (the "Initial Unit Price"), plus any Common
Unit Arrearages, the distinction between Operating Surplus and Capital Surplus
will cease, and all distributions of Available Cash will be treated as if they
were from Operating Surplus. The Partnership does not anticipate that there
will be significant distributions from Capital Surplus.
Subordinated Units
The Subordinated Units that will be issued to the General Partner are
entitled to receive the Minimum Quarterly Distribution only after the Common
Units have received the Minimum Quarterly Distribution plus any arrearages
thereon. The Subordinated Units are not entitled to arrearages. Upon
expiration of the Subordination Period, which will generally not occur prior
to December 31, 2003, the Subordinated Units will convert into Common Units on
a one-for-one basis and will thereafter participate pro rata with the other
Common Units in distributions of Available Cash. The Subordinated Units are
also subordinated to the Common Units upon liquidation and have fewer voting
rights than the Common Units.
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Incentive Distributions
The Incentive Distributions represent the right to receive an increasing
percentage of quarterly distributions of Available Cash from Operating Surplus
after the Minimum Quarterly Distribution and the Target Distribution Levels
have been achieved. The Target Distribution Levels are based on the amounts of
Available Cash from Operating Surplus distributed in excess of the payments
made with respect to the Minimum Quarterly Distribution and Common Unit
Arrearages, if any, and the related 2% distribution to the General Partner.
Effect of Issuance of Additional Units
Subject to the limitations described under "The Partnership Agreement--
Issuance of Additional Securities," the Partnership has the authority to issue
additional Common Units or other equity securities of the Partnership for such
consideration and on such terms and conditions as are established by the
General Partner in its sole discretion and without the approval of the
Unitholders. It is possible that the Partnership will fund acquisitions
through the issuance of additional Common Units or other equity securities of
the Partnership. Holders of any additional Common Units issued by the
Partnership will be entitled to share equally with the then-existing holders
of Common Units in distributions of Available Cash by the Partnership. In
addition, the issuance of additional Partnership Interests may dilute the
value of the interests of the then-existing holders of Common Units in the net
assets of the Partnership. The General Partner will be required to make an
additional capital contribution to the Partnership or the Operating
Partnership (other than in connection with the exercise of the over-allotment
option) in connection with the issuance of additional Partnership Interests.
QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
The Partnership will make distributions to its partners with respect to each
quarter of the Partnership prior to its liquidation in an amount equal to 100%
of its Available Cash for such quarter. The Partnership expects to make
distributions of all Available Cash within approximately 45 days after the end
of each quarter, commencing with the quarter ending December 31, 1998, to
holders of record on the applicable record date. The Minimum Quarterly
Distribution and the Target Distribution Levels for the period from the
closing of this offering through December 31, 1998 will be adjusted downward
based on the actual length of such period. The Minimum Quarterly Distribution
and the Target Distribution Levels are also subject to certain other
adjustments as described below under "--Distributions from Capital Surplus"
and "--Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels."
With respect to each quarter during the Subordination Period, to the extent
there is sufficient Available Cash, the holders of Common Units will have the
right to receive the Minimum Quarterly Distribution, plus any Common Unit
Arrearages, prior to any distribution of Available Cash to the holders of
Subordinated Units. This subordination feature will enhance the Partnership's
ability to distribute the Minimum Quarterly Distribution on the Common Units
during the Subordination Period. There is no guarantee, however, that the
Minimum Quarterly Distribution will be made on the Common Units. Upon
expiration of the Subordination Period, all Subordinated Units will be
converted on a one-for-one basis into Common Units and will participate pro
rata with all other Common Units in future distributions of Available Cash.
Under certain circumstances, up to 50% of the Subordinated Units may convert
into Common Units prior to the expiration of the Subordination Period. Common
Units will not accrue arrearages with respect to distributions for any quarter
after the Subordination Period and Subordinated Units will not accrue any
arrearages with respect to distributions for any quarter.
DISTRIBUTIONS FROM OPERATING SURPLUS DURING SUBORDINATION PERIOD
The Subordination Period will generally extend from the closing of this
offering until the first day of any quarter beginning after December 31, 2003
in respect of which (i) distributions of Available Cash from Operating Surplus
on the Common Units and the Subordinated Units with respect to each of the
three consecutive four-quarter periods immediately preceding such date equaled
or exceeded the sum of the Minimum Quarterly Distribution on all of the
outstanding Common Units and Subordinated Units during such periods, (ii) the
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Adjusted Operating Surplus generated during each of the three consecutive
four-quarter periods immediately preceding such date equaled or exceeded the
sum of the Minimum Quarterly Distribution on all of the Common Units and
Subordinated Units that were outstanding on a fully diluted basis and the
related distribution on the general partner interests in the Partnership and
the Operating Partnership during such periods, and (iii) there are no
outstanding Common Unit Arrearages.
Prior to the end of the Subordination Period, a portion of the Subordinated
Units will convert into Common Units on a one-for-one basis on the first day
after the record date established for the distribution in respect of any
quarter ending on or after (a) December 31, 2001 with respect to one-quarter
of the Subordinated Units (2,450,000 Subordinated Units) and (b) December 31,
2002 with respect to one-quarter of the Subordinated Units (2,450,000
Subordinated Units) in respect of which (i) distributions of Available Cash
from Operating Surplus on the Common Units and the Subordinated Units with
respect to each of the three consecutive four-quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the outstanding Common Units and Subordinated Units
during such periods, (ii) the Adjusted Operating Surplus generated during each
of the three consecutive four-quarter periods immediately preceding such date
equaled or exceeded the sum of the Minimum Quarterly Distribution on all of
the Common Units and Subordinated Units that were outstanding on a fully
diluted basis and the related distribution on the general partner interests in
the Partnership during such periods, and (iii) there are no outstanding Common
Unit Arrearages; provided, however, that the early conversion of the second
one-quarter of Subordinated Units may not occur until at least one year
following the early conversion of the first one-quarter of Subordinated Units.
Upon expiration of the Subordination Period, all remaining Subordinated
Units will convert into Common Units on a one-for-one basis and will
thereafter participate, pro rata, with the other Common Units in distributions
of Available Cash. In addition, if the General Partner is removed as general
partner of the Partnership under circumstances where Cause does not exist and
Units held by the General Partner and its affiliates are not voted in favor of
such removal, (i) the Subordination Period will end and all outstanding
Subordinated Units will immediately convert into Common Units on a one-for-one
basis, (ii) any existing Common Unit Arrearages will be extinguished and (iii)
the General Partner will have the right to convert its general partner
interests (and the right to receive Incentive Distributions) into Common Units
or to receive cash in exchange for such interests.
"Adjusted Operating Surplus" for any period generally means Operating
Surplus generated during such period, less (a) any net increase in Working
Capital Borrowings during such period and (b) any net reduction in cash
reserves for Operating Expenditures during such period not relating to an
Operating Expenditure made during such period; and plus (x) any net decrease
in Working Capital Borrowings during such period and (y) any net increase in
cash reserves for Operating Expenditures during such period required by any
debt instrument for the repayment of principal, interest or premium. Operating
Surplus generated during a period is equal to the difference between (i) the
Operating Surplus determined at the end of such period and (ii) the Operating
Surplus determined at the beginning of such period.
Distributions by the Partnership of Available Cash from Operating Surplus
with respect to any quarter during the Subordination Period will be made in
the following manner:
First, 98% to the Common Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each outstanding
Common Unit an amount equal to the Minimum Quarterly Distribution for such
quarter;
Second, 98% to the Common Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each outstanding
Common Unit an amount equal to any Common Unit Arrearages accrued and
unpaid with respect to any prior quarters during the Subordination Period;
Third, 98% to the Subordinated Unitholders, pro rata, and 2% to the
General Partner, until there has been distributed in respect of each
outstanding Subordinated Unit an amount equal to the Minimum Quarterly
Distribution for such quarter; and
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<PAGE>
Thereafter, in the manner described in "--Incentive Distributions--
Hypothetical Annualized Yield" below.
The above references to the 2% of Available Cash from Operating Surplus
distributed to the General Partner are references to the amount of the
percentage interest in distributions from the Partnership and the Operating
Partnership of the General Partner on a combined basis (exclusive of its or
any of its affiliates' interest as holders of the Units). The General Partner
will own a 1% general partner interest in the Partnership and a 1.0111%
general partner interest in the Operating Partnership. With respect to any
Common Unit, the term "Common Unit Arrearages" refers to the amount by which
the Minimum Quarterly Distribution in any quarter during the Subordination
Period exceeds the distribution of Available Cash from Operating Surplus
actually made for such quarter on a Common Unit issued in this offering,
cumulative for such quarter and all prior quarters during the Subordination
Period. Common Unit Arrearages will not accrue interest.
DISTRIBUTIONS FROM OPERATING SURPLUS AFTER SUBORDINATION PERIOD
Distributions by the Partnership of Available Cash from Operating Surplus
with respect to any quarter after the Subordination Period will be made in the
following manner:
First, 98% to all Unitholders, pro rata, and 2% to the General Partner,
until there has been distributed in respect of each Unit an amount equal to
the Minimum Quarterly Distribution for such quarter; and
Thereafter, in the manner described in "--Incentive Distributions--
Hypothetical Annualized Yield" below.
INCENTIVE DISTRIBUTIONS--HYPOTHETICAL ANNUALIZED YIELD
For any quarter for which Available Cash from Operating Surplus is
distributed to the Common and Subordinated Unitholders in an amount equal to
the Minimum Quarterly Distribution on all Units and to the Common Unitholders
in an amount equal to any unpaid Common Unit Arrearages, then any additional
Available Cash from Operating Surplus in respect of such quarter will be
distributed among the Unitholders and the General Partner in the following
manner:
First, 85% to all Unitholders, pro rata, and 15% to the General Partner,
until the Unitholders have received (in addition to any distributions to
Common Unitholders to eliminate Common Unit Arrearages) a total of $0.495
for such quarter in respect of each outstanding Unit (the "First Target
Distribution");
Second, 75% to all Unitholders, pro rata, and 25% to the General Partner,
until the Unitholders have received (in addition to any distributions to
Common Unitholders to eliminate Common Unit Arrearages) a total of $0.675
for such quarter in respect of each outstanding Unit (the "Second Target
Distribution"); and
Thereafter, 50% to all Unitholders, pro rata, and 50% to the General
Partner.
The distributions to the General Partner set forth above (other than in its
capacity as holders of Units) that are in excess of its aggregate 2% general
partner interest represent the Incentive Distributions. The right to receive
Incentive Distributions is not part of the general partner interest and may be
transferred separately from such interests, subject to certain restrictions.
See "The Partnership Agreement--Transfer of General Partner Interest and
Incentive Distribution Rights."
The following table illustrates the percentage allocation of the additional
Available Cash from Operating Surplus between the Unitholders and the General
Partner up to the various Target Distribution Levels and a hypothetical
annualized percentage yield to be realized by a Unitholder at each Target
Distribution Level. These distributions are intended to represent a return on
investment to Unitholders. For a discussion of the tax consequences of
ownership of Common Units, see "Tax Considerations." For purposes of the
following table,
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the annualized percentage yield is calculated on a pretax basis by dividing
each level of distribution by the assumed initial public offering price of
$20.00 per Common Unit. To the extent that the trading price of the Common
Units is greater than $20.00 per Common Unit, the calculated distribution
yield will decrease and to the extent that the trading price of the Common
Units is less than $20.00 per Common Unit, the calculated distribution yield
will increase. The calculations are also based on the assumption that the
quarterly distribution amounts shown do not include any Common Unit
Arrearages. The amounts set forth under "Marginal Percentage Interest in
Distributions" are the percentage interests of the General Partner and the
Unitholders in any Available Cash from Operating Surplus distributed up to and
including the corresponding amount in the column "Quarterly Distribution
Amount per Common Unit," until Available Cash distributed to a Common
Unitholder reaches the next Target Distribution Level, if any. The percentage
interests shown for the Unitholders and the General Partner for the Minimum
Quarterly Distribution are also applicable to quarterly distribution amounts
that are less than the Minimum Quarterly Distribution.
<TABLE>
<CAPTION>
MARGINAL PERCENTAGE
INTEREST IN
QUARTERLY DISTRIBUTIONS
DISTRIBUTION HYPOTHETICAL -------------------
AMOUNT PER ANNUALIZED GENERAL
COMMON UNIT YIELD UNITHOLDERS PARTNER
------------ ------------ ----------- -------
<S> <C> <C> <C> <C>
Minimum Quarterly
Distribution............. $0.450 9.00% 98% 2%
First Target Distribution. $0.495 9.90% 85% 15%
Second Target
Distribution............. $0.675 13.50% 75% 25%
Thereafter................ above $0.675 above 13.50% 50% 50%
</TABLE>
DISTRIBUTIONS FROM CAPITAL SURPLUS
Distributions by the Partnership of Available Cash from Capital Surplus will
be made in the following manner:
First, 98% to all Unitholders, pro rata, and 2% to the General Partner,
until the Partnership has distributed, in respect of each outstanding
Common Unit issued in this offering, Available Cash from Capital Surplus in
an aggregate amount per Common Unit equal to the Initial Unit Price;
Second, 98% to the holders of Common Units, pro rata, and 2% to the
General Partner, until the Partnership has distributed, in respect of each
outstanding Common Unit, Available Cash from Capital Surplus in an
aggregate amount equal to any unpaid Common Unit Arrearages with respect to
such Common Unit; and
Thereafter, all distributions of Available Cash from Capital Surplus will
be distributed as if they were from Operating Surplus.
As a distribution of Available Cash from Capital Surplus is made, it is
treated as if it were a repayment of the Initial Unit Price. To reflect such
repayment, the Minimum Quarterly Distribution and the Target Distribution
Levels will be adjusted downward by multiplying each such amount by a
fraction, the numerator of which is the Unrecovered Capital of the Common
Units immediately after giving effect to such repayment and the denominator of
which is the Unrecovered Capital of the Common Units immediately prior to such
repayment. This adjustment to the Minimum Quarterly Distribution may make it
more likely that Subordinated Units will be converted into Common Units
(whether pursuant to the termination of the Subordination Period or to the
provisions permitting early conversion of some Subordinated Units) and may
accelerate the dates at which such conversions occur.
When "payback" of the Initial Unit Price has occurred, i.e., when the
Unrecovered Capital of the Common Units is zero (and any accrued Common Unit
Arrearages have been paid), then in effect the Minimum Quarterly Distribution
and each of the Target Distribution Levels will have been reduced to zero for
subsequent quarters. Thereafter, all distributions of Available Cash from all
sources will be treated as if they were from Operating
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<PAGE>
Surplus. Because the Minimum Quarterly Distribution and the Target
Distribution Levels will have been reduced to zero, the General Partner will
be entitled thereafter to receive 50% of all distributions of Available Cash
in its capacities as General Partner and as holder of the Incentive
Distribution Rights (in addition to any distributions to which they may be
entitled as holders of Units).
Distributions of Available Cash from Capital Surplus will not reduce the
Minimum Quarterly Distribution or Target Distribution Levels for the quarter
with respect to which they are distributed.
ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION LEVELS
In addition to reductions of the Minimum Quarterly Distribution and Target
Distribution Levels made upon a distribution of Available Cash from Capital
Surplus, the Minimum Quarterly Distribution, the Target Distribution Levels,
the Unrecovered Capital, the number of additional Common Units issuable during
the Subordination Period without a Unitholder vote, the number of Common Units
issuable upon conversion of the Subordinated Units and other amounts
calculated on a per Unit basis will be proportionately adjusted upward or
downward, as appropriate, in the event of any combination or subdivision of
Common Units (whether effected by a distribution payable in Common Units or
otherwise), but not by reason of the issuance of additional Common Units for
cash or property. For example, in the event of a two-for-one split of the
Common Units (assuming no prior adjustments), the Minimum Quarterly
Distribution, each of the Target Distribution Levels and the Unrecovered
Capital of the Common Units would each be reduced to 50% of its initial level.
The Minimum Quarterly Distribution and the Target Distribution Levels may
also be adjusted if legislation is enacted or if existing law is modified or
interpreted by the relevant governmental authority in a manner that causes the
Partnership to become taxable as a corporation or otherwise subjects the
Partnership to taxation as an entity for federal, state or local income tax
purposes. In such event, the Minimum Quarterly Distribution and the Target
Distribution Levels would be reduced to an amount equal to the product of (i)
the Minimum Quarterly Distribution and each of the Target Distribution Levels,
respectively, multiplied by (ii) one minus the sum of (x) the maximum
effective federal income tax rate to which the Partnership is then subject as
an entity plus (y) any increase that results from such legislation in the
effective overall state and local income tax rate to which the Partnership is
subject as an entity for the taxable year in which such event occurs (after
taking into account the benefit of any deduction allowable for federal income
tax purposes with respect to the payment of state and local income taxes). For
example, assuming the Partnership was not previously subject to state and
local income tax, if the Partnership were to become taxable as an entity for
federal income tax purposes and the Partnership became subject to a maximum
marginal federal, and effective state and local, income tax rate of 38%, then
the Minimum Quarterly Distribution and the Target Distribution Levels would
each be reduced to 62% of the amount thereof immediately prior to such
adjustment.
DISTRIBUTIONS OF CASH UPON LIQUIDATION
Following the commencement of the dissolution and liquidation of the
Partnership, assets will be sold or otherwise disposed of from time to time
and the partners' capital account balances will be adjusted to reflect any
resulting gain or loss. The proceeds of such liquidation will, first, be
applied to the payment of creditors of the Partnership in the order of
priority provided in the Partnership Agreement and by law and, thereafter, be
distributed to the Unitholders and the General Partner in accordance with
their respective capital account balances as so adjusted.
Partners are entitled to liquidating distributions in accordance with
capital account balances. The allocations of gains and losses upon liquidation
are intended, to the extent possible, to entitle the holders of outstanding
Common Units to a preference over the holders of outstanding Subordinated
Units upon the liquidation of the Partnership, to the extent required to
permit Common Unitholders to receive their Unrecovered Capital plus any unpaid
Common Unit Arrearages. Thus, net losses recognized upon liquidation of the
Partnership will be allocated to the holders of the Subordinated Units to the
extent of their capital account balances before any loss
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<PAGE>
is allocated to the holders of the Common Units, and net gains recognized upon
liquidation will be allocated first to restore negative balances in the
capital account of the General Partner and any Unitholders and then to the
Common Unitholders until their capital account balances equal their
Unrecovered Capital plus unpaid Common Unit Arrearages. However, no assurance
can be given that there will be sufficient gain upon liquidation of the
Partnership to enable the holders of Common Units to fully recover all of such
amounts, even though there may be cash available for distribution to the
holders of Subordinated Units.
The manner of such adjustment is as provided in the Partnership Agreement,
the form of which is included as Appendix A to this Prospectus. If the
liquidation of the Partnership occurs before the end of the Subordination
Period, any net gain (or unrealized gain attributable to assets distributed in
kind) will be allocated to the partners as follows:
First, to the General Partner and the holders of Units having negative
balances in their capital accounts to the extent of and in proportion to
such negative balances;
Second, 98% to the holders of Common Units, pro rata, and 2% to the
General Partner, until the capital account for each Common Unit is equal to
the sum of (i) the Unrecovered Capital in respect of such Common Unit, (ii)
the amount of the Minimum Quarterly Distribution for the quarter during
which liquidation of the Partnership occurs and (iii) any unpaid Common
Unit Arrearages in respect of such Common Unit;
Third, 98% to the holders of Subordinated Units, pro rata, and 2% to the
General Partner, until the capital account for each Subordinated Unit is
equal to the sum of (i) the Unrecovered Capital in respect of such
Subordinated Unit and (ii) the amount of the Minimum Quarterly Distribution
for the quarter during which the liquidation of the Partnership occurs;
Fourth, 85% to the Unitholders, pro rata, and 15% to the General Partner,
until there has been allocated under this paragraph fourth an amount per
Unit equal to (a) the sum of the excess of the First Target Distribution
per Unit over the Minimum Quarterly Distribution per Unit for each quarter
of the Partnership's existence, less (b) the cumulative amount per Unit of
any distributions of Available Cash from Operating Surplus in excess of the
Minimum Quarterly Distribution per Unit that was distributed 85% to the
Unitholders, pro rata, and 15% to the General Partner for each quarter of
the Partnership's existence;
Fifth, 75% to all Unitholders, pro rata, and 25% to the General Partner,
until there has been allocated under this paragraph fifth an amount per
Unit equal to (a) the sum of the excess of the Second Target Distribution
per Unit over the First Target Distribution per Unit for each quarter of
the Partnership's existence, less (b) the cumulative amount per Unit of any
distributions of Available Cash from Operating Surplus in excess of the
First Target Distribution per Unit that was distributed 75% to the
Unitholders, pro rata, and 25% to the General Partner for each quarter of
the Partnership's existence; and
Thereafter, 50% to all Unitholders, pro rata, and 50% to the General
Partner.
If the liquidation occurs after the Subordination Period, the distinction
between Common Units and Subordinated Units will disappear, so that clauses
(ii) and (iii) of paragraph second above and all of paragraph third above will
no longer be applicable.
Upon liquidation of the Partnership, any loss will generally be allocated to
the General Partner and the Unitholders as follows:
First, 98% to holders of Subordinated Units in proportion to the positive
balances in their respective capital accounts and 2% to the General
Partner, until the capital accounts of the holders of the Subordinated
Units have been reduced to zero;
Second, 98% to the holders of Common Units in proportion to the positive
balances in their respective capital accounts and 2% to the General
Partner, until the capital accounts of the Common Unitholders have been
reduced to zero; and
Thereafter, 100% to the General Partner.
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<PAGE>
If the liquidation occurs after the Subordination Period, the distinction
between Common Units and Subordinated Units will disappear, so that all of
paragraph first above will no longer be applicable.
In addition, interim adjustments to capital accounts will be made at the
time the Partnership issues additional interests in the Partnership or makes
distributions of property. Such adjustments will be based on the fair market
value of the interests or the property distributed and any gain or loss
resulting therefrom will be allocated to the Unitholders and the General
Partner in the same manner as gain or loss is allocated upon liquidation. In
the event that positive interim adjustments are made to the capital accounts,
any subsequent negative adjustments to the capital accounts resulting from the
issuance of additional interests in the Partnership, distributions of property
by the Partnership, or upon liquidation of the Partnership, will be allocated
in a manner which results, to the extent possible, in the capital account
balances of the General Partner equaling the amount which would have been the
General Partner's capital account balances if no prior positive adjustments to
the capital accounts had been made.
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CASH AVAILABLE FOR DISTRIBUTION
Based on the amount of working capital that the Partnership is expected to
have at the time it commences operations and the ability to make Working
Capital Borrowings under the Revolving Credit Facility, the Partnership
believes that it should have sufficient Available Cash from Operating Surplus
to enable it to distribute the Minimum Quarterly Distribution on the Common
Units and Subordinated Units to be outstanding immediately after the
consummation of this offering with respect to each quarter at least through
the quarter ending December 31, 1999. Operating Surplus generally consists of
cash generated from operations after deducting related expenditures and other
items, plus the Partnership's cash balance at the closing of this offering,
plus $25 million. The Partnership's belief is based on a number of
assumptions, including the assumptions that:
. the average daily volume of crude oil transported on the All American
Pipeline and SJV Gathering System will not be less than the average daily
volume transported during the nine months ended September 30, 1998;
. the tariffs charged by the Partnership will not decline from current
levels;
. the gross margins from the Partnership's terminalling and storage
activities and gathering and marketing activities in the aggregate will
continue at not less than the same levels experienced during the nine
months ended September 30, 1998 on an annualized basis;
. any loss of gross margin from a reduction in storage activities due to a
change in the market from contango to backward will be offset by an
increase in marketing margins;
. no material accidents or other events will occur that disrupt the All
American Pipeline, the SJV Gathering System, the Partnership's
terminalling or storage facilities, or pipelines with which they have
significant interconnections; and
. market, regulatory and overall economic conditions will not change
substantially.
Although the Partnership believes such assumptions are within a range of
reasonableness, whether the assumptions are realized is not, in a number of
cases, within the control of the Partnership and cannot be predicted with any
degree of certainty. In the event that the Partnership's assumptions are not
realized, the actual Available Cash from Operating Surplus generated by the
Partnership could be substantially less than that currently expected and
could, therefore, be insufficient to permit the Partnership to make cash
distributions at the levels described above. See "Risk Factors--Risks Inherent
in an Investment in the Partnership--Partnership Assumptions Concerning Future
Operations May Not Be Realized." In addition, the terms of the Partnership's
indebtedness will restrict the ability of the Partnership to distribute cash
to Unitholders in the event of a default under the terms of such indebtedness.
Accordingly, no assurance can be given that distributions of the Minimum
Quarterly Distribution or any other amounts will be made. See "Cash
Distribution Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Partnership does not intend to
update the expression of belief set forth above.
The amount of Available Cash from Operating Surplus needed to distribute the
Minimum Quarterly Distribution for four quarters on the Common Units and
Subordinated Units to be outstanding immediately after this offering and on
the combined 2% general partner interest is approximately $54.0 million ($35.3
million for the Common Units, $17.6 million for the Subordinated Units and
$1.1 million for the combined 2% general partner interest). The amount of pro
forma Available Cash from Operating Surplus generated during 1997 and for the
twelve months ended September 30, 1998 was approximately $62.3 million and
$54.2 million, respectively. Such amounts would have been sufficient to cover
the Minimum Quarterly Distribution during such periods on all of the Common
Units, Subordinated Units and the related distribution on the general partner
interest. However, such amounts do not include approximately $0.9 million of
incremental general and administrative expenses that the General Partner
believes will be incurred by the Partnership as a result of it being a
separate public entity. The amounts of pro forma Available Cash from Operating
Surplus set forth above were derived from the pro forma and historical
financial statements of the Partnership in the manner set forth in Appendix D.
The pro forma adjustments are based upon currently available information and
certain estimates and assumptions. The pro forma financial statements do not
purport to present the results of operations
52
<PAGE>
of the Partnership had the Transactions actually been completed as of the
dates indicated. Furthermore, Available Cash from Operating Surplus as defined
in the Partnership Agreement is a cash accounting concept, while the
Partnership's historical and pro forma financial statements have been prepared
on an accrual basis. As a consequence, the amount of pro forma Available Cash
from Operating Surplus shown above should only be viewed as a general
indication of the amount of Available Cash from Operating Surplus that might
in fact have been generated by the Partnership had it been formed in earlier
periods. For definitions of Available Cash and Operating Surplus, see the
Glossary.
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SELECTED PRO FORMA FINANCIAL AND OPERATING DATA
The following unaudited Selected Pro Forma Financial and Operating Data are
derived from the historical financial statements of Wingfoot (which reflect
the historical operating results of the All American Pipeline and the SJV
Gathering System) and the Plains Midstream Subsidiaries (which reflect the
historical operating results of the Partnership's terminalling and storage
activities and gathering and marketing activities) as adjusted for the
Transactions. Commencing July 30, 1998 (the date of the acquisition of the All
American Pipeline and the SJV Gathering System from Goodyear), the results of
operations of the All American Pipeline and the SJV Gathering System are
included in the results of operations of the Plains Midstream Subsidiaries.
For a discussion of the assumptions used in preparing the Selected Pro Forma
Financial and Operating Data, see "Plains All American Pipeline, L.P. Pro
Forma Consolidated Financial Statements." The following information should not
be deemed indicative of future operating results for the Partnership.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1997 1997 1998
------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER UNIT
AND BARREL AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................................... $1,746,491 $1,284,102 $1,194,648
Cost of sales and operations............... 1,662,282 1,217,572 1,136,062
---------- ---------- ----------
Gross margin............................... 84,209 66,530 58,586
General and administrative expenses........ 6,182 4,628 4,765
Depreciation and amortization.............. 10,516 7,887 8,067
Impairment of pipeline assets(1)........... 64,173 -- --
---------- ---------- ----------
Operating income........................... 3,338 54,015 45,754
Interest expense........................... 14,383 10,681 10,722
Other income............................... 138 105 652
---------- ---------- ----------
Pro forma net income (loss)(1)............. $ (10,907) $ 43,439 $ 35,684
========== ========== ==========
Pro forma net income (loss) per Unit(1)(2). $ (.36) $ 1.45 $ 1.19
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital............................ $ 8,000
Total assets............................... 581,568
Total long-term debt....................... 175,000
Partners' capital.......................... 268,514
OTHER DATA:
Gross margins:
Pipeline.................................. $ 70,078 $ 56,475 $ 42,236
Terminalling and storage and gathering and
marketing................................ 14,131 10,055 16,350
EBITDA(3).................................. 78,165 62,007 54,473
Maintenance capital expenditures(4)........ 1,433 1,159 1,775
OPERATING DATA:
Volumes (barrels per day):
Pipeline:
Tariff(5)................................. 164,600 173,700 135,700
Margin(6)................................. 30,500 27,700 38,000
---------- ---------- ----------
Total pipeline........................... 195,100 201,400 173,700
========== ========== ==========
Lease gathering(7)........................ 94,000 91,800 109,500
Bulk purchases(8)......................... 48,500 45,900 93,800
Terminal throughput(9).................... 76,700 77,700 79,000
</TABLE>
54
<PAGE>
- --------
(1) The pro forma financial statements for the year ended December 31, 1997
include a non-cash impairment charge of $64.2 million related to the
writedown of property and equipment by Wingfoot in connection with the
sale of Wingfoot by Goodyear to the General Partner. Based on the
Partnership's purchase price allocation to property and equipment, an
impairment charge would not have been required had the Partnership
actually acquired Wingfoot effective January 1, 1997. Excluding this
impairment charge, the Partnership's pro forma net income for 1997 would
have been $53.3 million. In addition, the pro forma information does not
include approximately $0.9 million of general and administrative expenses
that the General Partner believes will be incurred by the Partnership as a
result of its being a separate public entity.
(2) Net income per Unit is computed by dividing the limited partners' 98%
interest in net income by the number of Common and Subordinated Units
expected to be outstanding at the closing of this offering.
(3) EBITDA means earnings before interest expense, income taxes, depreciation
and amortization. EBITDA provides additional information for evaluating
the Partnership's ability to make the Minimum Quarterly Distribution and
is presented solely as a supplemental measure. EBITDA is not a measurement
presented in accordance with GAAP and is not intended to be used in lieu
of GAAP presentations of results of operations and cash provided by
operating activities. The Partnership's EBITDA may not be comparable to
EBITDA of other entities as other entities may not calculate EBITDA in the
same manner as the Partnership.
(4) Maintenance capital expenditures are capital expenditures made to replace
partially or fully depreciated assets to maintain the existing operating
capacity of existing assets or extend their useful lives. Capital
expenditures made to expand the Partnership's existing capacity, whether
through construction or acquisition, are not considered maintenance
capital expenditures. Repair and maintenance expenditures associated with
existing assets that do not extend the useful life or expand operating
capacity are charged to expense as incurred.
(5) Represents crude oil deliveries on the All American Pipeline for the
account of third parties.
(6) Represents crude oil deliveries on the All American Pipeline and the SJV
Gathering System for the account of affiliated entities.
(7) Represents barrels of crude oil purchased at the wellhead, including
volumes which would have been purchased under the Marketing Agreement.
(8) Represents barrels of crude oil purchased at collection points, terminals
and pipelines.
(9) Represents total crude oil barrels delivered from the Cushing Terminal and
the Ingleside Terminal.
55
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The financial information below for Wingfoot for the years ended December
31, 1993 and 1994 and as of December 31, 1993, 1994 and 1995 is derived from
the unaudited consolidated financial statements of Wingfoot. The financial
information below for Wingfoot for the years ended December 31, 1995, 1996,
and 1997 and as of December 31, 1996 and 1997 is derived from the audited
consolidated financial statements of Wingfoot. The financial information below
for Plains Midstream Subsidiaries as of and for the years ended December 31,
1993, 1994, 1995, 1996 and 1997 is derived from the audited combined financial
statements of the Plains Midstream Subsidiaries. The operating data for all
periods presented is derived from the records of Wingfoot and the Plains
Midstream Subsidiaries. Commencing July 30, 1998 (the date of the acquisition
of the All American Pipeline and the SJV Gathering System from Goodyear), the
results of operations of the All American Pipeline and the SJV Gathering
System are included in the results of operations of the Plains Midstream
Subsidiaries. In the Partnership's opinion, each of the unaudited financial
statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair statement of the results of the unaudited
periods. The Selected Historical Financial and Operating Data below should be
read in conjunction with the financial statements of Wingfoot and the Plains
Midstream Subsidiaries, included elsewhere in this Prospectus, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
WINGFOOT
-----------------------------------------------------------------------------------
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT FOR OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $ 699,124 $ 664,835 $ 619,277 $ 929,299 $ 992,318 $ 541,698 $374,654
Cost of sales and
operations............ 661,275 610,570 517,803 826,041 923,152 503,085 344,538
---------- ---------- ---------- --------- --------- --------- --------
Gross margin........... 37,849 54,265 101,474 103,258 69,166 38,613 30,116
General and
administrative
expenses.............. 6,690 4,285 4,834 2,961 2,767 1,603 1,053
Depreciation and
amortization.......... 43,596 38,744 39,276 894,638(1) 80,463(2) 8,145 6,808
Loss on sale of
pipeline assets....... -- 2,544 5,000 -- -- -- --
---------- ---------- ---------- --------- --------- --------- --------
Operating income
(loss)................ (12,437) 8,692 52,364 (794,341)(1) (14,064)(2) 28,865 22,255
Interest expense....... 52,634 45,765 50,869 49,000 52,745 25,112 21,929
Other expense.......... 112 -- -- -- -- -- --
---------- ---------- ---------- --------- --------- --------- --------
Net income (loss)
before income taxes... (65,183) (37,073) 1,495 (843,341)(1) (66,809)(2) 3,753 326
Charge (benefit) in
lieu of income taxes.. (3,678) (1,837) (324) 4,227 276 572 84
---------- ---------- ---------- --------- --------- --------- --------
Net income (loss)...... $ (61,505) $ (35,236) $ 1,819 $(847,568)(1) $ (67,085)(2) $ 3,181 $ 242
========== ========== ========== ========= ========= ========= ========
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital
(deficit)(3).......... $ (1,676) $ 12,412 $ 5,976 $ (3,796) $ 7,369 $ (7,987) $ 36,607(4)
Total assets........... 1,513,087 1,457,681 1,366,965 508,980 472,526 513,512 487,848
Related party debt:
Short-term............ 356,441 146,975 67,752 86,863 136,560 99,012 --
Long-term............. 575,000 748,400 748,400 705,243 705,243 705,243 --(5)
Stockholder's equity
(deficit)............. 479,462 468,107 469,925 (381,524)(1) (448,609)(2) (378,343) 417,764(4)(5)
OTHER DATA:
EBITDA(6).............. $ 31,047 $ 49,980 $ 96,640 $ 100,297 $ 66,399 $ 37,010 $ 29,063
Cash flows from
operating activities.. (21,255) 57,544 50,231 58,372 3,739 (31,887) (56,785)
Cash flows from
investing activities.. (5,626) 10,563 28,866 (6,728) (50,941) (4,474) (1,618)
Cash flows from
financing activities.. 27,527 (60,347) (84,060) (51,024) 45,858 35,417 58,449
Maintenance capital
expenditures(7)....... 4,767 6,501 4,600 3,783 755 120 547
OPERATING DATA:
Volumes (barrels per
day):
Tariff(8)............. 167,200 164,200 207,300 180,900 164,600 181,600 143,000
Margin(9)............. 17,300 21,300 9,800 26,300 30,500 25,100 35,400
---------- ---------- ---------- --------- --------- --------- --------
Total pipeline....... 184,500 185,500 217,100 207,200 195,100 206,700 178,400
========== ========== ========== ========= ========= ========= ========
</TABLE>
- --------
(1) Includes an $851.9 million impairment charge to reduce the carrying value
of the All American Pipeline in accordance with the FASB Statement of
Financial Accounting Standards No. 121 ("SFAS 121"). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Wingfoot--Results of Operations."
56
<PAGE>
(2) Includes a $64.2 million non-cash impairment charge determined using the
discounted before-tax expected future cash flows to Wingfoot from the All
American Pipeline. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Wingfoot--Results of Operations."
(3) Excludes related party debt.
(4) Working capital includes a $26.3 million receivable from an affiliate of
Goodyear. In July 1998, the affiliate of Goodyear repaid such amount to
Wingfoot and Wingfoot concurrently paid a distribution of $25.1 million to
Goodyear.
(5) Includes Goodyear capital contributions of approximately $866.1 million
made in June 1998 in anticipation of the sale of Wingfoot to the General
Partner. Such amounts were used to repay related party debt owed by
Wingfoot to Goodyear.
(6) EBITDA means earnings before interest expense, income taxes, depreciation
and amortization. EBITDA is not a measurement presented in accordance with
GAAP and is not intended to be used in lieu of GAAP presentations of
results of operations and cash provided by operating activities.
Wingfoot's EBITDA may not be comparable to EBITDA of other entities as
other entities may not calculate EBITDA in the same manner. EBITDA for
1994 and 1995 excludes loss on sale of pipeline assets of $2.5 million and
$5.0 million, respectively.
(7) Maintenance capital expenditures are capital expenditures made to replace
partially or fully depreciated assets to maintain the existing operating
capacity of existing assets or extend their useful lives. Capital
expenditures made to expand existing capacity, whether through
construction or acquisition, are not considered maintenance capital
expenditures. Repair and maintenance expenditures associated with
existing assets that do not extend the useful life or expand the
operating capacity are charged to expense as incurred.
(8) Represents crude oil deliveries on the All American Pipeline for the
account of third parties.
(9) Represents crude oil deliveries on the All American Pipeline and the SJV
Gathering System for the account of affiliated entities.
57
<PAGE>
<TABLE>
<CAPTION>
PLAINS MIDSTREAM SUBSIDIARIES
--------------------------------------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ---------------------
1993 1994 1995 1996 1997 1997 1998(1)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $130,058 $199,239 $339,825 $531,698 $752,522 $536,332 $755,653
Cost of sales and
operations............ 126,262 193,050 333,459 522,167 740,042 527,477 732,539
-------- -------- -------- -------- -------- -------- --------
Gross margin........... 3,796 6,189 6,366 9,531 12,480 8,855 23,114
General and
administrative
expenses.............. 2,027 2,376 2,415 2,974 3,529 2,617 3,561
Depreciation and
amortization.......... 416 906 944 1,140 1,165 873 2,605
-------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................ 1,353 2,907 3,007 5,417 7,786 5,365 16,948
Interest expense....... 873 3,550 3,460 3,559 4,516 2,817 7,202
Other income........... 38 115 115 90 138 105 647
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
before income taxes... 518 (528) (338) 1,948 3,408 2,653 10,393
Provision (benefit) in
lieu of income taxes.. 182 (151) (93) 726 1,268 951 3,881
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 336 $ (377) $ (245) $ 1,222 $ 2,140 $ 1,702 $ 6,512
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital
(deficit)(2).......... $ (617) $ 4,734 $ 9,579 $ 12,087 $ 10,962 $ 21,361 $ 17,502
Total assets........... 56,985 62,847 82,076 122,557 149,619 151,779 581,568
Intercompany debt:
Short-term............ -- -- 6,524 9,501 8,945 8,674 11,739
Long-term............. 29,558 35,854 32,095 31,811 28,531 39,070 29,681
Total debt(2).......... 9,638 -- -- -- 18,000 25,000 11,500
Combined equity........ 2,335 2,858 2,613 3,835 5,975 5,538 122,630
OTHER DATA:
EBITDA(3).............. $ 1,807 $ 3,928 $ 4,066 $ 6,647 $ 9,089 $ 6,343 $ 20,200
Cash flows from
operating activities.. (7,398) 4,763 (5,800) 733 (12,869)(4) (31,277)(4) 23,430 (4)
Cash flows from
investing activities.. (22,043) (485) (721) (3,285) (1,854) (553) (412,171)
Cash flows from
financing activities.. 28,883 (4,723) 6,457 2,759 14,321 (4) 31,432 (4) 398,725 (4)
Maintenance capital
expenditures(5)....... 186 274 571 1,063 678 623 852
OPERATING DATA:
Volumes (barrels per
day):
Lease gathering(6).... 18,800 29,600 45,900 58,500 71,400 69,800 84,800
Bulk purchases(7)..... -- -- 10,200 31,700 48,500 45,900 93,800
Terminal throughput(8) 6,000 28,900 42,500 59,800 76,700 77,700 79,000
Tariff(9)............. -- -- -- -- -- -- 117,000
Margin(10)............ -- -- -- -- -- -- 42,000
</TABLE>
- --------
(1) Includes the historical operating results of the All American Pipeline
and the SJV Gathering System since July 30, 1998 (the date of acquisition
from Goodyear).
(2) Excludes intercompany debt.
(3) EBITDA means earnings before interest expense, income taxes, depreciation
and amortization. EBITDA is not a measurement presented in accordance
with GAAP and is not intended to be used in lieu of GAAP presentations of
results of operations and cash provided by operating activities. The
Plains Midstream Subsidiaries' EBITDA may not be comparable to EBITDA of
other entities as other entities may not calculate EBITDA in the same
manner.
(4) Includes purchases of crude oil inventory, primarily acquired as a result
of arbitrage opportunities existing from a contango market. The cost of
such inventory was financed through borrowings under a letter of credit
facility. Increases in inventory result in a use of cash flow from
operating activities, whereas borrowings to finance the purchase of such
inventory result in a source of cash flow from financing activities.
(5) Maintenance capital expenditures are capital expenditures made to replace
partially or fully depreciated assets to maintain the existing operating
capacity of existing assets or extend their useful lives. Capital
expenditures made to expand capacity, whether through construction or
acquisition, are not considered maintenance capital expenditures. Repair
and maintenance expenditures associated with existing assets that do not
extend the useful life or expand the operating capacity are charged to
expense as incurred.
58
<PAGE>
(6) Represents barrels of crude oil purchased at the wellhead from non-
affiliated third parties.
(7) Represents barrels of crude oil purchased at collection points, terminals
and pipelines.
(8) Represents total crude oil barrels delivered from the Cushing Terminal
and the Ingleside Terminal.
(9) Represents crude oil deliveries on the All American Pipeline for the
account of third parties since July 30, 1998.
(10) Represents crude oil deliveries on the All American Pipeline and the SJV
Gathering System for the account of affiliated entities since July 30,
1998 (the date of acquisition from Goodyear).
59
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations for the Partnership and its predecessor entities should be read in
conjunction with the historical and pro forma consolidated financial
statements and notes thereto included elsewhere in this Prospectus. For more
detailed information regarding the basis of presentation for the following
financial information, see the notes to the pro forma and historical financial
statements.
GENERAL
The Partnership is a limited partnership recently formed to acquire and
operate the midstream crude oil business and assets of Plains Resources. The
Partnership is engaged in interstate and intrastate crude oil pipeline
transportation and crude oil terminalling and storage activities and gathering
and marketing activities. The Partnership's operations are primarily
concentrated in California, Texas, Oklahoma, Louisiana and the Gulf of Mexico.
The historical results of operations discussed below are derived from the
historical financial statements of Wingfoot and the Plains Midstream
Subsidiaries included elsewhere herein.
Pipeline Operations. The activities from pipeline operations generally
consist of transporting third-party volumes of crude oil for a tariff ("Tariff
Activities") and merchant activities designed to capture price differentials
between the cost to purchase and transport crude oil to a sales point and the
price received for such crude oil at the sales point ("Margin Activities").
Tariffs on the All American Pipeline vary by receipt point and delivery point.
Tariffs for Outer Continental Shelf ("OCS") crude oil delivered to California
markets currently average $1.40 per barrel and tariffs for OCS volumes
delivered to West Texas currently average $2.96 per barrel. Tariffs for San
Joaquin Valley crude oil delivered to West Texas currently average $1.25 per
barrel. The gross margin generated by Tariff Activities depends on the volumes
transported on the pipeline and the level of the tariff charged, as well as
the fixed and variable costs of operating the pipeline. As is common with most
merchant activities, the ability of the Partnership to generate a profit on
Margin Activities is not tied to the absolute level of crude oil prices but is
generated by the difference between the price paid and other costs incurred in
the purchase of crude oil and the price at which it sells crude oil. The
Partnership is well positioned to take advantage of these price differentials
due to its ability to move purchased volumes on the All American Pipeline. The
Partnership combines reporting of gross margin for Tariff Activities and
Margin Activities due to the sharing of fixed costs between the two
activities.
Terminalling and Storage Activities and Gathering and Marketing
Activities. Gross margin from terminalling and storage activities is dependent
on the throughput volume of crude oil stored and the level of fees generated
at the Cushing Terminal. Gross margin from the Partnership's gathering and
marketing activities is dependent on the Partnership's ability to sell crude
oil at a price in excess of the cost. These operations are not directly
affected by the absolute level of crude oil prices, but are affected by
overall levels of supply and demand for crude oil.
During periods when the demand for crude oil is weak (as has been the case
in 1998 and late 1997), the market for crude oil is often in contango, meaning
that the price of crude oil in a given month is less than the price of crude
oil in a subsequent month. A contango market has a generally negative impact
on marketing margins, but is favorable to the storage business, because
storage owners at major trading locations (such as the Cushing Interchange)
can simultaneously purchase production at low current prices for storage and
sell at higher prices for future delivery. When there is a higher demand than
supply of crude oil in the near term, the market is backward, meaning that the
price of crude oil in a given month exceeds the price of crude oil in a
subsequent month. A backward market has a positive impact on marketing margins
because crude oil gatherers can continue to purchase crude oil from producers
at a fixed premium to posted prices while selling crude oil at a higher
premium to such prices. The Partnership believes that the combination of its
terminalling and storage activities and gathering and marketing activities
provides a counter-cyclical balance which has a stabilizing effect on the
Partnership's cash flow.
60
<PAGE>
As the Partnership purchases crude oil, it establishes a margin by selling
crude oil for physical delivery to third party users, such as independent
refiners or major oil companies, or by entering into a future delivery
obligation with respect to futures contracts on the NYMEX. Through these
transactions, the Partnership seeks to maintain a position that is
substantially balanced between crude oil purchases and sales and future
delivery obligations. The Partnership purchases crude oil on both a fixed and
floating price basis. As fixed price barrels are purchased, the Partnership
enters into sales arrangements with refiners, trade partners or on the NYMEX,
which establishes a margin and protects it against future price fluctuations.
When floating price barrels are purchased, the Partnership matches those
contracts with similar type sales agreements with its customers, or likewise
establishes a hedge position using the NYMEX futures market. From time to
time, the Partnership will enter into arrangements which will expose it to
basis risk. Basis risk occurs when crude oil is purchased based on a crude oil
specification and location which is different from the countervailing sales
arrangement. The Partnership's policy is only to purchase crude oil for which
it has a market and to structure its sales contracts so that crude oil price
fluctuations do not materially affect the gross margin which it receives. The
Partnership does not acquire and hold crude oil futures contracts or other
derivative products for the purpose of speculating on crude oil price changes
that might expose the Partnership to indeterminable losses.
THE PARTNERSHIP
ANALYSIS OF PRO FORMA RESULTS OF OPERATIONS
The pro forma consolidated financial statements of the Partnership reflect
the historical operating results of Wingfoot (which reflect the historical
operating results of the All American Pipeline and the SJV Gathering System)
and the Plains Midstream Subsidiaries (which reflect the historical operating
results of the Plains Midstream Subsidiaries' terminalling and storage
activities and gathering and marketing activities) as adjusted for the
Transactions. See "Plains All American Pipeline, L.P. Pro Forma Consolidated
Financial Statements" for a discussion of the assumptions used in preparing
the pro forma financial information. The following analysis compares the pro
forma results of the Partnership for the nine months ended September 30, 1998
and 1997. Income taxes were eliminated from the pro forma consolidated
results, as income taxes will be borne by the partners and not the
Partnership.
Nine Months Ended September 30, 1998 and 1997
For the nine months ended September 30, 1998, the Partnership reported net
income of $35.7 million on total revenue of $1.2 billion compared to net
income for the nine months ended September 30, 1997 of $43.4 million on total
revenue of $1.3 billion. The Partnership reported gross margin (revenues less
direct expenses of purchases, transportation, terminalling and storage and
other operating and maintenance expenses) of $58.6 million for the nine months
ended September 30, 1998, reflecting a 12% decrease from the $66.5 million
reported for the same period in 1997. Gross profit (gross margin less general
and administrative expense) decreased 13% to $53.8 million for the nine months
ended September 30, 1998 as compared to $61.9 million for the same period in
1997.
61
<PAGE>
The following table sets forth certain operating information of the
Partnership for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating Results:
Gross margin:
Pipeline transportation
service................. $56,475 $42,236
Terminalling and storage
and gathering and
marketing............... 10,055 16,350
------- -------
Total................... 66,530 58,586
General and administrative
expense.................. (4,628) (4,765)
------- -------
Gross profit.............. $61,902 $53,821
======= =======
Average Daily Volumes
(barrels):
Pipeline Tariff
Activities............... 174 136
Pipeline Margin
Activities............... 27 38
------- -------
Total................... 201 174
======= =======
Lease gathering........... 92 109
Bulk purchases............ 46 94
Terminal throughput....... 78 79
</TABLE>
Pipeline Operations. Tariff revenues were $48.0 million for the nine months
ended September 30, 1998, a 29% decline from the $67.4 million reported for
the same period in 1997. This decrease in tariff revenues resulted primarily
from a 20% decrease in tariff transport volumes from 88,000 barrels per day
for the nine months ended September 30, 1997 to 70,000 barrels per day for the
same period in 1998 due to a decline in average daily production from the
Santa Ynez field. Exxon is currently making certain facility modifications to
the Santa Ynez field that should result in increased production from this
field by the end of 1998. Accordingly, the Partnership believes that average
production from the Santa Ynez field for 1999 will equal or exceed the average
daily volumes received during the first nine months of 1998, although there
can be no assurances in that regard. Most of the production loss from the
Santa Ynez field was of volumes that had been previously transported to West
Texas at an average tariff of $2.83 per barrel. Volumes related to Margin
Activities increased by 37% to an average of approximately 38,000 barrels per
day. The margin between revenue and direct cost of crude purchased increased
from $12.8 million for the nine months ended September 30, 1997 to $13.2
million for the same period in 1998.
The following table sets forth All American Pipeline average deliveries per
day within and outside California for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
30,
-----------
1997 1998
----- -----
(IN
THOUSANDS)
<S> <C> <C>
Deliveries:
Average daily volumes (barrels):
Within California........................................... 128 116
Outside California.......................................... 73 58
----- -----
Total..................................................... 201 174
===== =====
</TABLE>
Terminalling and Storage Activities and Gathering and Marketing Activities.
The Partnership reported gross margin of $16.4 million from its terminalling
and storage activities and gathering and marketing activities for the nine
months ended September 30, 1998, reflecting a 63% increase over the $10.1
million reported for the
62
<PAGE>
same period in 1997. Net of interest expense associated with contango
inventory transactions, gross margin and gross profit for the nine months
ended September 30, 1998 were $15.7 million and $12.2 million, respectively,
representing increases of approximately 66% and 77% over the 1997 amounts. The
increase in gross margin was primarily attributable to an increase in the
volumes gathered and marketed, principally in West Texas, Louisiana and the
Gulf of Mexico of approximately 18% to 109,000 barrels per day for the nine
months ended September 30, 1998 from 92,000 barrels per day during the same
period in 1997. The balance of the increase in gross margin was a result of an
increase in bulk purchases and profits created by arbitrage opportunities
associated with a contango market.
Expenses. Operations and maintenance expenses included in cost of sales and
operations (generally property taxes, electricity, fuel, labor, repairs and
certain other expenses) decreased to $19.8 million for the nine months ended
September 30, 1998 from $24.1 million for the comparable period in 1997. This
decrease was a function both of variable costs that decline with reduced
transportation volumes and average miles transported per barrel. Operations
and maintenance expenses are included in the determination of gross margin.
General and administrative expenses increased approximately $0.2 million to
$4.8 million for the nine months ended September 30, 1998 compared to $4.6
million for the same period in 1997. Such increase was primarily related to
additional personnel hired to further expand marketing activities.
Depreciation and amortization expense was $8.1 million for the nine months
ended September 30, 1998 compared to $7.9 million for the 1997 comparative
period. The increase is due primarily to the addition of trucking equipment.
Interest expense was $10.7 million for the nine month periods ended September
30, 1998 and 1997.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
Letter of Credit Facility. The Partnership's merchant activities involve the
purchase of crude oil for resale and require significant extensions of credit
by the Partnership's suppliers of crude oil. In order to assure the
Partnership's ability to perform its obligations under crude oil purchase
agreements, various credit arrangements are negotiated with the Partnership's
crude oil suppliers. Such arrangements include open lines of credit directly
with the Partnership and standby letters of credit issued under the Letter of
Credit Facility discussed below. The following is a summary of the anticipated
terms of the Letter of Credit Facility. This summary is qualified in its
entirety by reference to the Letter of Credit Facility, the form of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
In connection with the Transactions, the Operating Partnership will enter
into a $175 million secured letter of credit and borrowing facility with
BankBoston, N.A. ("BankBoston"), ING (U.S.) Capital Corporation ("ING Baring")
and certain other lenders (the "Letter of Credit Facility"), which replaces
the existing facility for the benefit of one of the Plains Midstream
Subsidiaries. The purpose of the Letter of Credit Facility is to provide (i)
standby letters of credit to support the purchase and exchange of crude oil
for resale and (ii) borrowings to finance crude oil inventory which has been
hedged against future price risk or has been designated as working inventory.
The Letter of Credit Facility will be secured by a lien on substantially all
of the assets of the Partnership. In addition, the Operating Partnership's
obligations under the Letter of Credit Facility will be guaranteed by the
Partnership. Aggregate availability under the Letter of Credit Facility for
direct borrowings and letters of credit will be limited to a borrowing base
which will be determined monthly based on certain current assets and current
liabilities of the Operating Partnership, primarily crude oil inventory and
accounts receivable and accounts payable related to the purchase and sale of
crude oil. At October 31, 1998, the borrowing base under the existing letter
of credit facility was $175.0 million.
The Letter of Credit Facility will have a $40 million sublimit for
borrowings to finance crude oil purchased in connection with operations at the
Partnership's crude oil terminal and storage facilities. All purchases of
crude oil inventory financed will be required to be hedged against future
price risk on terms acceptable to the lenders.
63
<PAGE>
Letters of credit under the Letter of Credit Facility will generally be
issued for up to 70 day periods. Borrowings will bear interest at the
Operating Partnership's option at either (i) the Base Rate (as defined) or
(ii) reserve-adjusted LIBOR plus the applicable margin. The Operating
Partnership will incur a commitment fee on the unused portion of the borrowing
sublimit under the Letter of Credit Facility and an issuance fee for each
letter of credit issued. The Letter of Credit Facility will expire July 31,
2001.
Bank Credit Agreement. In connection with the Transactions, the Operating
Partnership will enter into the Bank Credit Agreement with ING Baring,
BankBoston and certain other lenders. The following is a summary of the
anticipated terms of the Bank Credit Agreement. This summary is qualified in
its entirety by reference to the Bank Credit Agreement, the form of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
The Bank Credit Agreement will refinance the General Partner's existing bank
facility and will consist of the $175 million Term Loan Facility and the $50
million Revolving Credit Facility. The $50 million Revolving Credit Facility
will be used for capital improvements and working capital and general business
purposes and will contain a $10 million sublimit for letters of credit issued
for general corporate purposes. The Bank Credit Agreement will be secured by a
lien on substantially all of the assets of the Partnership. The Operating
Partnership's obligations under the Bank Credit Agreement will be guaranteed
by the Partnership.
The Term Loan Facility will bear interest at the Operating Partnership's
option at either (i) the Base Rate, as defined, or (ii) reserve-adjusted LIBOR
plus an applicable margin. Borrowings under the Revolving Credit Facility will
bear interest at the Operating Partnership's option at either (i) the Base
Rate, as defined, or (ii) reserve-adjusted LIBOR plus an applicable margin.
The Operating Partnership will incur a commitment fee on the unused portion of
the Revolving Credit Facility and, with respect to each issued letter of
credit, an issuance fee.
At closing, the Operating Partnership will have $175 million outstanding
under the Term Loan Facility, which amount represents indebtedness assumed
from the General Partner. The Operating Partnership will assume a series of
10-year interest rate swaps aggregating approximately $175 million which fixes
the LIBOR portion of the interest rate (not including the applicable margin)
at a weighted average rate of approximately 5.96%. The Term Loan Facility will
mature in seven years, and no principal will be scheduled for payment prior to
maturity. The Term Loan Facility may be prepaid at any time without penalty.
The Revolving Credit Facility will expire in two years. All borrowings for
working capital purposes outstanding under the Revolving Credit Facility must
be reduced to no more than $8 million for at least 15 consecutive days during
each fiscal year. On the date of the closing of this offering there will be no
amounts outstanding under the Revolving Credit Facility.
Both the Letter of Credit Facility and the Bank Credit Agreements are
expected to contain a prohibition on distributions on, or purchases or
redemptions of, Units if any Default or Event of Default (as defined) is
continuing. In addition, both facilities will contain various covenants
limiting the ability of the Partnership and the Operating Partnership to (i)
incur indebtedness, (ii) grant certain liens, (iii) sell assets in excess of
certain limitations, (iv) engage in transactions with affiliates, (v) make
investments, (vi) enter into hedging contracts and (vii) enter into a merger,
consolidation or sale of its assets. In addition, the terms of the Letter of
Credit Facility and the Bank Credit Agreement will require the Partnership to
maintain (i) a Current Ratio (as defined) of 1.0 to 1.0; (ii) a Debt Coverage
Ratio (as defined) which is not greater than 5.0 to 1.0; (iii) an Interest
Coverage Ratio (as defined) which is not less than 3.0 to 1.0; (iv) a Fixed
Charge Coverage Ratio (as defined) which is not less than 1.25 to 1.0; and (v)
a Debt to Capital Ratio (as defined) of not greater than .60 to 1.0.
Commitments
Historically, capital expenditures for the Partnership have not been
significant. Due to the relatively recent construction of the All American
Pipeline, the SJV Gathering System and the Cushing Terminal, material
maintenance capital expenditures have not been required, and the majority of
capital expenditures have been associated with expansion opportunities. While
the actual level of maintenance capital expenditures will vary
64
<PAGE>
from year to year, the Partnership expects such expenditures to average
approximately $2 million to $4 million annually for the next several years. It
is anticipated that such maintenance capital expenditures will be funded from
cash flow generated by operating activities.
The Partnership has entered into a turnkey contract to construct an
additional one million barrels of tankage at the Cushing Terminal, expanding
its existing tank capacity by 50% to three million barrels. Construction of
the expansion project began in September 1998 and is expected to be completed
in mid-1999 at a total cost of approximately $10 million. It is anticipated
that expenditures for the expansion will be funded from borrowings under the
Revolving Credit Facility. To date, the Partnership has no material
commitments to fund additional capital expenditures.
YEAR 2000
Year 2000 Issue. Many software applications, hardware and equipment and
embedded chip systems identify dates using only the last two digits of the
year. These products may be unable to distinguish between dates in the Year
2000 and dates in the year 1900. That inability (referred to as the "Year
2000" issue), if not addressed, could cause applications, equipment or systems
to fail or provide incorrect information after December 31, 1999, or when
using dates after December 31, 1999. This in turn could have an adverse effect
on the Partnership, due to the Partnership's direct dependence on its own
applications, equipment and systems and indirect dependence on those of other
entities with which the Partnership must interact.
Compliance Program. In order to address the Year 2000 issue, the Partnership
is participating in the Year 2000 project which Plains Resources has
implemented for all of its business units. A project team has been established
to coordinate the five phases of this Year 2000 project to assure that key
automated systems and related processes will remain functional through year
2000. Those phases include: (i) awareness, (ii) assessment, (iii) remediation,
(iv) testing and (v) implementation of the necessary modifications. The key
automated systems consist of (a) financial systems applications, (b) hardware
and equipment, (c) embedded chip systems and (d) third-party developed
software. The evaluation of the Year 2000 issue includes the evaluation of the
Year 2000 exposure of third parties material to the operations of Plains
Resources or any of its business units (including the Partnership). Plains
retained a Year 2000 consulting firm to review the operations of all of its
business units and to assess the impact of the Year 2000 issue on such
operations. Such review has been completed and the consultant's
recommendations are being utilized in the Year 2000 project.
Partnership's State of Readiness. The awareness phase of the Year 2000
project has begun with a corporate-wide awareness program which will continue
to be updated throughout the life of the project. The portion of the
assessment phase related to financial systems applications has been
substantially completed and the necessary modifications and conversions are
underway. The portion of the assessment phase which will determine the nature
and impact of the Year 2000 issue for hardware and equipment, embedded chip
systems, and third-party developed software is continuing. The assessment
phase of the project involves, among other things, efforts to obtain
representations and assurances from third parties, including third party
vendors, that their hardware and equipment, embedded chip systems, and
software being used by or impacting Plains Resources or any of its business
units (including the Partnership) are or will be modified to be Year 2000
compliant. To date, the responses from such third parties are inconclusive. As
a result, management cannot predict the potential consequences if these or
other third parties are not Year 2000 compliant. The exposure associated with
the Partnership's interaction with third parties is currently being evaluated.
65
<PAGE>
Management expects that the remediation, testing and implementation phases
will be substantially completed by mid-1999.
Costs to Address Year 2000 Compliance Issues. While the total cost to the
Partnership of the Year 2000 project is still being evaluated, management
currently estimates that the costs to be incurred by the Partnership in the
remainder of 1998, 1999 and 2000 associated with assessing, testing, modifying
or replacing financial system applications, hardware and equipment, embedded
chip systems, and third party developed software is between $100,000 and
$150,000. The Partnership expects to fund these expenditures with cash from
operations or borrowings. To date, the Partnership has expended approximately
$230,000.
Risk of Non-Compliance and Contingency Plans. The major applications which
pose the greatest Year 2000 risks for the Partnership if implementation of the
Year 2000 compliance program is not successful are the Partnership's financial
systems applications and the Partnership's supervisory control and data
acquisition ("SCADA") computer system and embedded chip systems in field
equipment. The potential problems if the Year 2000 compliance program is not
successful are disruptions of the Partnership's revenue gathering from and
distribution to its customers and vendors and the inability to perform its
other financial and accounting functions. Failures of embedded chip systems in
field equipment of the Partnership or its customers could disrupt the
Partnership's crude oil transportation, terminalling and storage activities
and gathering and marketing activities.
The goal of the Year 2000 project is to ensure that all of the critical
systems and processes which are under the direct control of Plains Resources
and its business units remain functional. However, because certain systems and
processes may be interrelated with systems outside of the control of Plains
Resources and its business units, there can be no assurance that all
implementations will be successful. Accordingly, as part of the Year 2000
project, contingency and business plans will be developed to respond to any
failures as they may occur. Such contingency and business plans are scheduled
to be completed by mid-year 1999. Management does not expect the costs to the
Partnership of the Year 2000 project to have a material adverse effect on the
Partnership's financial position, results of operations or cash flows. Based
on information available at this time, however, the Partnership cannot
conclude that any failure of the Partnership or third parties to achieve Year
2000 compliance will not adversely affect the Partnership.
WINGFOOT
RESULTS OF OPERATIONS
Six Months Ended June 30, 1998 and 1997
For the six months ended June 30, 1998, Wingfoot reported net income of $0.2
million on total revenue of $374.7 million compared to net income for the six
months ended June 30, 1997 of $3.2 million on total revenue of $541.7 million.
Wingfoot reported gross margin of $30.1 million for the six months ended June
30, 1998, reflecting a 22% decrease from the $38.6 million reported for the
same period in 1997. Gross profit decreased 22% to $29.1 million for the six
months ended June 30, 1998 as compared to $37.0 million for the same period in
1997.
66
<PAGE>
The following table sets forth certain operating information of Wingfoot for
the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating Results:
Gross margin.......................................... $38,613 $30,116
General and administrative expense.................... (1,603) (1,053)
------- -------
Gross profit.......................................... $37,010 $29,063
======= =======
Average Daily Volumes (barrels):
Tariff Activities..................................... 182 143
Margin Activities..................................... 25 35
------- -------
Total............................................... 207 178
======= =======
The following table sets forth All American Pipeline average deliveries per
day within and outside California for the periods presented.
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deliveries:
Average daily volumes (barrels):
Within California..................................... 123 117
Outside California.................................... 84 61
------- -------
Total............................................... 207 178
======= =======
</TABLE>
Tariff revenues were $33.9 million for the six months ended June 30, 1998, a
26% decline from the $47.1 million reported for the same period in 1997. This
decrease in tariff revenues resulted from a 21% decrease in tariff transport
volumes due to a decline in average daily production from the Santa Ynez
field. from 89,000 barrels for the six months ended June 30, 1997 to 69,000
barrels for the same period in 1998. Exxon is currently making certain
facility modifications to the Santa Ynez field that should result in increased
production from this field by the end of 1998. Accordingly, the Partnership
believes that average production from the Santa Ynez field for 1999 will
approximate the average daily volumes received during the first six months of
1998, although there can be no assurances in that regard. Most of the
production loss from the Santa Ynez field was of volumes that had been
previously transported to West Texas at an average tariff of $2.83 per barrel.
Pipeline volumes related to Margin Activities increased by 40% to an average
of approximately 35,000 barrels per day. The margin between revenue and direct
cost of crude oil purchased increased from $8.8 million for the six months
ended June 30, 1997 to $10.2 million for the same period in 1998.
Operations and maintenance expenses (including property taxes) decreased to
$13.9 million for the six months ended June 30, 1998 from $17.3 million for
the comparable period in 1997. This decrease was a function of variable costs
that decrease with reduced transportation volumes and average miles
transported per barrel. General and administrative expenses decreased from
$1.6 million for the six months ended June 30, 1997 to $1.1 million in the
current year period. Such decrease was related to a reduction in expenses
associated with financial consulting fees. Depreciation and amortization
expense was $6.8 million for the six months ended June 30, 1998 compared to
$8.1 million reported for the same period of 1997. The reduction in
depreciation and amortization expense was largely the result of the $64.2
million impairment charge taken at the end of 1997. Interest expense was $21.9
million for the six months ended June 30, 1998, approximately 13% below the
$25.1 million recorded for the same period of 1997, as a result of the
termination of interest charges by Goodyear on May 29, 1998.
67
<PAGE>
Wingfoot recorded pre-tax income for the six months ended June 30, 1998 and
1997 of $0.3 million and $3.8 million, respectively. Variations between
Wingfoot's effective income tax rate and the U.S. federal income tax rate of
35% between the two periods were attributable to state taxes and the valuation
allowance recorded to offset net deferred tax assets.
Three Years Ended December 31, 1997
Wingfoot reported a net loss of $67.1 million for 1997 on total revenues of
$992.3 million compared to a net loss of $847.6 million on total revenues of
$929.3 million for 1996 and net income of $1.8 million on total revenues of
$619.3 million for 1995. Tariff revenues were $82.1 million in 1997, a 26%
decline from the $111.2 million reported in 1996 and a 36% decrease from the
$127.8 million recorded in 1995. Wingfoot reported gross margin of $69.2
million for the year ended December 31, 1997, reflecting an approximate 33%
decrease from the $103.3 million reported for 1996 and an approximate 32%
decrease from 1995. Gross profit totaled $66.4 million for 1997, approximately
34% and 31% below the amounts reported for 1996 and 1995, respectively.
The following table sets forth certain operating information of Wingfoot for
the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------
1995 1996 1997
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Results:
Gross margin..................................... $101,474 $103,258 $69,166
General and administrative expense............... (4,834) (2,961) (2,767)
-------- -------- -------
Gross profit..................................... $ 96,640 $100,297 $66,399
======== ======== =======
Average Daily Volumes (barrels):
Tariff Activities................................ 207 181 165
Margin Activities................................ 10 26 30
-------- -------- -------
Total.......................................... 217 207 195
======== ======== =======
</TABLE>
The following table sets forth All American Pipeline average deliveries per
day within and outside California for each of the years in the periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Deliveries:
Average daily volumes (barrels):
Within California........................................ 76 94 127
Outside California....................................... 141 113 68
---- ---- ----
Total.................................................. 217 207 195
==== ==== ====
</TABLE>
A number of developments over the last three years combined to adversely
affect Wingfoot's operating and financial results. Such developments included:
(i) declines in volumes received from the Santa Ynez and Point Arguello
fields from 92,000 and 60,000 average daily barrels in 1995 to 85,000 and
30,000 average daily barrels in 1997;
(ii) a decline in Alaskan North Slope volumes transported on the All
American Pipeline from an average of 26,000 barrels per day in 1995 to
16,000 barrels per day in 1996 and 2,000 barrels per day in 1997 as a
result of the mid-1996 repeal of the ban on the export of Alaskan North
Slope crude; and
(iii) a reduction in OCS volumes transported to West Texas on the All
American Pipeline from an average of 73,000 barrels per day in 1995 to
52,000 barrels per day in 1996 and 16,000 barrels per day in
68
<PAGE>
1997 due to overall declines in OCS production volumes, increases in
delivery capacity to California refineries as well as modifications to
California refineries which allowed those refineries to process more OCS
crude oil.
During 1996, the lower gross margin derived from pipeline Tariff Activities
was more than offset by Wingfoot's Margin Activities. During most of 1996,
U.S. crude oil inventories were at low levels based on historical averages
while refinery demand for prompt month delivery was unusually strong,
resulting in a substantial backward market in crude oil prices. Primarily as a
result of these favorable market conditions, margin between revenues and
direct costs of crude oil purchased was $17 million higher in 1996 as compared
to 1995 and $9 million higher in 1996 as compared to 1997.
Operations and maintenance expense, including property taxes, for 1997
totaled $30.5 million, an 11% decline from 1996's level of $34.3 million and
15% below 1995's level of $35.7 million. Such trend of declining operating and
maintenance costs was a function of variable costs that decrease with reduced
transportation volumes and average miles transported per barrel and Wingfoot's
efforts to reduce its overall cost structure in recognition of the adverse
developments affecting its business activities in 1996.
Total general and administrative expenses were $2.8 million for the year
ended December 31, 1997, compared to $3.0 million and $4.8 million for 1996
and 1995, respectively. Such trend of declining general and administrative
expenses was related to Wingfoot's efforts to reduce its overall cost
structure in recognition of the adverse developments affecting its business
activities.
Depreciation and amortization expense was $80.5 million in 1997, $894.6
million in 1996 and $39.3 million in 1995. Depreciation and amortization
expense for 1997 included an approximate $64.2 million impairment charge
determined using the discounted before-tax expected future cash flows to
Wingfoot from the All American Pipeline. As a result of the adverse industry
developments affecting its business activities discussed above Wingfoot's
management determined that the future cash flows expected to be generated by
the All American Pipeline would be less than its carrying value. In accordance
with SFAS 121, Wingfoot reduced the carrying value of the All American
Pipeline to its then estimated fair value. Accordingly, depreciation and
amortization expense for 1996 includes an $851.9 million impairment charge.
Interest expense is comprised of interest on $705.2 million of long-term
loans from Goodyear and its subsidiaries. Such amounts bear interest annually
at a variable rate, generally tied to LIBOR and other factors relating to the
borrowing capacity of Goodyear and its subsidiaries. Interest expense was
$52.7 million in 1997, $49.0 million in 1996 and $50.9 million in 1995.
Wingfoot recorded pre-tax losses in 1997 and 1996 and recorded $1.5 million
in pre-tax income for 1995. Variations between Wingfoot's effective income tax
rate and the U.S. federal income tax rate of 35% among each of the three years
is attributable to state taxes and the valuation allowance recorded to offset
net deferred tax assets.
CREDIT ARRANGEMENTS WITH GOODYEAR
Wingfoot relied heavily upon Goodyear and its subsidiaries for long-term
capital, working capital and credit support. Wingfoot's cash management
program utilized zero-balance accounts, which were funded on a daily basis by
Goodyear and its subsidiaries. Wingfoot's merchant activities involve the
purchase of crude oil for resale and require significant extensions of credit
by Wingfoot's suppliers of crude oil. In order to assure Wingfoot's ability to
perform its obligations under crude purchase agreements, various credit
arrangements were negotiated with Wingfoot's crude suppliers. Such
arrangements included open lines of credit directly with Wingfoot, credit
extensions by Wingfoot's customers that were guaranteed by Goodyear and
standby letters of credit issued under Wingfoot's letter of credit facility.
On April 25, 1994, Wingfoot entered into a term loan with Goodyear and its
subsidiaries under which Wingfoot was permitted to borrow up to $825.0
million. Interest on the loan accrued at a variable rate, generally
69
<PAGE>
tied to LIBOR and other factors relating to the borrowing capacity of Goodyear
and its subsidiaries. At December 31, 1997 and 1996, Wingfoot had $705.2
million outstanding under this facility. The facility provided for annual
mandatory principal payments of $100.0 million beginning April 30, 1999,
$100.0 million in 2000, $125.0 million in 2001, $150.0 million in 2002, $150.0
million in 2003 and $80.2 million in 2004.
In addition, in 1994 Wingfoot entered into a credit arrangement with an
affiliate of Goodyear under which Wingfoot could borrow up to $250.0 million.
The arrangement provided for a 0.1% annual commitment fee on the daily average
unused amount of the facility and interest on outstanding balances at a
variable rate based on LIBOR. No balances were outstanding at December 31,
1997 and 1996.
At December 31, 1997 and 1996, Wingfoot had short-term debt of $102.4
million and $56.6 million, respectively, resulting from advances by Goodyear
and its subsidiaries to fund working capital. Such advances did not accrue
interest and were payable on demand.
In connection with the acquisition of the All American Pipeline and the SJV
Gathering System, Wingfoot committed to repay the outstanding related party
debt with Goodyear and its subsidiaries (including all accrued interest) prior
to closing. On June 15, 1998, Goodyear made a capital contribution of $866.1
million and a cash payment of $15.5 million for repayments to Wingfoot. Upon
receipt of the aggregate $881.6 million, Wingfoot paid Goodyear $865.2 million
($843.3 million for repayment of certain outstanding related party debt and
accrued interest at December 31, 1997 and $22.0 million for repayment of
related party accrued interest from January 1, 1998 to May 29, 1998) and
remitted the remaining $16.4 million to Goodyear for payment of certain other
liabilities to be assumed by Goodyear following the sale of the All American
Pipeline and SJV Gathering System to the General Partner.
At December 31, 1997 and 1996, Wingfoot had a short-term uncommitted credit
arrangement totaling $3.0 million and $1.5 million, respectively, of which
$2.9 million and $1.2 million, respectively was unused. This arrangement
provided for interest at LIBOR plus 0.75%. There were no commitment fees or
compensating balances associated with this arrangement.
PLAINS MIDSTREAM SUBSIDIARIES
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 and 1997
For the nine months ended September 30, 1998, the Plains Midstream
Subsidiaries reported net income of $6.5 million on total revenue of $755.7
million compared to net income for the same period of 1997 of $1.7 million on
total revenue of $536.3 million. Results for the nine months ended September
30, 1998 include activities of the All American Pipeline and SJV Gathering
System since July 30, 1998 (the date of acquisition from Goodyear).
70
<PAGE>
The following table sets forth certain operating information of the Plains
Midstream Subsidiaries for the periods presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30,
----------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Operating Results:
Gross margin:
Pipeline transportation service..................... $ -- $ 8,110
Terminalling and storage and gathering and
marketing.......................................... 8,855 15,004
------- -------
Total.............................................. 8,855 23,114
General and administrative expense................... (2,617) (3,561)
------- -------
Gross profit......................................... $ 6,238 $19,553
======= =======
Average Daily Volumes (barrels):
Pipeline Tariff Activities........................... -- 117
Pipeline Margin Activities........................... -- 42
------- -------
Total.............................................. -- 159
======= =======
Lease gathering...................................... 70 85
Bulk purchases....................................... 46 94
Terminal throughput.................................. 78 79
</TABLE>
The Plains Midstream Subsidiaries reported gross margin of $23.1 million for
the nine months ended September 30, 1998, reflecting a 161% increase over the
$8.9 million reported for the same period in 1997. Net of interest expense
associated with contango inventory transactions, gross margin and gross profit
for the nine months ended September 30, 1998 were $22.5 million and $18.9
million, respectively, representing increases of approximately 171% and 234%
over the 1997 amounts.
Pipeline Operations. As noted above, the results of operations of the Plains
Midstream Subsidiaries include approximately two months of operations of the
All American Pipeline and the SJV Gathering System which were acquired
effective July 30, 1998. Tariff revenues for this period were $9.5 million and
are primarily attributable to transport volumes from the Santa Ynez field
(approximately 68,000 barrels per day) and the Point Arguello field
(approximately 22,900 barrels per day). The margin between revenue and direct
cost of crude purchased was approximately $2.6 million. Operations and
maintenance expenses were $4.0 million.
The following table sets forth All American Pipeline average deliveries per
day within and outside California since July 30, 1998.
<TABLE>
<S> <C>
Deliveries:
Average daily volumes (thousand barrels):
Within California.................................................. 113
Outside California................................................. 46
---
Total........................................................... 159
===
</TABLE>
Terminalling and Storage Activities and Gathering and Marketing Activities.
Gross margin from terminalling and storage and gathering and marketing
activities was approximately $15.0 million for the nine months ended September
30, 1998, an increase of 69% over gross margin from these activities during
the 1997 period. Net of interest associated with contango inventory
transactions, gross margin increased by 74% to $14.4 million during the first
nine months of 1998 compared to $8.3 million during the first nine months of
1997. The increase in gross margin was primarily attributable to an increase
in the volumes gathered and marketed in West Texas, Louisiana and the Gulf of
Mexico of approximately 21% to 85,000 barrels from 70,000 barrels per day
during the comparable period in 1997. The balance of the increase in gross
margin was a result of an increase in bulk purchases and profits created by
arbitrage opportunities associated with a contango market.
71
<PAGE>
General and administrative expenses increased from $2.6 million for the nine
months ended September 30, 1997 to $3.6 million for the same period in 1998
primarily as a result of additional personnel hired to further expand
marketing activities as well as general and administrative expenses associated
with All American Pipeline and the SJV Gathering System. Depreciation and
amortization was $2.6 million for the nine months ended September 30, 1998 as
compared to $0.9 million for the first nine months of 1997. The increase is
due to the acquisition of the All American Pipeline and the SJV Gathering
System. Interest expense was $7.2 million for the nine months ended September
30, 1998, approximately 156% higher than the $2.8 million recorded in the same
period of 1997 due to interest associated with the acquisition of the All
American Pipeline and the SJV Gathering System.
The Plains Midstream Subsidiaries are included in the consolidated federal
income tax return of Plains Resources. Federal income taxes are calculated as
if the Plains Midstream Subsidiaries had filed its return on a separate
company basis utilizing a statutory rate of 35%. Such amounts calculated are
payable to Plains Resources under the tax sharing agreement between the Plains
Midstream Subsidiaries and Plains Resources. For the nine months ended
September 30, 1998, the Plains Midstream Subsidiaries recognized a current tax
provision of $1.6 million and a deferred tax provision of $2.3 million. For
the comparative 1997 period, the Plains Midstream Subsidiaries reported a
current tax provision of $0.1 million and a deferred tax provision of $0.9
million. The increase in tax expense is due to the increase in income before
taxes between the two periods and an increase in the effective tax rate.
Three Years Ended December 31, 1997
For 1997, the Plains Midstream Subsidiaries reported net income of $2.1
million on total revenue of $752.5 million compared to net income for 1996 of
$1.2 million on total revenue of $531.7 million. The Plains Midstream
Subsidiaries reported a net loss of $0.2 million for 1995 on total revenue of
$339.8 million.
The following table sets forth certain operating information of the Plains
Midstream Subsidiaries for the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating Results:
Gross margin................................. $ 6,366 $ 9,531 $12,480
General and administrative expense........... (2,415) (2,974) (3,529)
------- ------- -------
Gross profit................................. $ 3,951 $ 6,557 $ 8,951
======= ======= =======
Average Daily Volumes (barrels):
Lease gathering.............................. 46 59 71
Bulk purchases............................... 10 32 49
Terminal throughput.......................... 43 59 77
</TABLE>
The Plains Midstream Subsidiaries reported gross margin of $12.5 million for
the year ended December 31, 1997, reflecting a 31% increase over the $9.5
million reported for the 1996 period and an approximate 96% increase over
1995. Gross profit totaled $9.0 million for 1997, approximately 37% and 127%
over the amounts reported for 1996 and 1995, respectively. Net of interest
expense associated with contango inventory transactions, gross margin and
gross profit for 1997 were $11.6 million and $8.1 million, respectively,
representing increases of approximately 22% and 23% over the 1996 respective
amounts. The Plains Midstream Subsidiaries did not have any material contango
inventory transactions in 1996 or 1995.
The increases in revenues and profitability are primarily due to increased
lease gathering and bulk purchases in West Texas, Louisiana and the Gulf of
Mexico and activities at the Cushing Terminal. Profitability attributable to
the Plains Midstream Subsidiaries' terminalling and storage activities is
generally counter-cyclical to their
72
<PAGE>
crude oil gathering and marketing activities. Terminalling and storage margins
were generally stronger in 1997 during a contango market, and marketing
margins were stronger in 1996 and 1995 during a predominantly backward market.
Total general and administrative expenses were $3.5 million for the year
ended December 31, 1997, compared to $3.0 million and $2.4 million for 1996
and 1995, respectively. Such increases were primarily attributable to
increased personnel as a result of the continued expansion of the Plains
Midstream Subsidiaries' terminalling and storage activities and gathering and
marketing activities. Depreciation and amortization was $1.2 million in 1997,
$1.1 million in 1996 and $0.9 million in 1995. The increase during 1996 and
1997 was attributable to normal additions and retirements of equipment, and
the addition of the Ingleside Terminal which was acquired during the first
quarter of 1996.
Interest expense is comprised principally of interest charged to the Plains
Midstream Subsidiaries by Plains Resources for amounts borrowed to construct
the Cushing Terminal in 1993 and subsequent capital additions, including the
Ingleside Terminal. The interest rate on the Cushing Terminal construction
loan is 10 1/4%. Interest expense also includes interest incurred in
connection with contango inventory transactions of $0.9 million in 1997.
Aggregate interest expense was $4.5 million in 1997, $3.6 million in 1996 and
$3.5 million in 1995. The increase in 1997 was primarily due to higher short-
term borrowings associated with contango crude oil inventory transactions.
The Plains Midstream Subsidiaries reported a total tax provision of
approximately $1.3 million and $0.7 million for 1997 and 1996, respectively
and a tax benefit of $0.1 million for 1995. The increase in tax expense is due
primarily to the increase in income before taxes. For 1997, approximately $1.1
million of the tax provision was deferred and the remainder was currently
payable. In 1995 and 1996, substantially all of the Plains Midstream
Subsidiaries' tax provision was deferred.
73
<PAGE>
BUSINESS
GENERAL
The Partnership was recently formed to acquire and operate the midstream
crude oil business and assets of Plains Resources. The Partnership is engaged
in interstate and intrastate crude oil pipeline transportation and crude oil
terminalling and storage activities and gathering and marketing activities.
The Partnership's operations are concentrated in California, Texas, Oklahoma,
Louisiana and the Gulf of Mexico.
The Partnership owns and operates the All American Pipeline, a 1,233-mile
seasonally heated, 30-inch, common carrier crude oil pipeline extending from
California to West Texas, and the SJV Gathering System, a 45-mile, 16-inch,
crude oil gathering system in the San Joaquin Valley of California, both of
which it purchased from Goodyear in July 1998 for approximately $400 million.
The All American Pipeline is one of the newest interstate crude oil pipelines
in the United States, having been constructed by Goodyear between 1985 and
1987 at a cost of approximately $1.6 billion, and is the largest capacity
crude oil pipeline connecting California and Texas, with a design capacity of
300,000 barrels per day of heavy crude oil. In West Texas, the All American
Pipeline interconnects with other crude oil pipelines that serve the Gulf
Coast and the Cushing Interchange, the largest crude oil trading hub in the
United States and the designated delivery point for NYMEX crude oil futures
contracts.
Production currently transported on the All American Pipeline originates
from the Santa Ynez field operated by Exxon and the Point Arguello field
operated by Chevron, both offshore California, and from the San Joaquin
Valley. Exxon and Chevron, as well as Texaco and Oryx, which are other working
interest owners, are contractually obligated to ship all of their production
from these offshore fields on the All American Pipeline through August 2007.
The SJV Gathering System is used primarily to transport crude oil from fields
in the San Joaquin Valley to the All American Pipeline and to intrastate
pipelines owned by third parties. The capacity of the SJV Gathering System is
approximately 140,000 barrels per day. In addition to transporting third-party
volumes for a tariff, the Partnership is engaged in certain merchant
activities designed to capture price differentials between the cost to
purchase and transport crude oil to a sales point and the price received for
such crude oil at the sales point.
At the Cushing Interchange, the Partnership owns and operates the Cushing
Terminal, a two million barrel, above-ground crude oil terminalling and
storage facility that has an estimated daily throughput capacity of
approximately 800,000 barrels per day. The Cushing Terminal was completed in
1993, making it the most modern facility in the area, and includes state-of-
the-art design features. The Partnership has initiated an expansion project
that will add one million barrels of storage capacity at an aggregate cost of
approximately $10 million. The expansion project is expected to be completed
by mid-1999. Upon completion of the expansion project, management believes the
Cushing Terminal will be the third largest facility at the Cushing Interchange
(and the largest not owned by a major oil company) with an estimated 12% of
that area's storage capacity. The Partnership also owns 586,000 barrels of
tank capacity along the SJV Gathering System, 955,000 barrels of tank capacity
along the All American Pipeline and 360,000 barrels of tank capacity at the
Ingleside Terminal on the Gulf Coast.
The Partnership's terminalling and storage operations generate revenue from
the Cushing Terminal through a combination of storage and throughput fees from
(i) refiners and gatherers seeking to segregate or custom blend crude oil for
refining feedstocks, (ii) pipelines, refiners and traders requiring segregated
tankage for foreign crude oil, (iii) traders who make or take delivery under
NYMEX contracts and (iv) producers seeking to increase their marketing
alternatives. The Cushing Terminal and the Partnership's other storage
facilities also facilitate the Partnership's merchant activities by enabling
the Partnership to buy and store crude oil when the price of crude oil in a
given month is less than the price of crude oil in a subsequent month (a
"contango" market) and to simultaneously sell crude oil futures contracts for
delivery of the crude oil in such subsequent month at the higher futures
price, thereby locking in a profit.
The Partnership's gathering and marketing operations include the purchase of
crude oil at the wellhead and the bulk purchase of crude oil at pipeline and
terminal facilities, the transportation of the crude oil on trucks,
74
<PAGE>
barges or pipelines, and the subsequent resale or exchange of the crude oil at
various points along the crude oil distribution chain. The crude oil
distribution chain extends from the wellhead where crude oil moves by truck
and gathering systems to terminal and pipeline injection stations and major
pipelines and is transported to major crude oil trading locations for ultimate
consumption by refineries. In many cases, the Partnership matches supply and
demand needs by performing a merchant function--generating gathering and
marketing margins by buying crude oil at competitive prices, efficiently
transporting or exchanging the crude oil along the distribution chain and
marketing the crude oil to refineries or other customers. When there is a
higher demand than supply of crude oil in the near term, the price of crude
oil in a given month exceeds the price of crude oil in a subsequent month (a
"backward" market). A backward market has a positive impact on marketing
margins because crude oil gatherers can continue to purchase crude oil from
producers at a fixed premium to posted prices while selling crude oil at a
higher premium to such prices. Likewise, since a premium is paid for prompt
deliveries, storage opportunities are generally not profitable.
For the year ended December 31, 1997, the Partnership's pro forma gross
margin, EBITDA and net loss totaled $84.2 million, $78.2 million and $10.9
million, respectively. Excluding a $64.2 million non-cash impairment charge
incurred by Wingfoot in 1997, the Partnership's pro forma net income for 1997
would have been $53.3 million. For the nine months ended September 30, 1998,
the Partnership's pro forma gross margin, EBITDA and net income totaled $58.6
million, $54.5 million and $35.7 million, respectively. On a pro forma basis,
the All American Pipeline and the SJV Gathering System accounted for
approximately 72% of the Partnership's gross margin for the nine-month period
ended September 30, 1998, while the terminalling and storage activities and
gathering and marketing activities accounted for approximately 28%.
MARKET OVERVIEW
The Department of Energy segregates the United States into five PADDs to
facilitate continued crude oil supply to key refining areas in the event of a
national emergency. The oil industry utilizes these districts in reporting
statistics regarding crude oil supply and demand. The All American Pipeline
serves, directly or through connecting lines, PADD V, which consists of seven
western states, including Alaska and Hawaii, PADD II, which consists of 15
states in the Midwest, and PADD III, which consists of six states located in
the South, principally bordering the Gulf of Mexico. The table below sets
forth supply, demand and shortfall information for each PADD for 1997 and is
derived from information published by the Energy Information Administration.
<TABLE>
<CAPTION>
REFINERY REGIONAL SUPPLY
PETROLEUM ADMINISTRATION DEFENSE DISTRICT DEMAND SUPPLY SHORTFALL
----------------------------------------- -------- -------- ---------
(MILLIONS OF BARRELS PER
DAY)
<S> <C> <C> <C>
PADD I (East Coast)......................... 1.5 0.0 1.5
PADD II (Midwest)........................... 3.4 0.6 2.8
PADD III (South)............................ 6.8 3.3 3.5
PADD IV (Rockies)........................... 0.5 0.4 0.1
PADD V (West Coast)......................... 2.5 2.2 0.3
---- --- ---
Total..................................... 14.7 6.5 8.2
==== === ===
</TABLE>
As reflected in the table above, only 17% of the total refinery demand for
crude oil in PADD II can be supplied with crude oil produced in PADD II, with
the remainder (approximately 2.8 million barrels per day) provided by intra-
U.S. transfers of domestic crude oil production and imports from Canada and
foreign sources. In the 14-year period ending December 31, 1997, production
from PADD II has fallen approximately 48%, declining from approximately 1.1
million barrels per day in 1984 to approximately 560,000 barrels per day in
1997. Over this same time period, refinery demand for crude oil in this area
has risen approximately 21%, increasing from approximately 2.8 million barrels
per day in 1984 to approximately 3.4 million barrels per day in 1997.
Accordingly, over the last 14 years PADD II's reliance on sources outside the
region has increased by approximately 1.1 million barrels per day.
Historically, PADD II refiners have relied on California crude oil production
to meet a portion of their refinery input requirements.
Within PADD V, the supply/demand trend is quite different. Despite
significant population growth, PADD V refinery inputs (crude oil demand) have
decreased from a high of approximately 2.6 million barrels per
75
<PAGE>
day in 1989 to an average of approximately 2.5 million barrels per day over
the last four years. This net decrease in refinery inputs is primarily due to
(i) a reduction in the number of operating refineries and (ii) an increase in
the conversion capacity of California refineries (which represent
approximately 70% of the total PADD V refinery inputs). Between 1985 and 1997,
the number of operating California refineries has declined from 34 (at
approximately 79% of total capacity) to 23 (at approximately 94% of total
capacity). A portion of the refining capacity lost due to these refinery shut
downs has been replaced as the remaining refineries in operation have
increased their capacity while upgrading their facilities to produce
legislatively mandated cleaner burning gasolines. As California refineries
have become more efficient, producing greater volumes of higher value products
such as gasoline from a lesser quantity of crude oil, overall refinery demand
for crude oil in PADD V has decreased. Excluding Hawaii, which imports
approximately 80,000 barrels per day of foreign crude oil, and taking into
account geographically captive Canadian volumes that are transported to the
Washington state area, PADD V supply currently exceeds demand. Furthermore,
the Partnership believes that, based on public announcements by a number of
major and independent oil companies, production levels in California and
Alaska may increase over the next several years. Accordingly, the Partnership
believes that the All American Pipeline will continue to be used to transport
California crude oil to connections with pipelines in Texas that will deliver
such crude oil to the Cushing Interchange in PADD II as well as the Gulf Coast
areas in PADD III.
BUSINESS STRATEGY AND COMPETITIVE STRENGTHS
The Partnership's strategy is to capitalize on demand driven opportunities
in the Midwest refining markets in PADD II and supply driven opportunities in
the oil producing regions of California by combining the strategic location
and unique capabilities of its asset base with its extensive marketing and
distribution expertise to enhance and optimize its operating margins.
The Partnership intends to execute its business strategy by (i) increasing
throughput on the All American Pipeline through an aggressive lease gathering
program in the San Joaquin Valley and through additional connections with
other California crude pipelines and producers, (ii) realizing cost
efficiencies through operational improvements and potential strategic
alliances, (iii) utilizing the Cushing Terminal in conjunction with the
Partnership's other assets to profit from merchant activities that take
advantage of crude oil pricing and quality differentials and (iv) pursuing
strategic and accretive acquisitions of crude oil pipeline assets, gathering
systems and terminalling and storage facilities which complement the
Partnership's existing asset base and distribution capabilities.
The Partnership believes it is well positioned to capitalize on such
opportunities due to the following competitive strengths:
. Strategically Located, but Underutilized Pipeline Assets. The All
American Pipeline is the largest crude oil pipeline connecting California
to West Texas and, depending on the pipeline segment, is operating at
approximately 20% to 35% of its designed 300,000 barrel per day capacity.
If plans announced by a competing interstate crude oil pipeline to
convert to a gas transmission pipeline are implemented, the All American
Pipeline will be the only crude oil pipeline available to transport crude
oil from California to West Texas. The SJV Gathering System is one of the
largest crude oil gathering systems in the San Joaquin Valley of
California, one of the most prolific crude oil producing regions in the
lower 48 states. The SJV Gathering System is operating at approximately
60% of its total 140,000 barrel per day capacity. Because a major portion
of the All American Pipeline and the SJV Gathering System's operating
costs are fixed, any increased utilization should result in incremental
gross margin. In addition, because the All American Pipeline and the SJV
Gathering System are relatively new, the Partnership expects that the
maintenance capital expenditures required for these assets will be
modest.
. Versatility of Cushing Terminal. Completed in 1993, the Cushing Terminal
is the most modern terminalling and storage facility at the Cushing
Interchange, incorporating state-of-the-art environmental safeguards and
operational enhancements designed to safely and efficiently terminal,
store, blend and
76
<PAGE>
segregate large volumes and multiple varieties of both foreign and
domestic crude oil. The Cushing Terminal has the ability to (i)
sequentially store sweet and sour crude oil in the same tank without
compromising crude integrity, (ii) segregate up to 18 different varieties
of crude oil, (iii) receive and deliver crude oil at the connecting
pipelines' maximum operating capacities and (iv) operate with fewer
employees than its competitors due to its high level of automation. Due
to the Partnership's ownership of a significant portion of the
undeveloped land within the Cushing Interchange and its large manifold
and pumping system, the Cushing Terminal can be readily expanded, should
market conditions warrant, to support up to ten million barrels of tank
capacity.
. Specialized Crude Oil Market Knowledge. The marketing of crude oil is
complex and requires detailed current knowledge of crude oil sources and
end markets and a familiarity with a number of factors including grades
of crude oil, individual refinery demand for specific grades of crude
oil, area market price structures for the different grades of crude oil,
location of customers, availability of transportation facilities and
timing and costs (including storage) involved in delivering crude oil to
the appropriate customer. The Partnership believes that its business
relationships with participants in all phases of the crude oil
distribution chain, from crude oil producers to refiners, as well as its
own industry expertise, provide the Partnership a comprehensive
understanding of the U.S. crude oil markets. The Partnership has existing
business relationships with crude oil producers representing over 80% of
California production and substantially all of the Midwest refiners. The
Partnership believes that its specialized crude oil market knowledge, in
conjunction with its unique asset base, will enable the Partnership to
exploit inefficiencies throughout the crude oil distribution chain.
. Counter-Cyclical Balance Among the Partnership's Business Activities. The
Partnership believes that the counter-cyclical nature of its terminalling
and storage assets, which typically prosper in contango crude oil
markets, and its gathering and marketing assets, which typically prosper
in backward crude oil markets, combined with the long-term nature of the
contracts on its All American Pipeline, will have a stabilizing effect on
the Partnership's cash flow from operations.
. Flexibility to Pursue Expansion and Acquisition Opportunities. The
Partnership will enter into the $225 million Bank Credit Agreement
comprised of the $175 million Term Loan Facility and the $50 million
Revolving Credit Facility. Upon closing of this offering, the Partnership
will have total debt outstanding of $175 million and unused borrowing
capacity of $50 million. In combination with its ability to issue new
Units, the Partnership has significant resources to finance strategic
expansion and acquisition opportunities. These opportunities may include
the acquisition or expansion of crude oil pipeline assets, gathering
systems, terminalling and storage facilities, marketing entities and
other assets which the Partnership believes will contribute to the
successful execution of its business strategy. The Partnership is
currently adding one million barrels of capacity to the Cushing Terminal
at an estimated cost of approximately $10 million. Although the
Partnership routinely evaluates acquisition and expansion opportunities,
it has no other definitive plans for material acquisitions or expansions
at this time.
. Experienced Management Team. The Partnership's senior management team has
an average of more than 15 years industry experience, with an average of
over 10 years with the Partnership or its predecessors and affiliates. In
order to incentivize management and employees, the Partnership has
adopted a Long-Term Incentive Plan pursuant to which Common Units will be
awarded to employees of the General Partner in order to align their
economic interests with those of Common Unitholders. In addition, the
Partnership's Management Incentive Plan provides for cash bonuses to
operating personnel based on the financial performance of the
Partnership.
CRUDE OIL PIPELINE OPERATIONS
All American Pipeline
The All American Pipeline is a common carrier crude oil pipeline system that
transports crude oil produced from fields offshore and onshore California to
locations in California and West Texas pursuant to tariff rates regulated by
the FERC. As a common carrier, the All American Pipeline offers transportation
services to any shipper of crude oil, provided that the crude oil tendered for
transportation satisfies the conditions and specifications contained in the
applicable tariff. The All American Pipeline transports crude oil for third
parties as well as for the Partnership.
77
<PAGE>
The All American Pipeline is comprised of a heated pipeline system which
extends approximately 10 miles from Exxon's onshore facilities at Las Flores
on the California coast to Chevron's onshore facilities at Gaviota, California
(24-inch diameter pipe) and continues from Gaviota approximately 1,223 miles
through Arizona and New Mexico to West Texas (30-inch diameter pipe) where it
interconnects with other pipelines. These interconnecting common carrier
pipelines transport crude oil to the refineries located along the Gulf Coast
and to the Cushing Interchange. At the Cushing Interchange, these pipelines
connect with other pipelines that deliver crude oil to Midwest refiners. The
All American Pipeline also includes various pumping and heating stations, as
well as approximately one million barrels of crude oil storage tank capacity
to facilitate the transportation of crude oil. The tank capacity is located at
stations in Sisquoc, Pentland and Cadiz, California, and at the station in
Wink, Texas. In addition to facilitating transportation, the Partnership
believes that such tankage will offer arbitrage opportunities for the
Partnership. Unlike many common carrier pipelines, the Partnership owns
approximately 5.0 million barrels of crude oil that is used to maintain the
All American Pipeline's linefill requirements.
The All American Pipeline has a designed throughput capacity of 300,000
barrels per day of heavy crude oil and larger volumes of lighter crude oils.
As currently configured, the pipeline's daily throughput capacity is
approximately 216,000 barrels of heavy oil. In order to achieve designed
capacity, certain nominal capital expenditures would be required. The All
American Pipeline is operated from a control room in Bakersfield, California
with a SCADA computer system designed to continuously monitor quantities of
crude oil injected in and delivered through the All American Pipeline as well
as pressure and temperature variations. This technology also allows for the
batching of several different types of crude oil with varying gravities. The
SCADA system is designed to enhance leak detection capabilities and provides
for remote-controlled shut-down at every pump station on the All American
Pipeline. Pumping stations are linked by telephone and microwave communication
systems for remote-control operation of the All American Pipeline which allows
most of the pump stations to operate without full time site personnel.
The Partnership performs scheduled maintenance on the pipeline and makes
repairs and replacements when necessary or appropriate. As one of the most
recently constructed major crude oil pipeline systems in the United States,
the All American Pipeline requires a relatively low level of maintenance
capital expenditures. The Partnership attempts to control corrosion of the
pipeline through the use of corrosion inhibiting chemicals injected into the
crude stream, external pipe coatings and an anode bed based cathodic
protection system. The Partnership monitors the structural integrity of the
All American Pipeline through a program of periodic internal inspections using
electronic "smart pig" instruments. The Partnership conducts a weekly aerial
surveillance of the entire pipeline and right-of-way to monitor activities or
encroachments on rights-of-way. Maintenance facilities containing equipment
for pipe repair, digging and light equipment maintenance are strategically
located along the pipeline. The Partnership believes that the All American
Pipeline has been constructed and is maintained in all material respects in
accordance with applicable federal, state and local laws and regulations,
standards prescribed by the American Petroleum Institute and accepted industry
practice.
Following the acquisition of the All American Pipeline and SJV Gathering
System, the Partnership has taken certain actions to improve operating
efficiencies, including implementing a reorganization to reduce personnel
costs, initiating a renegotiation of certain electrical contracts and seeking
reductions in property taxes.
System Supply
The All American Pipeline transports several different types of crude oil,
including (i) OCS crude oil received at the onshore facilities of the Santa
Ynez field at Las Flores, California and the onshore facilities of the Point
Arguello field located at Gaviota, California, (ii) Elk Hills crude oil,
received at Pentland, California from a connection with the SJV Gathering
System and (iii) various crude oil blends received at Pentland from the SJV
Gathering System, including West Coast Heavy and Mojave Blend.
OCS Supply. Exxon, which owns all of the Santa Ynez production, and Chevron,
Texaco and Oryx, which own approximately one-half of the Point Arguello
production, have entered into transportation agreements
78
<PAGE>
committing to transport all of their production from these fields on the All
American Pipeline. These agreements, which expire in August 2007, provide for
a minimum tariff with annual escalations. Currently, the tariffs average $1.40
per barrel for deliveries to connecting pipelines in California and $2.96 per
barrel for deliveries to connecting pipelines in West Texas. The agreements do
not require these owners to transport a minimum volume. The producers from the
Point Arguello field who do not have contracts with the Partnership have no
other means of transporting their production and, therefore, ship their
volumes on the All American Pipeline at the posted tariffs. During the first
nine months of 1998, approximately $26 million, or 44%, of the Partnership's
gross margin was attributable to volumes received from the Santa Ynez field
and approximately $10 million, or 16%, was attributable to volumes received
from the Point Arguello field. Transportation of volumes from the Point
Arguello field on the All American Pipeline commenced in 1991 and from the
Santa Ynez field in 1994. The table below sets forth the historical volumes
received from both of these fields.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -------------
1991 1992 1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ---- ------ ------
(BARRELS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Daily Volumes
Received From:
Point Arguello (at
Gaviota).................. 29 47 63 73 60 41 30 30 26
Santa Ynez (at Las Flores). - - - 34 92 95 85 88 70
--- --- --- --- --- --- --- --- ---
Total.................... 29 47 63 107 152 136 115 118 96
=== === === === === === === === ===
</TABLE>
The Partnership anticipates that production from the Point Arguello field
will continue to decline at percentage rates which approximate historical
decline rates, but that average production received from the Santa Ynez field
for 1999 will approximate the average production received during the first
nine months of 1998, once certain facility modifications are completed by
Exxon. Although the Partnership anticipates that these modifications will be
completed prior to January 1, 1999, there can be no assurance with respect to
such completion or to the volumes ultimately produced.
According to information published by the Minerals Management Service
("MMS"), significant additional proved, undeveloped reserves have been
identified offshore California which have the potential to be delivered on the
All American Pipeline. Deliveries on the All American Pipeline depend on a
number of factors beyond the Partnership's control, including (i) the economic
feasibility of developing the reserves, (ii) the economic feasibility of
connecting such reserves to the All American Pipeline and (iii) the ability of
the owners of such reserves to obtain the necessary governmental approvals to
develop such reserves. The owners of these reserves are currently
participating in a study (California Offshore Oil and Gas Energy Resources,
"COOGER") with various private organizations and regulatory agencies to
determine the best sites to locate onshore facilities that will be required to
handle and process potential production from these undeveloped fields as well
as the best methods of controlling potential environmental dangers associated
with offshore drilling and production. These owners have also agreed to
suspend drilling on the undeveloped leases until the COOGER study is
completed. The COOGER study is anticipated to be completed by March 31, 1999,
at which time owners of these undeveloped reserves are required to submit
their development plans to the MMS. There can be no assurance that the owners
will develop such reserves, that the MMS will approve development plans or
that future regulations or litigation will not prevent or retard their
ultimate development and production. There also can be no assurance that if
such reserves were to be developed, a competing pipeline might not be built to
transport the production. In addition, a June 12, 1998 Executive Order of the
President of the United States extends until the year 2012 a statutory
moratorium on new leasing of offshore California fields. Existing fields are
authorized to continue production, but federal, state and local agencies may
restrict permits and authorizations for their development, and may restrict
new onshore facilities designed to serve offshore production of crude oil. San
Luis Obispo and Santa Barbara counties have adopted zoning ordinances that
prohibit development, construction, installation or expansion of any onshore
support facility for offshore oil and gas activity in the area, unless
approved by a majority of the votes cast by the voters of either county in an
authorized election. Any such restrictions, should they be imposed, could
adversely affect the future delivery of crude oil to the All American
Pipeline.
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<PAGE>
San Joaquin Valley Supply. In addition to OCS production, crude oil from
fields in the San Joaquin Valley is delivered into the All American Pipeline
at Pentland through connections with the SJV Gathering System and pipelines
operated by Koch and ARCO. The San Joaquin Valley is one of the most prolific
oil producing regions in the continental United States, producing
approximately 591,000 barrels per day of crude oil during the first six months
of 1998 that accounted for approximately 65% of total California production
and 11% of the total production in the lower 48 states. The following table
reflects the historical production for the San Joaquin Valley as well as total
California production (excluding OCS volumes) as reported by the California
Division of Oil and Gas.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------ JUNE 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----------
(BARRELS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Daily Volumes:
San Joaquin
production........... 700 689 646 629 634 609 588 578 569 579 584 591
Total California
production (excluding
OCS volumes)......... 999 969 907 879 875 835 803 784 764 772 781 781
</TABLE>
Drilling and exploitation activities have increased in the San Joaquin
Valley over the last few years, primarily due to the change in ownership of
several large fields, technological advances in horizontal drilling and steam
assisted recovery methods that have improved the overall economics of field
development and reductions in the operating costs of these fields. Based on
public statements by a number of oil companies, the Partnership believes that
the outlook for increased production levels in California is favorable. For
example, the Partnership believes that the February 1998 purchase by
Occidental from the U.S. government of the Elk Hills field, the former
strategic petroleum Naval Reserve, may result in increased production as
Occidental exploits these crude oil reserves. The Partnership also believes
that the All American Pipeline is well positioned to transport any additional
crude oil production resulting from these projects.
Alaskan North Slope Supply. Historically, the All American Pipeline had also
transported volumes of Alaskan North Slope crude oil. In 1996, the U.S.
government repealed the export ban on crude oil produced from the Alaskan
North Slope which had effectively prohibited the sale of Alaskan North Slope
crude oil to sources outside the U.S. Prior to its repeal, this ban had the
impact of increasing volumes of crude oil delivered into the California
market. Shipments of Alaskan North Slope crude oil on the All American
Pipeline ceased in February 1997, shortly after the repeal of the export ban.
In addition, in June 1998, ARCO announced that the only pipeline which had the
ability to bring Alaskan North Slope crude oil to the All American Pipeline
will be sold and converted to natural gas service. Upon such conversion,
Alaskan North Slope crude oil will no longer be physically capable of being
delivered into the All American Pipeline. While the Partnership does not
expect to transport any volumes of Alaskan North Slope crude oil on the All
American Pipeline in the near term, it does believe, based on public
disclosures by the major producers of Alaskan North Slope crude oil, that the
outlook for increased Alaskan North Slope production is favorable. To the
extent additional Alaskan North Slope production is realized and shipped to
the West Coast, the supply/demand balance on the West Coast would be favorably
impacted for the Partnership.
System Demand
Deliveries from the All American Pipeline are made to refineries within
California, along the Gulf Coast or in the Midwest through connecting
pipelines of other companies. Demand for crude oil shipped on the All American
Pipeline in each of these markets is affected by numerous factors, including
refinery utilization and crude oil slate requirements, regional crude oil
production, foreign imports, intra-U.S. transfers of crude oil and the price
differential (net of transportation cost) between the California and Midwest
markets.
Deliveries are made to California refineries through connections with third
party pipelines at Sisquoc, Pentland and Mojave. The deliveries at Sisquoc and
Pentland are OCS crude oil while the deliveries at Mojave are primarily Mojave
Blend. Crude oil transported to West Texas is primarily West Coast Heavy and
is delivered
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to third party pipelines at Wink and McCamey, Texas. At Wink, West Coast Heavy
crude is blended with Domestic Sweet Crude to increase the gravity (the blend
is commonly referred to as West Coast Sour), permitting delivery into third
party pipelines that can transport the crude to the Cushing Interchange. At
McCamey, West Coast Heavy and OCS crude oil are delivered to a third party
pipeline that supplies refiners on the Gulf Coast.
The following table sets forth All American Pipeline average deliveries per
day within and outside California for each of the years in the five-year
period ended December 31, 1997 and for the nine months ended September 30,
1997 and 1998.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ------ ------
(BARRELS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Average Daily Volumes Delivered To:
California
Sisquoc............................... 4 21 11 17 21 18 24
Pentland.............................. 58 56 65 71 74 75 70
Mojave................................ - - - 6 32 35 22
--- --- --- --- --- --- ---
Total California.................... 62 77 76 94 127 128 116
Texas.................................. 122 108 141 113 68 73 58
--- --- --- --- --- --- ---
Total............................... 184 185 217 207 195 201 174
=== === === === === === ===
</TABLE>
SJV Gathering System
The SJV Gathering System is a proprietary pipeline system that only
transports crude oil purchased by entities owned by the Partnership. As a
proprietary pipeline, the SJV Gathering System is not subject to common
carrier regulations and does not transport crude oil for third parties. The
primary purpose of the pipeline is to gather crude oil from various sources in
the San Joaquin Valley and to blend such crude oil along the pipeline system
in order to deliver either West Coast Heavy or Mojave Blend into the All
American Pipeline. Certain crude streams are segregated and delivered into
either the All American Pipeline or to third party pipelines connected to the
SJV Gathering System.
The SJV Gathering System was constructed in 1987 with a design capacity of
approximately 140,000 barrels per day. The system consists of a 16-inch
pipeline that originates at the Belridge station and extends 45 miles south to
a connection with the All American Pipeline at the Pentland station. The SJV
Gathering System is connected to several fields, including the South Belridge,
Elk Hills and Midway Sunset fields, three of the seven largest producing
fields in the lower 48 states. The SJV Gathering System also includes
approximately 586,000 barrels of tank capacity, which has historically been
used to facilitate movements along the system. The Partnership believes that
such tankage may offer additional opportunities to support the Partnership's
activities.
The SJV Gathering System is operated in conjunction with, and with the same
SCADA system used in the operations of the All American Pipeline. The
Partnership also takes measures to protect the pipeline from corrosion and
routinely inspects the pipeline using the same procedures and practices
employed in the operation of the All American Pipeline. Like the All American
Pipeline, the SJV Gathering System was constructed and is maintained in all
material respects in accordance with applicable federal, state and local laws
and regulations, standards prescribed by the American Petroleum Institute and
accepted industry practice.
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<PAGE>
The SJV Gathering System is supplied with the crude oil production primarily
from major oil companies' equity production from the South Belridge, Cymeric,
Midway Sunset and Elk Hills fields. The table below sets forth the historical
volumes received into the SJV Gathering System.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ------ ------
(BARRELS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Average Daily Volumes.............. 67 54 50 67 91 89 85
</TABLE>
In order to increase utilization and margins relating to the SJV Gathering
System, the Partnership has initiated a wellhead gathering, transportation and
marketing program in the San Joaquin Valley. The new program is similar to a
program to purchase crude oil from independent producers successfully
implemented by the Plains Midstream Subsidiaries in Texas, Oklahoma, Kansas
and Louisiana under which volumes increased from 1,300 barrels per day in 1990
to 71,000 barrels per day in 1997. The Partnership has committed resources to
its new gathering program by hiring an additional lease buyer, activating an
existing truck unloading station and arranging to make additional connections
with other pipeline systems in the San Joaquin Valley, including access into
the Pacific Pipeline. In addition, the Partnership has entered into an
arrangement with various parties whereby the Partnership has reserved up to
40,000 barrels per day of capacity for movements into the Pacific Pipeline,
and all crude oil sourced by one such party from the Midway Sunset field will
be delivered by the Partnership into the Pacific Pipeline via the SJV
Gathering System.
TERMINALLING AND STORAGE ACTIVITIES AND GATHERING AND MARKETING ACTIVITIES
Terminalling and Storage
The Cushing Terminal was constructed in 1993 to capitalize on the crude oil
supply and demand imbalance in the Midwest caused by the continued decline of
regional production supplies, increasing imports and an inadequate pipeline
and terminal infrastructure. The Cushing Terminal is also used to support and
enhance the margins associated with the Partnership's merchant activities
relating to its lease gathering and bulk trading activities. The Ingleside
Terminal was constructed in 1979 and purchased by the Plains Midstream
Subsidiaries in 1996 to enhance its lease gathering activities in South Texas.
The Cushing Terminal has a total storage capacity of two million barrels,
comprised of fourteen 100,000 barrel tanks and four 150,000 barrel tanks used
to store and terminal crude oil. The Cushing Terminal also includes a pipeline
manifold and pumping system that has an estimated daily throughput capacity of
approximately 800,000 barrels per day. The pipeline manifold and pumping
system is designed to support up to ten million barrels of tank capacity. The
Cushing Terminal is connected to the major pipelines and terminals in the
Cushing Interchange through pipelines that range in size from 10 inches to 24
inches in diameter. A one million barrel expansion project to add four 250,000
barrel tanks is currently underway at the Cushing Terminal with completion
targeted for mid-1999.
The Cushing Terminal is a state-of-the-art facility designed to serve the
needs of refiners in the Midwest. In order to service an expected increase in
the volumes as well as the varieties of foreign and domestic crude oil
projected to be transported through the Cushing Interchange, the Partnership
incorporated certain attributes into the design of the Cushing Terminal
including (i) multiple, smaller tanks to facilitate simultaneous handling of
multiple crude varieties in accordance with normal pipeline batch sizes, (ii)
dual header systems connecting each tank to the main manifold system to
facilitate efficient switching between crude grades with minimal
contamination, (iii) bottom drawn sump pumps that enable each tank to be
efficiently drained down to minimal remaining volumes to minimize crude
contamination and maintain crude integrity, (iv) a mixer on each tank to
facilitate blending crude grades to refinery specifications, and (v) a
manifold and pump system that allows for receipts and deliveries with
connecting carriers at their maximum operating capacity. As a result of
incorporating these attributes into the design of the Cushing Terminal, the
Partnership believes it is favorably positioned to
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<PAGE>
serve the needs of Midwest refiners to handle an increase in varieties of
crude transported through the Cushing Interchange.
The Cushing Terminal also incorporates numerous environmental and
operational safeguards. The Partnership believes that its terminal is the only
one at the Cushing Interchange in which each tank has a secondary liner (the
equivalent of double bottoms), leak detection devices and secondary seals. The
Cushing Terminal is the only terminal at the Cushing Interchange equipped with
aboveground pipelines. Like the All American Pipeline and the SJV Gathering
System, the Cushing Terminal is operated by a SCADA system and each tank is
cathodically protected. In addition, each tank is equipped with an audible and
visual high level alarm system to prevent overflows; a floating roof that
minimizes air emissions and prevents the possible accumulation of potentially
flammable gases between fluid levels and the roof of the tank; and a foam line
that, in the event of a fire, is connected to the automated fire water
distribution system.
The Cushing Interchange is the largest wet barrel trading hub in the U.S.
and the delivery point for crude oil futures contracts traded on the NYMEX.
The Cushing Terminal has been designated by the NYMEX as an approved delivery
location for crude oil delivered under the NYMEX light sweet crude oil futures
contract. As a NYMEX delivery point and a cash market hub, the Cushing
Interchange serves as the primary source of refinery feedstock for the Midwest
refiners and plays an integral role in establishing and maintaining markets
for many varieties of foreign and domestic crude oil. The following
illustration details the major pipeline systems and terminals that deliver
crude oil to, or can receive oil from, the Cushing Terminal.
[Graphic depicting incoming and outgoing pipelines from the Cushing Terminal]
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<PAGE>
The Ingleside Terminal was constructed in 1979 and purchased by the Plains
Midstream Subsidiaries in 1996 to enhance its lease gathering activities in
South Texas. The Ingleside Terminal is located near the Gulf Coast port of
Corpus Christi, Texas. The Ingleside Terminal is comprised of 11 tanks ranging
in size from a minimum of 15,000 barrels to a maximum of 50,000 barrels. Three
of these tanks are heated, which allows for storage of heavier products. The
terminal has access to the receipt of crude oil and refined petroleum products
from trucks and barges. Likewise, the terminal can deliver crude oil and
refined petroleum products to barges and trucks. The Partnership leases a
barge dock approximately one mile from the Ingleside Terminal and is connected
to the dock by four pipelines ranging in size from 8 inches to 12 inches in
diameter. The dock lease can be extended in five-year intervals through 2021.
The Partnership's terminalling and storage operations generate revenue
through terminalling and storage fees paid by third parties as well as by
utilizing the tankage in conjunction with its merchant activities. Storage
fees are generated when the Partnership leases tank capacity to third parties.
Terminalling fees, also referred to as throughput fees, are generated when the
Partnership receives crude oil from one connecting pipeline (generally
received in batch sizes of 25,000 to 400,000 barrels) and redelivers such
crude oil to another connecting carrier in volumes that allow the refinery to
receive its crude oil on a ratable basis throughout a delivery period (which
is generally three to ten days). Both terminalling and storage fees are
generally earned from (i) refiners and gatherers that segregate or custom
blend crudes for refining feedstocks, (ii) pipeline operators, refiners or
traders that need segregated tankage for foreign cargoes, (iii) traders who
make or take delivery under NYMEX contracts and (iv) producers and resellers
that seek to increase their marketing alternatives. The tankage that is used
to support the Partnership's arbitrage activities position the Partnership to
capture margins in a contango market or when the market switches from contango
to backwardation. The following table sets forth the throughput volumes for
the Partnership's terminalling and storage operations, and quantity of tankage
leased to third parties from 1993 through the nine months ended September 30,
1998.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ------ -------
(BARRELS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Throughput Volumes (average daily
volumes):
Cushing Terminal................. 6(1) 29 43 56 69 69 68
Ingleside Terminal............... - - - 3 8 9 11
--- --- --- --- --- ----- -------
Total.......................... 6 29 43 59 77 78 79
=== === === === === ===== =======
Storage Leased to Third Parties
(monthly average volumes):
Cushing Terminal................. 113(1) 464 208 203 414 371 831
Ingleside Terminal............... - - - 211 254 252 260
--- --- --- --- --- ----- -------
Total.......................... 113 464 208 414 668 623 1,091
=== === === === === ===== =======
</TABLE>
- --------
(1) Reflects eight months of partial operation during construction.
The Partnership expects to use a portion of the new tankage under
construction to support the marketing of West Coast Sour crude oil to Midwest
refiners. With access to the Cushing Terminal tankage, the Partnership will be
able to ensure ratable deliveries throughout the month, thus providing a
logistical advantage to foreign crude oils which are delivered by vessel. The
Partnership has committed 750,000 barrels of its capacity at the Cushing
Terminal to storage arrangements with third parties through mid-1999.
Gathering and Marketing Activities
The Partnership's gathering and marketing activities are primarily conducted
in Louisiana, Texas, Oklahoma and Kansas and include (i) purchasing crude oil
from producers at the wellhead and in bulk from aggregators at major pipeline
interconnects and trading locations, (ii) transporting such crude oil on its
own proprietary
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<PAGE>
gathering assets or assets owned and operated by third parties when necessary
or cost effective, (iii) exchanging such crude oil for another grade of crude
oil or at a different geographic location, as appropriate, in order to
maximize margins or meet contract delivery requirements and (iv) marketing
crude oil to refiners or other resellers. The Partnership purchases crude oil
from many independent producers and believes that it has established broad-
based relationships with crude oil producers in its areas of operations. For
the nine months ended September 30, 1998, the Partnership purchased
approximately 85,000 barrels per day of crude oil directly at the wellhead
from more than 370 producers from approximately 2,000 leases. The Partnership
purchases crude oil from producers under contracts that range in term from a
thirty-day evergreen to two years. Gathering and marketing activities are
characterized by large volumes of transactions with lower margins relative to
pipeline and terminalling and storage operations.
The following table shows the average daily volume of the Partnership's
lease gathering and bulk purchases from 1995 through the nine months ended
September 30, 1998.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------- ------------
1995 1996 1997 1997 1998
------- ------- ------- ----- -----
(BARRELS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Lease gathering...................... 46 59 71 70 85
Bulk purchases....................... 10 32 49 46 94
------- ------- ------- ----- -----
Total volumes...................... 56 91 120 116 179
======= ======= ======= ===== =====
</TABLE>
Crude Oil Purchases. In a typical producer's operation, crude oil flows from
the wellhead to a separator where the petroleum gases are removed. After
separation, the crude oil is treated to remove water, sand and other
contaminants and is then moved into the producer's on-site storage tanks. When
the tank is full, the producer contacts the Partnership's field personnel to
purchase and transport the crude oil to market. The Partnership utilizes
pipelines, trucks and barges owned and operated by third parties and the
Partnership's truck fleet and gathering pipelines to transport the crude oil
to market. The Partnership owns approximately 25 trucks, 29 tractor-trailers
and 14 injection stations.
Pursuant to the Marketing Agreement, the Partnership is the exclusive
marketer/purchaser for all of Plains Resources' equity crude oil production.
The Marketing Agreement provides that the Partnership will purchase for resale
at market prices all of Plains Resources' crude oil production for which it
will charge a fee of $0.20 per barrel. This fee will be adjusted every three
years based upon then existing market conditions. The Marketing Agreement will
terminate upon a "change of control" of Plains Resources or the General
Partner. On a pro forma basis, revenues generated under the Marketing
Agreement for the nine months ended September 30, 1998 would have been
approximately $1.3 million. For the first nine months of 1998, Plains
Resources produced approximately 24,700 barrels per day which would be subject
to the Marketing Agreement. Plains Resources owns an approximate 100% working
interest in each of its fields.
Bulk Purchases. In addition to purchasing crude oil at the wellhead from
producers, the Partnership purchases crude oil in bulk at major pipeline
terminal points. This production is transported from the wellhead to the
pipeline by major oil companies, large independent producers or other
gathering and marketing companies. The Partnership purchases crude oil in bulk
when it believes additional opportunities exist to realize margins further
downstream in the crude oil distribution chain. The opportunities to earn
additional margins vary over time with changing market conditions.
Accordingly, the margins associated with the Partnership's bulk purchases will
fluctuate from period to period. The Partnership's bulk purchasing activities
are concentrated in California, Texas, Louisiana and at the Cushing
Interchange.
Crude Oil Sales. The marketing of crude oil is complex and requires detailed
current knowledge of crude oil sources and end markets and a familiarity with
a number of factors including grades of crude oil, individual
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<PAGE>
refinery demand for specific grades of crude oil, area market price structures
for the different grades of crude oil, location of customers, availability of
transportation facilities and timing and costs (including storage) involved in
delivering crude oil to the appropriate customer. The Partnership sells its
crude oil to major integrated oil companies and independent refiners in
various types of sale and exchange transactions, generally at market-
responsive prices for terms ranging from one month to three years.
As the Partnership purchases crude oil, it establishes a margin by selling
crude oil for physical delivery to third party users, such as independent
refiners or major oil companies, or by entering into a future delivery
obligation with respect to futures contracts on the NYMEX. Through these
transactions, the Partnership seeks to maintain a position that is
substantially balanced between crude oil purchases and sales and future
delivery obligations. The Partnership from time to time enters into fixed
price delivery contracts, floating price collar arrangements, financial swaps
and oil futures contracts as hedging devices. To ensure a fixed price for
future production, the Partnership may sell a futures contract and thereafter
either (i) make physical delivery of its product to comply with such contract
or (ii) buy a matching futures contract to unwind its futures position and
sell its production to a customer. The Partnership's policy is generally to
purchase only crude oil for which it has a market and to structure its sales
contracts so that crude oil price fluctuations do not materially affect the
gross margin which it receives. The Partnership does not acquire and hold
crude oil, futures contracts or other derivative products for the purpose of
speculating on crude oil price changes that might expose the Partnership to
indeterminable losses.
Risk management strategies, including those involving price hedges using
NYMEX futures contracts, have become increasingly important in creating and
maintaining margins. Such hedging techniques require significant resources
dedicated to managing futures positions. The Partnership is able to monitor
crude oil volumes, grades, locations and delivery schedules and to coordinate
marketing and exchange opportunities, as well as NYMEX hedging positions. This
coordination ensures that the Partnership's NYMEX hedging activities are
successfully implemented.
Crude Oil Exchanges. The Partnership pursues exchange opportunities to
enhance margins throughout the gathering and marketing process. When
opportunities arise to increase its margin or to acquire a grade of crude oil
that more nearly matches its delivery requirement or the preferences of its
refinery customers, the Partnership exchanges physical crude oil with third
parties. These exchanges are effected through contracts called exchange or
buy-sell agreements. Through an exchange agreement, the Partnership agrees to
buy crude oil that differs in terms of geographic location, grade of crude oil
or delivery schedule from crude oil it has available for sale. Generally, the
Partnership enters into exchanges to acquire crude oil at locations that are
closer to its end markets, thereby reducing transportation costs and
increasing its margin. The Partnership also exchanges its crude oil to be
delivered at an earlier or later date, if the exchange is expected to result
in a higher margin net of storage costs, and enters into exchanges based on
the grade of crude oil (which includes such factors as sulfur content and
specific gravity) in order to meet the quality specifications of its delivery
contracts.
Producer Services. Crude oil purchasers who buy from producers compete on
the basis of competitive prices and highly responsive services. Through its
team of crude oil purchasing representatives, the Partnership maintains
ongoing relationships with more than 370 producers. The Partnership believes
that its ability to offer high-quality field and administrative services to
producers will be a key factor in its ability to maintain volumes of purchased
crude oil and to obtain new volumes. High-quality field services include
efficient gathering capabilities, availability of trucks, willingness to
construct gathering pipelines where economically justified, timely pickup of
crude oil from tank batteries at the lease or production point, accurate
measurement of crude oil volumes received, avoidance of spills and effective
management of pipeline deliveries. Accounting and other administrative
services include securing division orders (statements from interest owners
affirming the division of ownership in crude oil purchased by the
Partnership), providing statements of the crude oil purchased each month,
disbursing production proceeds to interest owners and calculation and payment
of ad valorem and production taxes on behalf of interest owners. In order to
compete effectively, the Partnership must maintain records of title and
division order interests in an accurate and timely manner for purposes of
making prompt and
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<PAGE>
correct payment of crude oil production proceeds, together with the correct
payment of all severance and production taxes associated with such proceeds.
Credit. The Partnership's merchant activities involve the purchase of crude
oil for resale and require significant extensions of credit by the
Partnership's suppliers of crude oil. In order to assure the Partnership's
ability to perform its obligations under crude purchase agreements, various
credit arrangements are negotiated with the Partnership's crude suppliers.
Such arrangements include open lines of credit directly with the Partnership
and standby letters of credit issued under the Letter of Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--The Partnership--Capital Resources, Liquidity and Financial
Condition."
When the Partnership markets crude oil, it must determine the amount, if
any, of the line of credit to be extended to any given customer. If the
Partnership determines that a customer should receive a credit line, it must
then decide on the amount of credit that should be extended. Since typical
Partnership sales transactions can involve tens of thousands of barrels of
crude oil, the risk of nonpayment and nonperformance by customers is a major
consideration in the Partnership's business. The Partnership believes its
sales are made to creditworthy entities or entities with adequate credit
support.
Credit review and analysis are also integral to the Partnership's leasehold
purchases. Payment for all or substantially all of the monthly leasehold
production is sometimes made to the operator of the lease. The operator, in
turn, is responsible for the correct payment and distribution of such
production proceeds to the proper parties. In these situations, the
Partnership must determine whether the operator has sufficient financial
resources to make such payments and distributions and to indemnify and defend
the Partnership in the event any third party should bring a protest, action or
complaint in connection with the ultimate distribution of production proceeds
by the operator.
CUSTOMERS
Koch Oil Company accounted for 23% of the Partnership's pro forma 1997
revenues. In addition, shipments of crude oil from the Santa Ynez and Point
Arguello fields accounted for approximately $69.1 million, or 84%, of tariff
revenues for 1997.
COMPETITION
The All American Pipeline encounters competition from foreign oil imports
and other pipelines that serve the California market and the refining centers
in the Midwest and on the Gulf Coast.
A new pipeline connecting the San Joaquin Valley to refinery markets in the
Los Angeles Basin area is currently under construction by a third party with
an anticipated completion date in 1999. The Partnership expects that certain
volumes currently transported on the All American Pipeline may be redirected
to Los Angeles on such pipeline.
Competition among common carrier pipelines is based primarily on
transportation charges, access to producing areas and demand for the crude oil
by end users. The Partnership believes that high capital requirements,
environmental considerations and the difficulty in acquiring rights of way and
related permits make it unlikely that a competing pipeline system comparable
in size and scope to the All American Pipeline will be built in the
foreseeable future.
The Partnership faces intense competition in its terminalling and storage
activities and gathering and marketing activities. Its competitors include
other crude oil pipelines, the major integrated oil companies, their marketing
affiliates and independent gatherers, brokers and marketers of widely varying
sizes, financial resources and experience. Some of these competitors have
capital resources many times greater than the Partnership's and control
substantially greater supplies of crude oil.
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<PAGE>
REGULATION
The Partnership's operations are subject to extensive regulation. Many
departments and agencies, both federal and state, are authorized by statute to
issue and have issued rules and regulations binding on the oil industry and
its individual participants. The failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil industry increases the Partnership's cost of doing business and,
consequently, affects its profitability. However, the Partnership does not
believe that it is affected in a significantly different manner by these
regulations than are its competitors. Due to the myriad and complex federal
and state statutes and regulations which may affect the Partnership, directly
or indirectly, the following discussion of certain statutes and regulations
should not be relied upon as an exhaustive review of all regulatory
considerations affecting the Partnership's operations.
Pipeline Regulation
The Partnership's pipelines are subject to regulation by the Department of
Transportation ("DOT") under the Hazardous Liquids Pipeline Safety Act of
1979, as amended ("HLPSA") relating to the design, installation, testing,
construction, operation, replacement and management of pipeline facilities.
The HLPSA requires the Partnership and other pipeline operators to comply with
regulations issued pursuant to HLPSA, to permit access to and allow copying of
records and to make certain reports and provide information as required by the
Secretary of Transportation.
The Pipeline Safety Act of 1992 (the "Pipeline Safety Act") amends the HLPSA
in several important respects. It requires the Research and Special Programs
Administration ("RSPA") of DOT to consider environmental impacts, as well as
its traditional public safety mandate, when developing pipeline safety
regulations. In addition, the Pipeline Safety Act mandates the establishment
by DOT of pipeline operator qualification rules requiring minimum training
requirements for operators, and requires that pipeline operators provide maps
and records to RSPA. It also authorizes RSPA to require that pipelines be
modified to accommodate internal inspection devices, to mandate the
installation of emergency flow restricting devices for pipelines in populated
or sensitive areas and to order other changes to the operation and maintenance
of petroleum pipelines. The Partnership believes that its pipeline operations
are in substantial compliance with applicable HLPSA and Pipeline Safety Act
requirements. Nevertheless, significant expenses could be incurred in the
future if additional safety measures are required or if safety standards are
raised and exceed the current pipeline control system capabilities.
States are largely preempted by federal law from regulating pipeline safety
but may assume responsibility for enforcing federal intrastate pipeline
regulations and inspection of intrastate pipelines. In practice, states vary
considerably in their authority and capacity to address pipeline safety. The
Partnership does not anticipate any significant problems in complying with
applicable state laws and regulations in those states in which it operates.
Transportation and Sale of Crude Oil
In October 1992 Congress passed the Energy Policy Act of 1992 ("Energy
Policy Act"). The Energy Policy Act deemed petroleum pipeline rates in effect
for the 365-day period ending on the date of enactment of the Energy Policy
Act or that were in effect on the 365th day preceding enactment and had not
been subject to complaint, protest or investigation during the 365-day period
to be just and reasonable under the Interstate Commerce Act. The Energy Policy
Act also provides that complaints against such rates may only be filed under
the following limited circumstances: (i) a substantial change has occurred
since enactment in either the economic circumstances or the nature of the
services which were a basis for the rate; (ii) the complainant was
contractually barred from challenging the rate prior to enactment; or (iii) a
provision of the tariff is unduly discriminatory or preferential.
The Energy Policy Act further required the FERC to issue rules establishing
a simplified and generally applicable ratemaking methodology for petroleum
pipelines, and to streamline procedures in petroleum pipeline
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proceedings. On October 22, 1993, the FERC responded to the Energy Policy Act
directive by issuing Order No. 561, which adopts a new indexing rate
methodology for petroleum pipelines. Under the new regulations, which were
effective January 1, 1995, petroleum pipelines are able to change their rates
within prescribed ceiling levels that are tied to the Producer Price Index for
Finished Goods, minus one percent. Rate increases made pursuant to the index
will be subject to protest, but such protests must show that the portion of
the rate increase resulting from application of the index is substantially in
excess of the pipeline's increase in costs. The new indexing methodology can
be applied to any existing rate, even if the rate is under investigation. If
such rate is subsequently adjusted, the ceiling level established under the
index must be likewise adjusted.
In Order No. 561, the FERC said that as a general rule pipelines must
utilize the indexing methodology to change their rates. The FERC indicated,
however, that it was retaining cost-of-service ratemaking, market-based rates,
and settlements as alternatives to the indexing approach. A pipeline can
follow a cost-of-service approach when seeking to increase its rates above
index levels for uncontrollable circumstances. A pipeline can seek to charge
market-based rates if it can establish that it lacks market power. In
addition, a pipeline can establish rates pursuant to settlement if agreed upon
by all current shippers. Initial rates for new services can be established
through a cost-of-service proceeding or through an uncontested agreement
between the pipeline and at least one shipper not affiliated with the
pipeline.
On May 10, 1996, the Court of Appeals for the District of Columbia Circuit
affirmed Order No. 561. The Court held that by establishing a general indexing
methodology along with limited exceptions to indexed rates, FERC had
reasonably balanced its dual responsibilities of ensuring just and reasonable
rates and streamlining ratemaking through generally applicable procedures.
In a recent proceeding involving Lakehead Pipe Line Company, Limited
Partnership (Opinion No. 397), FERC concluded that there should not be a
corporate income tax allowance built into a petroleum pipeline's rates to
reflect income attributable to noncorporate partners since noncorporate
partners, unlike corporate partners, do not pay a corporate income tax. This
result comports with the principle that, although a regulated entity is
entitled to an allowance to cover its incurred costs, including income taxes,
there should not be an element included in the cost of service to cover costs
not incurred. Opinion No. 397 was affirmed on rehearing in May 1996. Appeals
of the Lakehead opinions were taken, but the parties to the Lakehead
proceeding subsequently settled the case, with the result that appellate
review of the tax and other issues never took place.
There is also pending at the FERC a proceeding involving another publicly
traded limited partnership engaged in the common carrier transportation of
crude oil (the "Santa Fe Proceeding") in which the FERC could further limit
its current position related to the tax allowance permitted in the rates of
publicly traded partnerships, as well as possibly alter the FERC's current
application of the FERC oil pipeline ratemaking methodology. On September 25,
1997, the administrative law judge in the Santa Fe Proceeding issued an
initial decision addressing various aspects of the tax allowance issue as it
affects publicly traded partnerships, as well as various technical issues
involving the application of the FERC oil pipeline ratemaking methodology. The
administrative law judge's initial decision in the Santa Fe Proceeding is
currently pending review by the FERC. In such review, it is possible that the
FERC could alter its current rulings on the tax allowance issue or on the
application of the FERC oil pipeline ratemaking methodology.
The FERC generally has not investigated rates, such as those currently
charged by the Partnership, which have been mutually agreed to by the pipeline
and the shippers or which are significantly below cost of service rates that
might otherwise be justified by the pipeline under the FERC's cost-based
ratemaking methods. Substantially all of the Partnership's gross margins on
transportation are produced by rates that are either grandfathered or set by
agreement of the parties. The rates for substantially all of the crude oil
transported from California to West Texas are grandfathered and not subject to
decreases through the application of indexing. These rates have not been
decreased through application of the indexing method. Rates for OCS crude are
set by transportation agreements with shippers that do not expire until 2007
and provide for a minimum tariff with annual escalation. The FERC has twice
approved the agreed OCS rates, although application of the PPFIG-1 index
method would have required their reduction. When these OCS agreements expire
in 2007, they will be
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subject to renegotiation or to any of the other methods for establishing rates
under Order No. 561. As a result, the Partnership believes that the rates now
in effect can be sustained, although no assurance can be given that the rates
currently charged by the Partnership would ultimately be upheld if challenged.
In addition, the Partnership does not believe that an adverse determination on
the tax allowance issue in the Santa Fe Proceeding would have a detrimental
impact upon the current rates charged by the Partnership.
ENVIRONMENTAL REGULATION
General
Various federal, state and local laws and regulations governing the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, affect the Partnership's operations and costs.
In particular, the Partnership's activities in connection with storage and
transportation of crude oil and other liquid hydrocarbons and its use of
facilities for treating, processing or otherwise handling hydrocarbons and
wastes therefrom are subject to stringent environmental regulation. As with
the industry generally, compliance with existing and anticipated regulations
increases the Partnership's overall cost of business. Such areas affected
include capital costs to construct, maintain and upgrade equipment and
facilities. While these regulations affect the Partnership's capital
expenditures and earnings, the Partnership believes that such regulations do
not affect its competitive position in that the operations of its competitors
that comply with such regulations are similarly affected. Environmental
regulations have historically been subject to frequent change by regulatory
authorities, and the Partnership is unable to predict the ongoing cost to it
of complying with these laws and regulations or the future impact of such
regulations on its operation. Violation of federal or state environmental
laws, regulations and permits can result in the imposition of significant
civil and criminal penalties, injunctions and construction bans or delays. A
discharge of hydrocarbons or hazardous substances into the environment could,
to the extent such event is not insured, subject the Partnership to
substantial expense, including both the cost to comply with applicable
regulations and claims by neighboring landowners and other third parties for
personal injury and property damage.
Water
The Oil Pollution Act ("OPA") was enacted in 1990 and amends provisions of
the Federal Water Pollution Control Act of 1972 ("FWPCA") and other statutes
as they pertain to prevention and response to oil spills. The OPA subjects
owners of facilities to strict, joint and potentially unlimited liability for
removal costs and certain other consequences of an oil spill, where such spill
is into navigable waters, along shorelines or in the exclusive economic zone
of the U.S. In the event of an oil spill into such waters, substantial
liabilities could be imposed upon the Partnership. States in which the
Partnership operates have also enacted similar laws. Regulations are currently
being developed under OPA and state laws that may also impose additional
regulatory burdens on the Partnership.
The FWPCA imposes restrictions and strict controls regarding the discharge
of pollutants into navigable waters. Permits must be obtained to discharge
pollutants to state and federal waters. The FWPCA imposes substantial
potential liability for the costs of removal, remediation and damages. The
Partnership believes that compliance with existing permits and compliance with
foreseeable new permit requirements will not have a material adverse effect on
the Partnership's financial condition or results of operations.
Some states maintain groundwater protection programs that require permits
for discharges or operations that may impact groundwater conditions. The
Partnership believes that it is in substantial compliance with these state
requirements.
Air Emissions
The operations of the Partnership are subject to the Federal Clean Air Act
and comparable state and local statutes. The Partnership believes that its
operations are in substantial compliance with such statutes in all states in
which they operate.
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Amendments to the Federal Clean Air Act enacted in late 1990 (the "1990
Federal Clean Air Act Amendments") require or will require most industrial
operations in the U.S. to incur capital expenditures in order to meet air
emission control standards developed by the Environmental Protection Agency
(the "EPA") and state environmental agencies. In addition, the 1990 Federal
Clean Air Act Amendments include a new operating permit for major sources
("Title V permits"), which applies to some of the Partnership's facilities.
Although no assurances can be given, the Partnership believes implementation
of the 1990 Federal Clean Air Act Amendments will not have a material adverse
effect on the Partnership's financial condition or results of operations.
Solid Waste
The Partnership generates non-hazardous solid wastes that are subject to the
requirements of the Federal Resource Conservation and Recovery Act ("RCRA")
and comparable state statutes. The EPA is considering the adoption of stricter
disposal standards for non-hazardous wastes, including oil and gas wastes.
RCRA also governs the disposal of hazardous wastes. At present, the
Partnership is not required to comply with a substantial portion of the RCRA
requirements because the Partnership's operations generate minimal quantities
of hazardous wastes. However, it is possible that additional wastes, which
could include wastes currently generated during operations, will in the future
be designated as "hazardous wastes." Hazardous wastes are subject to more
rigorous and costly disposal requirements than are non-hazardous wastes. Such
changes in the regulations could result in additional capital expenditures or
operating expenses by the Partnership.
Hazardous Substances
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as "Superfund," imposes liability, without regard to
fault or the legality of the original act, on certain classes of persons that
contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of the site and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. CERCLA also authorizes the EPA and, in some instances, third parties to
act in response to threats to the public health or the environment and to seek
to recover from the responsible classes of persons the costs they incur. In
the course of its ordinary operations, the Partnership may generate waste that
may fall within CERCLA's definition of a "hazardous substance." The
Partnership may be jointly and severally liable under CERCLA for all or part
of the costs required to clean up sites at which such hazardous substances
have been disposed or released into the environment.
The Partnership currently owns or leases, and has in the past owned or
leased, properties where hydrocarbons are being or have been handled. Although
the Partnership has utilized operating and disposal practices that were
standard in the industry at the time, hydrocarbons or other wastes may have
been disposed of or released on or under the properties owned or leased by the
Partnership or on or under other locations where such wastes have been taken
for disposal. In addition, many of these properties have been operated by
third parties whose treatment and disposal or release of hydrocarbons or other
wastes was not under the Partnership's control. These properties and wastes
disposed thereon may be subject to CERCLA, RCRA and analogous state laws.
Under such laws, the Partnership could be required to remove or remediate
previously disposed wastes (including wastes disposed of or released by prior
owners or operators), to clean up contaminated property (including
contaminated groundwater) or to perform remedial plugging operations to
prevent future contamination.
OSHA
The Partnership is also subject to the requirements of the Federal
Occupational Safety and Health Act ("OSHA") and comparable state statutes that
regulate the protection of the health and safety of workers. In addition, the
OSHA hazard communication standard requires that certain information be
maintained about hazardous materials used or produced in operations and that
this information be provided to employees, state and local government
authorities and citizens. The Partnership believes that its operations are in
substantial
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compliance with OSHA requirements, including general industry standards,
record keeping requirements and monitoring of occupational exposure to
regulated substances.
Endangered Species Act
The Endangered Species Act ("ESA") restricts activities that may affect
endangered species or their habitats. While certain facilities of the
Partnership are in areas that may be designated as habitat for endangered
species, the Partnership believes that it is in substantial compliance with
the ESA. However, the discovery of previously unidentified endangered species
could cause the Partnership to incur additional costs or operation
restrictions or bans in the affected area.
Hazardous Materials Transportation Requirements
The DOT regulations affecting pipeline safety require pipeline operators to
implement measures designed to reduce the environmental impact of oil
discharge from onshore oil pipelines. These regulations require operators to
maintain comprehensive spill response plans, including extensive spill
response training for pipeline personnel. In addition, DOT regulations contain
detailed specifications for pipeline operation and maintenance. The
Partnership believes that its operations are in substantial compliance with
such regulations.
ENVIRONMENTAL REMEDIATION
During 1997, the All American Pipeline experienced a leak in a segment of
its pipeline in California which resulted in an estimated 12,000 barrels of
crude oil being released into the soil. Immediate action was taken to repair
the pipeline leak, contain the spill and to recover the released crude oil.
The Partnership has submitted a remediation plan. Agency approval or
disapproval is expected in the first quarter of 1999. If the Partnership's
plan is disapproved, a government mandated remediation of the spill could
require significant expenditures, currently estimated to approximate $350,000,
although no assurance can be given that the actual cost could not exceed such
estimate.
Prior to being acquired by the Partnership's predecessors in 1996, the
Ingleside Terminal experienced releases of refined petroleum products into the
soil and groundwater underlying the site due to activities on the property.
The Partnership has proposed a voluntary state-administered remediation of the
contamination on the property, and to determine whether the contamination
extends outside the property boundaries. If the Partnership's plan is
disapproved, a government mandated remediation of the spill could require more
significant expenditures, currently estimated to approximate $250,000,
although no assurance can be given that the actual cost could not exceed such
estimate. In addition, a portion of any such costs may be reimbursed to the
Partnership from Plains Resources. See "Certain Relationships and Related
Transactions--Relationship with Plains Resources--Indemnity from the General
Partner."
The Partnership may experience future releases of crude oil into the
environment from its pipeline and storage operations, or discover releases
that were previously unidentified. While the Partnership maintains an
extensive inspection program designed to prevent and, as applicable, to detect
and address such releases promptly, damages and liabilities incurred due to
any future environmental releases from the All American Pipeline, the SJV
Gathering System, the Cushing Terminal, the Ingleside Terminal or other
Partnership assets may substantially affect the Partnership's business.
OPERATIONAL HAZARDS AND INSURANCE
A pipeline may experience damage as a result of an accident or other natural
disaster. These hazards can cause personal injury and loss of life, severe
damage to and destruction of property and equipment, pollution or environmental
damages and suspension of operations. The Partnership maintains insurance of
various types that it considers to be adequate to cover its operations and
properties. The insurance covers all of the Partnership's assets in amounts
considered reasonable. The insurance policies are subject to deductibles that
the Partnership considers reasonable and not excessive. The Partnership's
insurance does not cover every potential risk
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associated with operating pipelines, including the potential loss of
significant revenues. Consistent with insurance coverage generally available
to the industry, the Partnership's insurance policies provide limited coverage
for losses or liabilities relating to pollution, with broader coverage for
sudden and accidental occurrences.
The occurrence of a significant event not fully insured or indemnified
against, or the failure of a party to meet its indemnification obligations,
could materially and adversely affect the Partnership's operations and
financial condition. The Partnership believes that it is adequately insured
for public liability and property damage to others with respect to its
operations. With respect to all of its coverage, no assurance can be given
that the Partnership will be able to maintain adequate insurance in the future
at rates it considers reasonable.
TITLE TO PROPERTIES
The Plains Midstream Subsidiaries will be merged into Plains Resources and
Plains Resources will transfer substantially all of the real and personal
property formerly owned by the Plains Midstream Subsidiaries to the
Partnership without warranty at the same time as the Transactions are
consummated. Substantially all of the Partnership's pipelines are constructed
on rights-of-way granted by the apparent record owners of such property and in
some instances such rights-of-way are revocable at the election of the
grantor. In many instances, lands over which rights-of-way have been obtained
are subject to prior liens which have not been subordinated to the right-of-
way grants. In some cases, not all of the apparent record owners have joined
in the right-of-way grants, but in substantially all such cases, signatures of
the owners of majority interests have been obtained. Permits have been
obtained from public authorities to cross over or under, or to lay facilities
in or along water courses, county roads, municipal streets and state highways,
and in some instances, such permits are revocable at the election of the
grantor. Permits have also been obtained from railroad companies to cross over
or under lands or rights-of-way, many of which are also revocable at the
grantor's election. In some cases, property for pipeline purposes was
purchased in fee. All of the pump stations are located on property owned in
fee or property under long-term leases.
Some of the leases, easements, rights-of-way, permits and licenses to be
transferred to the Partnership require the consent of the grantor of such
rights, which in certain instances is a governmental entity. Plains Resources
expects to obtain, prior to the closing of this offering, third-party
consents, permits and authorizations that will be sufficient to enable them to
transfer to the Partnership the assets necessary to enable the Partnership to
operate its business in all material respects as described in this Prospectus.
With respect to any material consents, permits or authorizations which have
not been obtained prior to the closing of this offering, the closing of this
offering will not occur unless reasonable bases exist for the General Partner
to conclude that such consents, permits or authorizations will be obtained
within a reasonable period following the closing, or the failure to obtain
such consents, permits or authorizations will have no material adverse effect
on the operation of the Partnership's business. If any such consents are not
so obtained, Plains Resources will enter into other agreements, or take such
other action as may be necessary, in order to ensure that the Partnership has
the assets and concomitant rights necessary to enable it to operate the
Partnership's business in all material respects as described in this
Prospectus.
Plains Resources initially may continue to hold record title to portions of
certain assets as nominee for the benefit of the Partnership until the
Partnership has had time to make the appropriate filings and obtain necessary
licenses, permits, registrations and rights in the jurisdictions in which such
assets are located, and to obtain any consents and approvals that are not
obtained prior to the consummation of this offering. Such consents and
approvals would include those required by federal and state agencies or
political subdivisions. Additionally, in some cases, Plains Resources may, on
the basis of expense and difficulty associated with the conveyance of title,
retain title, as nominees for the benefit of the Partnership, until a future
date. The General Partner believes that there will be no material adverse
effect on the business of the Partnership as a result of any of the foregoing
circumstances. In none of such circumstances is it anticipated that there will
be any material change in the tax treatment of the Partnership or the Common
Units resulting from the holding by Plains Resources of title as nominee for
the benefit of the Partnership.
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The instruments of transfer from Plains Resources to the Partnership may not
be recorded initially, and therefore the real property records in various
jurisdictions may reflect record title in Plains Resources. Plains Resources
expects to complete the transfer of record title to real property to the
Partnership as soon as practicable after the consummation of this offering.
Properties acquired by the Partnership after the consummation of this offering
generally will be acquired and held of record in the Partnership's name.
The books and records of the Partnership and Plains Resources will at all
times reflect the Partnership's ownership of or beneficial interest in the
properties conveyed to if, or held nominally for it, by Plains Resources.
However, until record title is held by the Partnership it is possible that
real property owned by the Partnership, or by Plains Resources for the benefit
of the Partnership, could in some jurisdictions be subject to the claims of
Plains Resources creditors. Plains Resources is of the opinion, however, that
this presents little, if any, risk for the Partnership.
In certain states and under certain circumstances, the Partnership has the
right of eminent domain to acquire rights-of-way and lands necessary for the
operations of the All American Pipeline, a common carrier pipeline.
The General Partner believes that upon consummation of the Transactions the
Partnership will have satisfactory title to all of its assets. Although title
to such properties will be subject to encumbrances in certain cases, such as
customary interests generally retained in connection with acquisition of real
property, liens related to environmental liabilities associated with
historical operations, liens for current taxes and other burdens and minor
easements, restrictions and other encumbrances to which the underlying
properties were subject at the time of acquisition by the Plains Midstream
Subsidiaries or the Partnership, the General Partner believes that none of
such burdens will materially detract from the value of such properties or from
the Partnership's interest therein or will materially interfere with their use
in the operation of the Partnership's business.
EMPLOYEES
To carry out the operations of the Partnership, the General Partner or its
affiliates will employ approximately 200 employees. None of such employees of
the General Partner is represented by labor unions, and the General Partner
considers its employee relations to be good.
LEGAL PROCEEDINGS
The Partnership is a party to various legal actions that have arisen in the
ordinary course of its business. The Partnership does not believe that the
resolution of these matters will have a material adverse effect on its
financial condition or results of operations.
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MANAGEMENT
PARTNERSHIP MANAGEMENT
The General Partner will manage and operate the activities of the
Partnership. The Unitholders will not directly or indirectly participate in
the management or operation of the Partnership or have actual or apparent
authority to enter into contracts on behalf of, or to otherwise bind, the
Partnership. Notwithstanding any limitation on its obligations or duties, the
General Partner will be liable, as general partner of the Partnership, for all
debts of the Partnership (to the extent not paid by the Partnership), except
to the extent that indebtedness or other obligations incurred by the
Partnership are made specifically non-recourse to the General Partner.
Whenever possible, the General Partner intends to make any such indebtedness
or other obligations non-recourse to the General Partner.
At least two of the members of the Board of Directors of the General Partner
who are neither officers or employees of the General Partner nor directors,
officers or employees of any affiliate of the General Partner will serve on
the Conflicts Committee, which will have the authority to review specific
matters as to which the Board of Directors believes there may be a conflict of
interest in order to determine if the resolution of such conflict proposed by
the General Partner is fair and reasonable to the Partnership. Any matters
approved by the Conflicts Committee will be conclusively deemed to be fair and
reasonable to the Partnership, approved by all partners of the Partnership and
not a breach by the General Partner or its Board of Directors of any duties
they may owe the Partnership or the Unitholders. See "Conflicts of Interest
and Fiduciary Responsibilities--Fiduciary and Other Duties." In addition, the
members of the Conflicts Committee will also constitute an Audit Committee
which will review the external financial reporting of the Partnership, will
recommend engagement of the Partnership's independent public accountants and
will review the Partnership's procedures for internal auditing and the
adequacy of the Partnership's internal accounting controls. The members of the
Conflicts Committee will also serve on the Compensation Committee, which will
oversee compensation decisions for the officers of the General Partner as well
as the compensation plans described below. See "--Long Term Incentive Plan"
and "--Management Incentive Plan."
As is commonly the case with publicly traded limited partnerships, the
Partnership will not directly employ any of the persons responsible for
managing or operating the Partnership. In general, the current management of
Plains Resources will manage and operate the Partnership's business as
officers and employees of the General Partner and its affiliates.
Certain officers of the General Partner may spend a substantial amount of
time managing the business and affairs of Plains Resources and its other
affiliates and may face a conflict regarding the allocation of their time
between the Partnership and Plains Resources' other business interests. The
General Partner intends to cause its officers to devote as much time to the
management of the Partnership as is necessary for the proper conduct of its
business and affairs.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The following table sets forth certain information with respect to the
executive officers and members of the Board of Directors of the General
Partner. Executive officers and directors are elected for one-year terms.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH GENERAL PARTNER
---- --- -----------------------------
<S> <C> <C>
Greg L. Armstrong........... 40 Chairman of the Board, Chief Executive Officer
and Director
Harry N. Pefanis............ 41 President, Chief Operating Officer and Director
Phillip D. Kramer........... 42 Executive Vice President and Chief Financial
Officer
George R. Coiner............ 47 Senior Vice President
Michael R. Patterson........ 50 Senior Vice President, General Counsel and
Secretary
Cynthia A. Feeback.......... 41 Treasurer
Robert V. Sinnott........... 49 Director
</TABLE>
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Greg L. Armstrong has been President, Chief Executive Officer and Director
of Plains Resources since 1992. He previously served Plains Resources as:
President and Chief Operating Officer from October to December 1992; Executive
Vice President and Chief Financial Officer from June to October 1992; Senior
Vice President and Chief Financial Officer from 1991 to 1992; Vice President
and Chief Financial Officer from 1984 to 1991; Corporate Secretary from 1981
to 1988; and Treasurer from 1984 to 1987.
Harry N. Pefanis has been Executive Vice President--Midstream of Plains
Resources since May 1998. He previously served Plains Resources as: Senior
Vice President from February 1996 until May 1998; Vice President--Products
Marketing from 1988 to February 1996; Manager of Products Marketing from 1987
to 1988; and Special Assistant for Corporate Planning from 1983 to 1987. Mr.
Pefanis is also President of the Plains Midstream Subsidiaries.
Phillip D. Kramer has been Executive Vice President, Chief Financial Officer
and Treasurer of Plains Resources since May 1998. He previously served Plains
Resources as: Senior Vice President, Chief Financial Officer and Treasurer
from May 1997 until May 1998; Vice President, Chief Financial Officer and
Treasurer from 1992 to 1997; Vice President and Treasurer from 1988 to 1992;
Treasurer from 1987 to 1988; and Controller from 1983 to 1987.
George R. Coiner has been Vice President of Plains Marketing &
Transportation Inc., a Plains Midstream Subsidiary, since November 1995. Prior
to joining Plains Marketing & Transportation Inc., he was Senior Vice
President, Marketing with Scurlock Permian Corp.
Michael R. Patterson has been Vice President, General Counsel and Secretary
of Plains Resources since 1988. He previously served Plains Resources as Vice
President and General Counsel from 1985 to 1988.
Cynthia A. Feeback has been Assistant Treasurer and Controller of Plains
Resources since May 1998. She previously served Plains Resources as Controller
and Principal Accounting Officer from 1993 to 1998; Controller from 1990 to
1993; and Accounting Manager from 1988 to 1990.
Robert V. Sinnott has been Senior Vice President of Kayne Anderson
Investment Management, Inc. (an investment management firm) since 1992. He was
Vice President and Senior Securities Officer of the Investment Banking
Division of Citibank from 1986 to 1992. He is also a director of Plains
Resources and Glacier Water Services, Inc. (a vended water company).
Shortly after the consummation of the transactions, the General Partner will
add two directors, who will be neither owners, officers, nor employees of the
General Partner nor officers, directors or employees, of any affiliate of the
General Partner. These two additional directors will be appointed to the
Conflicts Committee, Audit Committee and Compensation Committee.
REIMBURSEMENT OF EXPENSES OF THE GENERAL PARTNER AND ITS AFFILIATES
The General Partner will not receive any management fee or other
compensation in connection with its management of the Partnership. The General
Partner and its affiliates, including Plains Resources, performing services
for the Partnership will be reimbursed for all expenses incurred on behalf of
the Partnership, including the costs of employee, officer and director
compensation and benefits properly allocable to the Partnership, and all other
expenses necessary or appropriate to the conduct of the business of, and
allocable to, the Partnership. The Partnership Agreement provides that the
General Partner will determine the expenses that are allocable to the
Partnership in any reasonable manner determined by the General Partner in its
sole discretion.
EXECUTIVE COMPENSATION
The Partnership and the General Partner were formed in September and
February of 1998, respectively. Accordingly, the General Partner paid no
compensation to its directors and officers with respect to fiscal 1997,
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nor did any obligations accrue in respect of management incentive or
retirement benefits for the directors and officers with respect to such year.
Officers and employees of the General Partner may participate in employee
benefit plans and arrangements sponsored by the General Partner or its
affiliates, including plans which may be established by the General Partner or
its affiliates in the future.
In addition to the grants made under the Restricted Unit Plan described
below, the General Partner has agreed to transfer approximately 324,000 of its
Common Units to certain key employees of the General Partner. Generally,
approximately 72,000 of such Common Units will vest in each of the years
ending December 31, 1999, 2000 and 2001 if the Operating Surplus generated in
such year exceeds the amount necessary to pay the Minimum Quarterly
Distribution on all outstanding Common Units and the related distribution on
the general partner interest. If a tranche of Common Units does not vest in a
particular year, such Common Units will vest at the time the Common Unit
Arrearages for such year have been paid. In addition, approximately 36,000 of
such Common Units will vest in each of the years ending December 31, 1999,
2000 and 2001 if the Operating Surplus generated in such year exceeds the
amount necessary to pay the Minimum Quarterly Distribution on all outstanding
Common Units and Subordinated Units and the related distribution on the
general partner interest. Any Common Units remaining unvested shall vest upon,
and in the same proportion as, the conversion of Subordinated Units. The
compensation expense incurred in connection with these grants will not be
allocated to the Partnership. Of the 324,000 Common Units, 75,000 will be
allocated to Mr. Pefanis and 50,000 will be allocated to Mr. Coiner.
EMPLOYMENT AGREEMENT
In connection with the consummation of the Transactions, Mr. Pefanis will
enter into an employment agreement with Plains Resources. The summary of the
employment agreement which follows does not purport to be complete and is
qualified in its entirety by reference to the form of employment agreement,
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Pursuant to the employment agreement, Mr. Pefanis will serve as President
and Chief Operating Officer of the General Partner as well as an Executive
Vice President of Plains Resources. The employment agreement provides that Mr.
Pefanis will be responsible for the overall operations of the General Partner
and the marketing operations of Plains Resources. The employment agreement
provides that Plains Resources will not require Mr. Pefanis to engage in
activities that materially detract from his duties and responsibilities as an
officer of the General Partner.
The employment agreement will have an initial term of three years subject to
annual extensions and will include confidentiality, nonsolicitation and
noncompete provisions, which, in general, will continue for 24 months
following Mr. Pefanis' termination of employment.
The agreement will provide for an annual base salary of $235,000, subject to
such increases as the Board of Directors of Plains Resources may authorize
from time to time. In addition, Mr. Pefanis will be eligible to receive an
annual cash bonus to be determined by the Board of Directors of Plains
Resources. Mr. Pefanis will participate in the Long-Term Incentive Plan of the
General Partner as described below. Mr. Pefanis will also be entitled to
participate in such other benefit plans and programs as the General Partner
may provide for its employees in general.
Upon a Change in Control of Plains Resources or a Marketing Operations
Disposition (as such terms are defined in the employment agreement), the term
of the employment agreement will be automatically extended for three years and
if Mr. Pefanis' employment is terminated during the one-year period following
either event by him for a Good Reason or by Plains Resources other than for
death, disability or Cause (as such terms are defined in the employment
agreement), he will be entitled to a lump sum severance amount equal to three
times the sum of (i) his highest rate of annual base salary and (ii) the
largest annual bonus paid during the three preceding years.
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LONG-TERM INCENTIVE PLAN
The General Partner has adopted the Plains All American Inc. 1998 Long-Term
Incentive Plan (the "Long-Term Incentive Plan") for employees and directors of
the General Partner and its affiliates who perform services for the
Partnership. The summary of the Long-Term Incentive Plan contained herein does
not purport to be complete and is qualified in its entirety by reference to
the Long-Term Incentive Plan, which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Long-Term
Incentive Plan consists of two components, a restricted unit plan (the
"Restricted Unit Plan") and a unit option plan (the "Unit Option Plan"). The
Long-Term Incentive Plan currently permits the grant of Restricted Units and
Unit Options covering an aggregate of 975,000 Common Units. The plan will be
administered by the Compensation Committee of the General Partner's Board of
Directors.
Restricted Unit Plan. A Restricted Unit is a "phantom" unit that entitles
the grantee to receive a Common Unit upon the vesting of the phantom unit.
Management currently estimates that an aggregate of approximately 500,000
Restricted Units will be granted upon consummation of the Transactions to
employees of the General Partner. Upon consummation of the Transactions, it is
expected that approximately 60,000 Restricted Units will be granted to Mr.
Pefanis, approximately 30,000 Restricted Units will be granted to Mr. Coiner
and approximately 410,000 Restricted Units will be granted to various non-
officer employees. The Compensation Committee may, in the future, determine to
make additional grants under such plan to employees and directors containing
such terms as the Compensation Committee shall determine. In general,
Restricted Units granted to employees during the Subordination Period will
vest only upon, and in the same proportions as, the conversion of the
Subordinated Units to Common Units. Grants made to non-employee directors of
the General Partner will be eligible to vest prior to termination of the
Subordination Period.
If a grantee terminates employment or membership on the Board for any
reason, the grantee's Restricted Units will be automatically forfeited unless,
and to the extent, the Compensation Committee provides otherwise. Common Units
to be delivered upon the "vesting" of rights may be Common Units acquired by
the General Partner in the open market, Common Units already owned by the
General Partner, Common Units acquired by the General Partner directly from
the Partnership or any other person, or any combination of the foregoing. The
General Partner will be entitled to reimbursement by the Partnership for the
cost incurred in acquiring such Common Units. If the Partnership issues new
Common Units upon vesting of the Restricted Units, the total number of Common
Units outstanding will increase. Following the Subordination Period, the
Compensation Committee, in its discretion, may grant tandem distribution
equivalent rights with respect to Restricted Units.
The issuance of the Common Units pursuant to the Restricted Unit Plan is
intended to serve as a means of incentive compensation for performance and not
primarily as an opportunity to participate in the equity appreciation in
respect of the Common Units. Therefore, no consideration will be payable by
the plan participants upon receipt of the Common Units and the Partnership
will receive no remuneration for such Units.
Unit Option Plan. The Unit Option Plan currently permits the grant of
options ("Unit Options") covering Common Units. No grants will initially be
made under the Unit Option Plan. The Compensation Committee may, in the
future, determine to make grants under such plan to employees and directors
containing such terms as the Committee shall determine.
Unit Options will have an exercise price equal to fair market value on the
date of grant. Unit Options granted during the Subordination Period will
become exercisable automatically upon, and in the same proportions as, the
conversion of the Subordinated Units to Common Units, unless a later vesting
date is provided.
Upon exercise of a Unit Option, the General Partner will acquire Common
Units in the open market at a price equal to the then-prevailing price on the
principal national securities exchange upon which the Common Units are then
traded, or directly from the Partnership or any other person, or use Common
Units already owned by the General Partner, or any combination of the
foregoing. The General Partner will be entitled to reimbursement by the
Partnership for the difference between the cost incurred by the General
Partner in acquiring
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such Common Units and the proceeds received by the General Partner from an
optionee at the time of exercise. Thus, the cost of the Unit Options will be
borne by the Partnership. If the Partnership issues new Common Units upon
exercise of the Unit Options, the total number of Common Units outstanding
will increase, and the General Partner will remit, the proceeds it received
from the optionee upon exercise of the Unit Option to the Partnership.
The Unit Option Plan has been designed to furnish additional compensation to
employees and directors and to align their economic interests with those of
Common Unitholders.
The General Partner's Board of Directors in its discretion may terminate the
Long-Term Incentive Plan at any time with respect to any Common Units for
which a grant has not theretofore been made. The General Partner's Board of
Directors will also have the right to alter or amend the Long-Term Incentive
Plan or any part thereof from time to time, including increasing the number of
Common Units with respect to which awards may be granted; provided, however,
that no change in any outstanding grant may be made that would materially
impair the rights of the participant without the consent of such participant.
MANAGEMENT INCENTIVE PLAN
The General Partner has adopted the Plains All American Inc. Management
Incentive Plan (the "Management Incentive Plan"). The Management Incentive
Plan is designed to enhance the financial performance of the General Partner's
key employees by rewarding them with cash awards for achieving quarterly
and/or annual financial performance objectives. The Management Incentive Plan
will be administered by the Compensation Committee. Individual participants
and payments, if any, for each fiscal quarter and year will be determined by
and in the discretion of the Compensation Committee. Any incentive payments
will be at the discretion of the Compensation Committee, and the General
Partner will be able to amend or change the Management Incentive Plan at any
time. The General Partner will be entitled to reimbursement by the Partnership
for payments and costs incurred under the plan.
COMPENSATION OF DIRECTORS
No additional remuneration will be paid to officers or employees of the
General Partner who also serve as directors. The General Partner anticipates
that each independent director will receive a combination of cash and Units
for attending meetings of the Board of Directors as well as committee
meetings. In addition, each independent director will be reimbursed for his
out-of-pocket expenses in connection with attending meetings of the Board of
Directors or committees thereof. Each director will be fully indemnified by
the Partnership for his actions associated with being a director to the extent
permitted under Delaware law.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Units that will
be issued upon the consummation of the Transactions and held by beneficial
owners of 5% or more of the Units, by directors of the General Partner and by
all directors and executive officers of the General Partner as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF PERCENTAGE
COMMON COMMON SUBORDINATED SUBORDINATED OF TOTAL
UNITS TO BE UNITS TO BE UNITS TO BE UNITS TO BE UNITS TO BE
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED OWNED OWNED OWNED
- ------------------------ ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Plains Resources
Inc.(1)................ 6,817,391 34.8% 9,800,000 100% 56.5%
Plains All American
Inc.(2)................ 6,817,391(3) 34.8% 9,800,000 100% 56.5%
Greg L. Armstrong(2).... 15,000(4) * -- -- *
Harry N. Pefanis(2)..... 10,000(4) * -- -- *
Phillip D. Kramer....... 5,000(4) * -- -- *
George R. Coiner........ -- -- -- -- --
Michael R. Patterson.... 5,000(4) * -- -- *
Cynthia A. Feeback...... -- -- -- -- --
Robert V. Sinnott....... -- -- -- -- --
All directors and
executive officers as a
group (7 persons)...... 35,000 * -- -- --
</TABLE>
- --------
* Less than one percent.
(1) Plains Resources Inc. is the sole stockholder of Plains All American Inc.,
the General Partner. The address of Plains Resources Inc. is 500 Dallas,
Suite 700, Houston, Texas 77002.
(2) The address of Plains All American Inc. is 500 Dallas, Suite 700, Houston,
Texas 77002. If the over-allotment option is exercised, the General
Partner and its affiliates will own 4,900,000 Common Units, representing
25% of the outstanding Common Units and, together with its Subordinated
Units, 50% of the total outstanding Units. The record holder of such
Common Units and Subordinated Units is PAAI L.L.C., a wholly-owned
subsidiary of Plains All American Inc., whose address is 500 Dallas, Suite
700, Houston, Texas 77002.
(3) Includes 324,000 Common Units to be transferred to certain employees of
the General Partner upon consummation of the Transactions, subject to
certain vesting conditions. See "Management--Executive Compensation."
(4) Represent shares expected to be purchased by such officers in the
offering.
The following table sets forth the beneficial ownership of Plains Resources
common stock, par value $.10 per share (the "Plains Resources Common Stock"),
held by directors and executive officers of the General Partner as of October
31, 1998.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
- ------------------------ ------------ -------
<S> <C> <C>
Greg L. Armstrong.......................................... 227,901 1.3%
Phillip D. Kramer.......................................... 118,352 *
Harry N. Pefanis........................................... 107,947 *
George R. Coiner........................................... 9,637 *
Michael R. Patterson....................................... 121,504 *
Cynthia A. Feeback......................................... 35,182 *
Robert V. Sinnott(2)....................................... 67,972 *
Directors and Executive Officers as a group (7 persons).... 688,033 3.9%
</TABLE>
- --------
* Less than one percent.
(1) Includes both outstanding shares of Plains Resources Common Stock and
shares of Plains Resources Common Stock such person has the right to
acquire within 60 days after the date of this Prospectus by exercise of
outstanding stock options. Shares subject to exercisable stock options
include 224,250 for Mr. Armstrong; 8,750 for Mr. Coiner; 113,250 for Mr.
Kramer; 34,250 for Ms. Feeback; 114,000 for Mr. Patterson; 106,500 for Mr.
Pefanis; and 35,000 for Mr. Sinnott.
(2) Includes 27,777 shares of Plains Resources Common Stock issuable upon the
conversion of 1,000 shares of Plains Resources Series E Cumulative
Convertible Preferred Stock.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RIGHTS OF THE GENERAL PARTNER
After this offering, the General Partner and its affiliates will own
6,817,391 Common Units and 9,800,000 Subordinated Units, representing an
aggregate 55.4% limited partner interest in the Partnership (49.0% if the
Underwriters' over-allotment option is exercised in full). In addition, the
General Partner will own an aggregate 2% general partner interest in the
Partnership and the Operating Partnership on a combined basis. Through the
General Partner's ability, as general partner, to manage and operate the
Partnership and the ownership of 6,817,391 Common Units and all of the
outstanding Subordinated Units by the General Partner and its affiliates
(effectively giving the General Partner the ability to veto certain actions of
the Partnership), the General Partner will have the ability to control the
management of the Partnership.
AGREEMENTS GOVERNING THE TRANSACTIONS
In connection with the Transactions, the Partnership, the Operating
Partnership, the General Partner and certain other parties will enter into the
various documents and agreements that will effect the Transactions, including
the vesting of assets in, and the assumption of liabilities by, the Operating
Partnership, and the application of the proceeds of this offering. These
agreements will not be the result of arm's-length negotiations, and there can
be no assurance that they, or that any of the transactions provided for
therein, will be effected on terms at least as favorable to the parties to
such agreements as could have been obtained from unaffiliated third parties.
All of the transaction expenses incurred in connection with the Transactions,
including the expenses associated with vesting assets into the Operating
Partnership, will be paid from the proceeds of this offering. See "Business--
Title to Properties."
RELATIONSHIP WITH PLAINS RESOURCES
General
The Partnership will have extensive ongoing relationships with Plains
Resources. These relationships will include (i) Plains Resources' wholly owned
subsidiary, Plains All American Inc., serving as General Partner of the
Partnership, (ii) the Omnibus Agreement, providing for the resolution of
certain conflicts arising from the conduct of the Partnership and Plains
Resources of related businesses (see "Conflicts of Interest and Fiduciary
Responsibilities--Conflicts of Interest--The General Partner's Affiliates May
Compete with the Partnership Under Certain Circumstances") and for the General
Partner's indemnification of the Partnership for certain matters and (iii) the
Marketing Agreement with Plains Resources, providing for the marketing of
Plains Resources' crude oil production. See "Business--Terminalling and
Storage Activities and Gathering and Marketing Activities."
Transactions with Affiliates
The Plains Midstream Subsidiaries have marketed crude oil production of
Plains Resources, its subsidiaries and its royalty owners. The Plains
Midstream Subsidiaries paid approximately $101.2 million, $100.5 million and
$43.8 million for the purchase of these products for the years ended December
31, 1997, 1996 and 1995, respectively. In management's opinion, such purchases
were made at prevailing market rates. The Plains Midstream Subsidiaries did
not recognize a profit on the sale of the crude oil purchased from Plains
Resources.
Plains Resources allocated certain general and administrative expenses to
the Plains Midstream Subsidiaries during 1997, 1996 and 1995. The types of
indirect expenses allocated to the Plains Midstream Subsidiaries during this
period were office rent, utilities, telephone services, data processing
services, office supplies and equipment maintenance. Direct expenses allocated
by Plains Resources were primarily salaries and benefits of employees engaged
in the business activities of the Plains Midstream Subsidiaries.
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<PAGE>
Indemnity from the General Partner
In connection with the acquisition of the All American Pipeline and the SJV
Gathering System, Wingfoot agreed to indemnify the General Partner for certain
environmental and other liabilities. The indemnity is subject to limits of (i)
$10 million with respect to matters of corporate authorization and title to
shares, (ii) $21.5 million with respect to condition of rights of way, lease
rights and undisclosed liabilities and litigation and (iii) $30 million with
respect to environmental liabilities resulting from certain undisclosed and
pre-existing conditions. Wingfoot has no liability, however, until the
aggregate amount of losses, with respect to each such limit, is in excess of
$1 million. The indemnities will remain in effect for a two year period after
the date of the acquisition, with the exception of the environmental
indemnity, which will remain in effect for a period of three years after the
date of the Acquisition. The environmental indemnity is also subject to
certain sharing ratios which change based on whether the claim is made in the
first, second or third year of the indemnity as well as the amount of such
claim. The Partnership has also agreed to be solely responsible for the
cumulative aggregate amount of losses resulting from the oil leak from the All
American Pipeline to the extent such losses do not exceed $350,000. Any costs
in excess of $350,000 will be applied to the $1 million deductible for the
Wingfoot environmental indemnity. The General Partner has agreed to indemnify
the Partnership for environmental and other liabilities to the extent it is
indemnified by Wingfoot.
Plains Resources has agreed to indemnify the Partnership for environmental
liabilities related to the assets of the Plains Midstream Subsidiaries
transferred to the Partnership that arose prior to closing and are discovered
within three years after closing (excluding liabilities resulting from a
change in law after closing). Plains Resources' indemnification obligation is
capped at $3 million (including up to $500,000 of reserves included in the
Partnership's working capital at closing).
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
CONFLICTS OF INTEREST
Certain conflicts of interest exist and may arise in the future as a result
of the relationships between the General Partner and Plains Resources, its
sole stockholder, and its other affiliates, on the one hand, and the
Partnership and its limited partners, on the other hand. The directors and
officers of the General Partner have fiduciary duties to manage the General
Partner, including its investments in its subsidiaries and affiliates, in a
manner beneficial to Plains Resources. At the same time, the General Partner
has a fiduciary duty to manage the Partnership in a manner beneficial to the
Partnership and the Unitholders. The Partnership Agreement contains certain
provisions that allow the General Partner to take into account the interests
of parties in addition to the Partnership in resolving conflicts of interest,
thereby limiting its fiduciary duty to the Unitholders, as well as provisions
that may restrict the remedies available to Unitholders for actions taken that
might, without such limitations, constitute breaches of fiduciary duty. The
duty of the directors and officers of the General Partner to Plains Resources
may, therefore, come into conflict with the duties of the General Partner to
the Partnership and the Unitholders. The Conflicts Committee of the Board of
Directors of the General Partner will, at the request of the General Partner,
review conflicts of interest that may arise between the General Partner,
Plains Resources or its other affiliates, on the one hand, and the
Partnership, on the other. See "--Fiduciary and Other Duties" and
"Management--Partnership Management."
The fiduciary obligations of general partners is a developing area of law.
The provisions of the Delaware Act that allow the fiduciary duties of a
general partner to be waived or restricted by a partnership agreement have not
been resolved in a court of law, and the General Partner has not obtained an
opinion of counsel covering the provisions set forth in the Partnership
Agreement that purport to waive or restrict fiduciary duties of the General
Partner. Unitholders should consult their own legal counsel concerning the
fiduciary responsibilities of the General Partner and its officers and
directors and the remedies available to the Unitholders.
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<PAGE>
Conflicts of interest could arise with respect to the situations described
below, among others:
Certain Actions Taken by the General Partner May Affect the Amount of Cash
Available for Distribution to Unitholders or Accelerate the Conversion of
Subordinated Units
Decisions of the General Partner with respect to the amount and timing of
asset purchases and sales, cash expenditures, borrowings, issuances of
additional Units and the creation, reduction or increase of reserves in any
quarter will affect whether, or the extent to which, there is sufficient
Available Cash from Operating Surplus to meet the Minimum Quarterly
Distribution and Target Distributions Levels on all Units in a given quarter
or in subsequent quarters. The Partnership Agreement provides that any
borrowings by the Partnership or the approval thereof by the General Partner
shall not constitute a breach of any duty owed by the General Partner to the
Partnership or the Unitholders, including borrowings that have the purpose or
effect, directly or indirectly, of enabling the General Partner and its
affiliates to receive distributions on any Units held by them or the Incentive
Distributions or hasten the expiration of the Subordination Period or the
conversion of the Subordinated Units into Common Units. The Partnership
Agreement provides that the Partnership and the Operating Partnership may
borrow funds from the General Partner and its affiliates. The General Partner
and its affiliates may not borrow funds from the Partnership or the Operating
Partnership. Furthermore, any actions taken by the General Partner consistent
with the standards of reasonable discretion set forth in the definitions of
Available Cash, Operating Surplus and Capital Surplus will be deemed not to
constitute a breach of any duty of the General Partner to the Partnership or
the Unitholders.
The Partnership Will Not Have Any Employees and Will Rely on the Employees of
the General Partner and Its Affiliates
The Partnership will not have any officers or employees and will rely solely
on officers and employees of the General Partner and its affiliates.
Affiliates of the General Partner will conduct business and activities of
their own in which the Partnership will have no economic interest. If such
separate activities of the affiliates of the General Partner are significantly
greater than the activities of the Partnership, there could be material
competition between the Partnership and General Partner for the time and
effort of the officers and employees who provide services to the General
Partner. Certain of the officers of the General Partner, who will provide
services to the Partnership, will not be required to work full time on the
affairs of the Partnership. Such officers may devote significant time to the
affairs of the General Partner's affiliates and will be compensated by these
affiliates for the services rendered to them. There may be significant
conflicts between the Partnership and affiliates of the General Partner
regarding the availability of such officers of the General Partner to manage
the Partnership.
The Partnership Will Reimburse the General Partner and Its Affiliates for
Certain Expenses
Under the terms of the Partnership Agreement, the Partnership will reimburse
the General Partner and its affiliates for costs incurred in managing and
operating the Partnership, including costs incurred in rendering corporate
staff and support services to the Partnership. The Partnership Agreement
provides that the General Partner will determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the
General Partner in its sole discretion. See "Management--Reimbursement of
Expenses of the General Partner and its Affiliates."
The General Partner Intends to Limit its Liability With Respect to the
Partnership's Obligations
Whenever possible, the General Partner intends to limit the Partnership's
liability under contractual arrangements to all or particular assets of the
Partnership, with the other party thereto having no recourse against the
General Partner or its assets. The Partnership Agreement provides that any
action by the General Partner in so limiting the liability of the General
Partner or that of the Partnership will not be deemed to be a breach of the
General Partner's fiduciary duties, even if the Partnership could have
obtained more favorable terms without such limitation on liability.
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<PAGE>
Common Unitholders Will Have No Right to Enforce Obligations of the General
Partner and Its Affiliates Under Agreements with the Partnership
Any agreements between the Partnership, on the one hand, and the General
Partner and its affiliates, on the other, will not grant to the Unitholders,
separate and apart from the Partnership, the right to enforce the obligations
of the General Partner and such affiliates in favor of the Partnership.
Therefore, the General Partner, in its capacity as the general partner of the
Partnership, will be primarily responsible for enforcing such obligations.
Contracts Between the Partnership, on the One Hand, and the General Partner
and Its Affiliates, on the Other, Will Not be the Result of Arm's-Length
Negotiations
Under the terms of the Partnership Agreement, the General Partner is not
restricted from causing the Partnership to pay the General Partner or its
affiliates for any services rendered or entering into additional contractual
arrangements with any of such entities on behalf of the Partnership, provided
such services or contractual agreements are on terms fair and reasonable to
the Partnership. See "--Fiduciary and Other Duties." Neither the Partnership
Agreement nor any of the other agreements, contracts and arrangements between
the Partnership, on the one hand, and the General Partner and its affiliates,
on the other, are or will be the result of arm's-length negotiations. All of
such transactions entered into after the sale of the Common Units offered in
this offering are to be on terms which are fair and reasonable to the
Partnership, provided that any transaction shall be deemed fair and reasonable
if (i) such transaction is approved by the Conflicts Committee, (ii) its terms
are no less favorable to the Partnership than those generally being provided
to or available from unrelated third parties or (iii) taking into account the
totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership), the transaction is fair to the Partnership. The General Partner
and its affiliates will have no obligation to permit the Partnership to use
any facilities or assets of the General Partner and such affiliates, except as
may be provided in contracts entered into from time to time specifically
dealing with such use, nor shall there be any obligation of the General
Partner and its affiliates to enter into any such contracts.
Common Units are Subject to the General Partner's Limited Call Right
The General Partner may exercise its right to call and purchase Common Units
as provided in the Partnership Agreement or assign such right to one of its
affiliates or to the Partnership. The General Partner may use its own
discretion, free of fiduciary duty restrictions, in determining whether to
exercise such right. As a consequence, a Common Unitholder may have his Common
Units purchased from him even though he may not desire to sell them, and the
price paid may be less than the amount the holder would desire to receive upon
sale of his Common Units. For a description of such right, see "The
Partnership Agreement--Limited Call Right."
The Partnership May Retain Separate Counsel for Itself or for the Holders of
Common Units; Advisors Retained by the Partnership for this Offering Have Not
Been Retained to Act for Holders of Common Units
The Common Unitholders have not been represented by counsel in connection
with the preparation of the Partnership Agreement or other agreements referred
to herein or in establishing the terms of this offering. The attorneys,
independent public accountants and others who have performed services for the
Partnership in connection with this offering have been retained by the General
Partner, its affiliates and the Partnership and may continue to be retained by
the General Partner, its affiliates and the Partnership after this offering.
Attorneys, independent public accountants and others who will perform services
for the Partnership in the future will be selected by the General Partner or
the Conflicts Committee and may also perform services for the General Partner
and its affiliates. The Partnership may retain separate counsel for itself or
the holders of Common Units in the event of a conflict of interest arising
between the General Partner and its affiliates, on the one hand, and the
Partnership or the holders of Common Units, on the other, after the sale of
the Common Units offered hereby, depending on the nature of such conflict, but
it does not intend to do so in most cases.
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The General Partner's Affiliates May Compete with the Partnership Under
Certain Circumstances
The Partnership Agreement provides that the General Partner will be
restricted from engaging in any business activities other than those
incidental to its ownership of interests in the Partnership. Except as
provided in the Partnership Agreement and the "Omnibus Agreement" to be
entered into among the Partnership, the Operating Partnership, the General
Partner and Plains Resources, affiliates of the General Partner will not be
prohibited from engaging in other businesses or activities, including those
that might be in direct competition with the Partnership. The Omnibus
Agreement provides that, so long as the General Partner is an affiliate of
Plains Resources, neither Plains Resources nor any of its affiliates (other
than the General Partner and the Partnership and their controlled affiliates)
(a "Plains Entity") will engage in or acquire any business engaged in the
following activities (a "Restricted Business"): (a) crude oil storage,
terminalling and gathering activities in the lower 48 states for any party
other than a Plains Entity or the Partnership, (b) marketing activities, and
(c) transportation of crude oil by pipeline in the lower 48 states for any
party other than a Plains Entity or the Partnership. Notwithstanding the
foregoing, a Plains Entity may engage in a Restricted Business if:
(i) The Restricted Business was engaged in by the Plains Entity at
the closing of this offering.
(ii) The Restricted Business is conducted pursuant to and in
accordance with the terms of the Marketing Agreement or any other
arrangement entered into with the Partnership with the concurrence of
the Conflicts Committee.
(iii) The value of the assets acquired in a transaction that comprise
a Restricted Business does not exceed $10 million.
(iv) The value of the assets acquired in a transaction that comprise
a Restricted Business exceeds $10 million and the General Partner (with
the concurrence of the Conflicts Committee) has elected not to cause
the Partnership to pursue such opportunity.
Except as provided in the Omnibus Agreement, a Plains Entity will be free to
engage in any type of business activity whatsoever, including those that may
be in direct competition with the Partnership. The Omnibus Agreement may not
be amended without the concurrence of the Conflicts Committee.
The Omnibus Agreement may be terminated by Plains Resources upon a "change
of control" of Plains Resources. A "change of control" will be deemed to occur
upon (i) the sale of substantially all of the assets of Plains Resources, (ii)
the acquisition of more than 50% of the outstanding common equity of Plains
Resources by any entity or (iii) the consummation of a merger following which
the holders of Plains Resources' voting securities hold less than 50% of the
voting securities of the surviving entity. Accordingly, in the event of a
"change of control" of Plains Resources, the owner of the General Partner will
not be restricted from engaging in businesses which compete directly with the
Partnership. A sale or transfer of the general partner interest or capital
stock of the General Partner will result in the purchaser or transferee being
bound by the noncompetition provisions of the Omnibus Agreement.
FIDUCIARY AND OTHER DUTIES
The General Partner will be accountable to the Partnership and the
Unitholders as a fiduciary. Consequently, the General Partner must exercise
good faith and integrity in handling the assets and affairs of the
Partnership. In contrast to the relatively well-developed law concerning
fiduciary duties owed by officers and directors to the shareholders of a
corporation, the law concerning the duties owed by a general partner to other
partners and to partnerships is relatively undeveloped. Neither the Delaware
Revised Uniform Limited Partnership Act (the "Delaware Act") nor case law
defines with particularity the fiduciary duties owed by a general partner to
limited partners or a limited partnership, but the Delaware Act provides that
Delaware limited partnerships may, in their partnership agreements, restrict
or expand the fiduciary duties that might otherwise be applied by a court in
analyzing the standard of duty owed by a general partner to limited partners
and the partnership.
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Fiduciary duties are generally considered to include an obligation to act
with the highest good faith, fairness and loyalty. Such duty of loyalty, in
the absence of a provision in a partnership agreement providing otherwise,
would generally prohibit a general partner of a Delaware limited partnership
from taking any action or engaging in any transaction as to which it has a
conflict of interest. In order to induce the General Partner to manage the
business of the Partnership, the Partnership Agreement, as permitted by the
Delaware Act, contains various provisions intended to have the effect of
restricting the fiduciary duties that might otherwise be owed by the General
Partner to the Partnership and its partners and waiving or consenting to
conduct by the General Partner and its affiliates that might otherwise raise
issues as to compliance with fiduciary duties or applicable law.
The Partnership Agreement provides that in order to become a limited partner
of the Partnership, a holder of Common Units is required to agree to be bound
by the provisions thereof, including the provisions discussed above. This is
in accordance with the policy of the Delaware Act favoring the principle of
freedom of contract and the enforceability of partnership agreements. The
failure of a limited partner or assignee to sign a partnership agreement does
not render the partnership agreement unenforceable against such person.
The Partnership Agreement provides that whenever a conflict arises between
the General Partner or its affiliates, on the one hand, and the Partnership or
any other partner, on the other, the General Partner shall resolve such
conflict. The General Partner in general shall not be in breach of its
obligations under the Partnership Agreement or its duties to the Partnership
or the Unitholders if the resolution of such conflict is fair and reasonable
to the Partnership, and any resolution shall conclusively be deemed to be fair
and reasonable to the Partnership if such resolution is (i) approved by the
Conflicts Committee (although no party is obligated to seek such approval and
the General Partner may adopt a resolution or course of action that has not
received such approval), (ii) on terms no less favorable to the Partnership
than those generally being provided to or available from unrelated third
parties or (iii) fair to the Partnership, taking into account the totality of
the relationships between the parties involved (including other transactions
that may be particularly favorable or advantageous to the Partnership). In
resolving such conflict, the General Partner may (unless the resolution is
specifically provided for in the Partnership Agreement) consider the relative
interests of the parties involved in such conflict or affected by such action,
any customary or accepted industry practices or historical dealings with a
particular person or entity and, if applicable, generally accepted accounting
practices or principles and such other factors as its deems relevant. Thus,
unlike the strict duty of a fiduciary who must act solely in the best
interests of his beneficiary, the Partnership Agreement permits the General
Partner to consider the interests of all parties to a conflict of interest,
including the interests of the General Partner. In connection with the
resolution of any conflict that arises, unless the General Partner has acted
in bad faith, the action taken by the General Partner shall not constitute a
breach of the Partnership Agreement, any other agreement or any standard of
care or duty imposed by the Delaware Act or other applicable law. The
Partnership Agreement also provides that in certain circumstances the General
Partner may act in its sole discretion, in good faith or pursuant to other
appropriate standards.
The Delaware Act provides that a limited partner may institute legal action
on behalf of the partnership (a partnership derivative action) to recover
damages from a third party where the general partner has refused to institute
the action or where an effort to cause the general partner to do so is not
likely to succeed. In addition, the statutory or case law of certain
jurisdictions may permit a limited partner to institute legal action on behalf
of himself and all other similarly situated limited partners (a class action)
to recover damages from a general partner for violations of its fiduciary
duties to the limited partners.
The Partnership Agreement also provides that any standard of care and duty
imposed thereby or under the Delaware Act or any applicable law, rule or
regulation will be modified, waived or limited, to the extent permitted by
law, as required to permit the General Partner and its officers and directors
to act under the Partnership Agreement or any other agreement contemplated
therein and to make any decisions pursuant to the authority prescribed in the
Partnership Agreement, so long as such action is reasonably believed by the
General Partner to be in, or not inconsistent with, the best interests of the
Partnership. Further, the Partnership Agreement provides that the General
Partner and its officers and directors will not be liable for monetary damages
to the Partnership, the limited partners or assignees for errors of judgment
or for any acts or omissions if the General Partner and such other persons
acted in good faith.
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In addition, under the terms of the Partnership Agreement, the Partnership
is required to indemnify the General Partner and its officers, directors,
employees, affiliates, partners, members, agents and trustees, to the fullest
extent permitted by law, against liabilities, costs and expenses incurred by
the General Partner or such other persons, if the General Partner or such
persons acted in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the Partnership and, with respect to
any criminal proceedings, had no reasonable cause to believe their conduct was
unlawful. See "The Partnership Agreement--Indemnification." Thus, the General
Partner could be indemnified for its negligent acts if it met such
requirements concerning good faith and the best interests of the Partnership.
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DESCRIPTION OF THE COMMON UNITS
Upon consummation of this offering, the Common Units will be registered
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations promulgated thereunder, and the Partnership will
be subject to the reporting and certain other requirements of the Exchange
Act. The Partnership will be required to file periodic reports containing
financial and other information with the Securities and Exchange Commission
(the "Commission").
Purchasers of Common Units in this offering and subsequent transferees of
Common Units (or their brokers, agents or nominees on their behalf) who wish
to become Unitholders of record will be required to execute Transfer
Applications, the form of which is included as Appendix B to this Prospectus,
before the purchase or transfer of such Common Units will be registered on the
records of the Transfer Agent and before cash distributions or federal income
tax allocations can be made to the purchaser or transferee. The Partnership
will be entitled to treat the nominee holder of a Common Unit as the absolute
owner thereof, and the beneficial owner's rights will be limited solely to
those that it has against the nominee holder as a result of or by reason of
any understanding or agreement between such beneficial owner and nominee
holder.
THE UNITS
The Common Units and the Subordinated Units represent limited partner
interests in the Partnership, which entitle the holders thereof to participate
in Partnership distributions and exercise the rights or privileges available
to limited partners under the Partnership Agreement. For a description of the
relative rights and preferences of holders of Common Units and Subordinated
Units in and to Partnership distributions, together with a description of the
circumstances under which Subordinated Units may convert into Common Units,
see "Cash Distribution Policy" and "Description of Subordinated Units." For a
description of the rights and privileges of limited partners under the
Partnership Agreement, see "The Partnership Agreement."
TRANSFER AGENT AND REGISTRAR
Duties. American Stock Transfer & Trust Company will serve as registrar and
transfer agent (the "Transfer Agent") for the Common Units and will receive a
fee from the Partnership for serving in such capacities. All fees charged by
the Transfer Agent for transfers of Common Units will be borne by the
Partnership and not by the holders of Common Units, except that fees similar
to those customarily paid by stockholders for surety bond premiums to replace
lost or stolen certificates, taxes and other governmental charges, special
charges for services requested by a holder of a Common Unit and other similar
fees or charges will be borne by the affected holder. There will be no charge
to holders for disbursements of the Partnership's cash distributions. The
Partnership will indemnify the Transfer Agent, its agents and each of their
respective shareholders, directors, officers and employees against all claims
and losses that may arise out of acts performed or omitted in respect of its
activities as such, except for any liability due to any negligence, gross
negligence, bad faith or intentional misconduct of the indemnified person or
entity.
Resignation or Removal. The Transfer Agent may at any time resign, by notice
to the Partnership, or be removed by the Partnership, such resignation or
removal to become effective upon the appointment by the Partnership of a
successor transfer agent and registrar and its acceptance of such appointment.
If no successor has been appointed and accepted such appointment within 30
days after notice of such resignation or removal, the General Partner is
authorized to act as the transfer agent and registrar until a successor is
appointed.
TRANSFER OF COMMON UNITS
Until a Common Unit has been transferred on the books of the Partnership,
the Partnership and the Transfer Agent, notwithstanding any notice to the
contrary, may treat the record holder thereof as the absolute owner for
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all purposes, except as otherwise required by law or stock exchange
regulations. The transfer of the Common Units to persons that purchase
directly from the Underwriters will be accomplished through the completion,
execution and delivery of a Transfer Application by such investor in
connection with such Common Units. Any subsequent transfers of a Common Unit
will not be recorded by the Transfer Agent or recognized by the Partnership
unless the transferee executes and delivers a Transfer Application. By
executing and delivering a Transfer Application (the form of which is set
forth as Appendix B to this Prospectus and which is also set forth on the
reverse side of the certificates representing the Common Units), the
transferee of Common Units (i) becomes the record holder of such Common Units
and shall constitute an assignee until admitted into the Partnership as a
substitute limited partner, (ii) automatically requests admission as a
substituted limited partner in the Partnership, (iii) agrees to be bound by
the terms and conditions of, and executes, the Partnership Agreement, (iv)
represents that such transferee has the capacity, power and authority to enter
into the Partnership Agreement, (v) grants powers of attorney to officers of
the General Partner and any liquidator of the Partnership as specified in the
Partnership Agreement and (vi) makes the consents and waivers contained in the
Partnership Agreement. An assignee will become a substituted limited partner
of the Partnership in respect of the transferred Common Units upon the consent
of the General Partner and the recordation of the name of the assignee on the
books and records of the Partnership. Such consent may be withheld in the sole
discretion of the General Partner.
Common Units are securities and are transferable according to the laws
governing transfer of securities. In addition to other rights acquired upon
transfer, the transferor gives the transferee the right to request admission
as a substituted limited partner in the Partnership in respect of the
transferred Common Units. A purchaser or transferee of Common Units who does
not execute and deliver a Transfer Application obtains only (a) the right to
assign the Common Units to a purchaser or other transferee and (b) the right
to transfer the right to seek admission as a substituted limited partner in
the Partnership with respect to the transferred Common Units. Thus, a
purchaser or transferee of Common Units who does not execute and deliver a
Transfer Application will not receive cash distributions or federal income tax
allocations unless the Common Units are held in a nominee or "street name"
account and the nominee or broker has executed and delivered a Transfer
Application with respect to such Common Units, and may not receive certain
federal income tax information or reports furnished to record holders of
Common Units. The transferor of Common Units will have a duty to provide such
transferee with all information that may be necessary to obtain registration
of the transfer of the Common Units, but a transferee agrees, by acceptance of
the certificate representing Common Units, that the transferor will not have a
duty to insure the execution of the Transfer Application by the transferee and
will have no liability or responsibility if such transferee neglects to or
chooses not to execute and forward the Transfer Application to the Transfer
Agent. See "The Partnership Agreement--Status as Limited Partner or Assignee."
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DESCRIPTION OF SUBORDINATED UNITS
The Subordinated Units are a separate class of interests in the Partnership,
and the rights of holders of such interests to participate in distributions to
partners differ from, and are subordinated to, the rights of the holders of
Common Units. For any given quarter, any Available Cash will first be
distributed to the General Partner and to the holders of Common Units, and
then will be distributed to the holders of Subordinated Units depending upon
the amount of Available Cash for the quarter, the amount of Common Unit
Arrearages, if any, and other factors discussed below.
CONVERSION OF SUBORDINATED UNITS
The Subordination Period will generally extend from the closing of this
offering until the first day of any quarter beginning after December 31, 2003
in respect of which (i) distributions of Available Cash from Operating Surplus
on the Common Units and the Subordinated Units with respect to each of the
three consecutive four-quarter periods immediately preceding such date equaled
or exceeded the sum of the Minimum Quarterly Distribution on all of the
outstanding Common Units and Subordinated Units during such periods, (ii) the
Adjusted Operating Surplus generated during each of the three consecutive
four-quarter periods immediately preceding such date equaled or exceeded the
sum of the Minimum Quarterly Distribution on all of the Common Units and
Subordinated Units that were outstanding on a fully diluted basis and the
related distribution on the general partner interests in the Partnership and
the Operating Partnership during such periods, and (iii) there are no
outstanding Common Unit Arrearages.
Prior to the end of the Subordination Period and to the extent the tests for
conversion described below are satisfied, a portion of the Subordinated Units
may be eligible to convert into Common Units prior to December 31, 2003.
Subordinated Units will convert into Common Units on a one-for-one basis on
the first day after the record date established for the distribution in
respect of any quarter ending on or after (a) December 31, 2001 with respect
to one-quarter of the Subordinated Units (2,450,000 Subordinated Units) and
(b) December 31, 2002 with respect to one-quarter of the Subordinated Units
(2,450,000 Subordinated Units), in respect of which (i) distributions of
Available Cash from Operating Surplus on the Common Units and the Subordinated
Units with respect to each of the three consecutive four-quarter periods
immediately preceding such date equaled or exceeded the sum of the Minimum
Quarterly Distribution on all of the outstanding Common Units and Subordinated
Units during such periods, (ii) the Adjusted Operating Surplus generated
during each of the three consecutive four-quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the Common Units and Subordinated Units that were
outstanding on a fully diluted basis and the related distribution on the
general partner interests in the Partnership during such periods and (iii)
there are no outstanding Common Unit Arrearages; provided, however, that the
early conversion of the second one-quarter of Subordinated Units may not occur
until at least one year following the early conversion of the first one-
quarter of Subordinated Units.
Upon expiration of the Subordination Period, all remaining Subordinated
Units will convert into Common Units on a one-for-one basis and will
thereafter participate, pro rata, with the other Common Units in distributions
of Available Cash. In addition, if the General Partner is removed as general
partner of the Partnership under circumstances where Cause does not exist and
Units held by the General Partner and its affiliates are not voted in favor of
such removal, (i) the Subordination Period will end and all outstanding
Subordinated Units will immediately convert into Common Units on a one-for-one
basis, (ii) any existing Common Unit Arrearages will be extinguished and (iii)
the General Partner will have the right to convert its general partner
interests (and the right to receive Incentive Distributions) into Common Units
or to receive cash in exchange for such interests.
LIMITED VOTING RIGHTS
Holders of Subordinated Units will generally vote as a class separate from
the holders of Common Units and will have very limited voting rights. During
the Subordination Period, Common Units and Subordinated
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Units each vote separately as a class on the following matters: (i) a sale or
exchange of all or substantially all of the Partnership's assets, (ii) the
election of a successor General Partner, (iii) a dissolution or reconstitution
of the Partnership, (iv) a merger of the Partnership, (v) issuance of limited
partner interests in certain circumstances and (vi) certain amendments to the
Partnership Agreement, including any amendment that would cause the
Partnership to be treated as an association taxable as a corporation. The
Subordinated Units are not entitled to vote on approval of certain actions of
the General Partner (including the withdrawal of the General Partner or the
transfer by the General Partner of its general partner interest or Incentive
Distribution Rights under certain circumstances). Removal of the General
Partner requires a two-thirds vote of all outstanding Units. Under the
Partnership Agreement, the General Partner generally will be permitted to
effect amendments to the Partnership Agreement that do not materially
adversely affect Unitholders.
DISTRIBUTIONS UPON LIQUIDATION
If the Partnership liquidates during the Subordination Period, under certain
circumstances holders of outstanding Common Units will be entitled to receive
more per Unit in liquidating distributions than holders of outstanding
Subordinated Units. The per Unit difference will be dependent upon the amount
of gain or loss recognized by the Partnership in liquidating its assets.
Following conversion of the Subordinated Units into Common Units, all Units
will be treated the same upon liquidation of the Partnership.
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THE PARTNERSHIP AGREEMENT
The following paragraphs are a summary of the material provisions of the
Partnership Agreement. The form of the Partnership Agreement for the
Partnership is included in this Prospectus as Appendix A. The form of
Partnership Agreement for each of Plains Operating, L.P. and All American
Pipeline, L.P. (the "Operating Partnership Agreements") is included as an
exhibit to the Registration Statement of which this Prospectus constitutes a
part. The Partnership will provide prospective investors with a copy of the
form of the Operating Partnership Agreements upon request at no charge. The
discussions presented herein and below of the material provisions of the
Partnership Agreement are qualified in their entirety by reference to the
Partnership Agreement and the Operating Partnership Agreements. The
Partnership will be the sole limited partner of the Operating Partnership,
which will own, manage and operate the Partnership's business. The General
Partner will serve as the general partner of the Partnership and of the
Operating Partnership, owning an aggregate 2% general partner interest in the
Partnership and the Operating Partnership on a combined basis. The General
Partner will manage and operate the Partnership. Unless the context otherwise
requires, references herein to the "Partnership Agreement" constitute
references to the Partnership Agreement and the Operating Partnership
Agreements, collectively.
Certain provisions of the Partnership Agreement are summarized elsewhere in
this Prospectus under various headings. With regard to the transfer of Common
Units, see "Description of the Common Units--Transfer of Common Units." With
regard to distributions of Available Cash, see "Cash Distribution Policy."
With regard to allocations of taxable income and taxable loss, see "Tax
Considerations." Prospective investors are urged to review these sections of
this Prospectus and the Partnership Agreement carefully.
ORGANIZATION AND DURATION
The Partnership was organized in September 1998. The Partnership will
dissolve on December 31, 2088, unless sooner dissolved pursuant to the terms
of the Partnership Agreement.
PURPOSE
The purpose of the Partnership under the Partnership Agreement is limited to
serving as the limited partner of the Operating Partnership and engaging in
any business activity that may be engaged in by the Operating Partnership or
that is approved by the General Partner. The Operating Partnership Agreement
provides that the Operating Partnership may, directly or indirectly, engage in
(i) the operations as conducted immediately prior to this offering, (ii) any
other activity approved by the General Partner but only to the extent that the
General Partner reasonably determines that, as of the date of the acquisition
or commencement of such activity, such activity generates "qualifying income"
(as such term is defined in Section 7704 of the Code) or (iii) any activity
that enhances the operations of an activity that is described in (i) or (ii)
above. Although the General Partner has the ability under the Partnership
Agreement to cause the Partnership and the Operating Partnership to engage in
activities other than the transportation, terminalling and storage and
gathering and marketing of crude oil, the General Partner has no current
intention of doing so. The General Partner is authorized in general to perform
all acts deemed necessary to carry out such purposes and to conduct the
business of the Partnership.
POWER OF ATTORNEY
Each Limited Partner, and each person who acquires a Unit from a Unitholder
and executes and delivers a Transfer Application with respect thereto, grants
to the General Partner and, if a liquidator of the Partnership has been
appointed, such liquidator, a power of attorney to, among other things,
execute and file certain documents required in connection with the
qualification, continuance or dissolution of the Partnership or the amendment
of the Partnership Agreement in accordance with the terms thereof and to make
consents and waivers contained in the Partnership Agreement.
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CAPITAL CONTRIBUTIONS
For a description of the initial capital contributions to be made to the
Partnership, see "The Transactions." The Unitholders are not obligated to make
additional capital contributions to the Partnership, except as described below
under "--Limited Liability."
LIMITED LIABILITY
Assuming that a Limited Partner does not participate in the control of the
business of the Partnership within the meaning of the Delaware Act and that he
otherwise acts in conformity with the provisions of the Partnership Agreement,
his liability under the Delaware Act will be limited, subject to certain
possible exceptions, to the amount of capital he is obligated to contribute to
the Partnership in respect of his Common Units plus his share of any
undistributed profits and assets of the Partnership. If it were determined,
however, that the right or exercise of the right by the Limited Partners as a
group to remove or replace the General Partner, to approve certain amendments
to the Partnership Agreement or to take other action pursuant to the
Partnership Agreement constituted "participation in the control" of the
Partnership's business for the purposes of the Delaware Act, then the Limited
Partners could be held personally liable for the Partnership's obligations
under the laws of Delaware to the same extent as the General Partner with
respect to persons who transact business with the Partnership reasonably
believing, based on the Limited Partner's conduct, that the Limited Partner is
a general partner.
Under the Delaware Act, a limited partnership may not make a distribution to
a partner to the extent that at the time of the distribution, after giving
effect to the distribution, all liabilities of the partnership, other than
liabilities to partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to specific
property of the partnership, exceed the fair value of the assets of the
limited partnership. For the purpose of determining the fair value of the
assets of a limited partnership, the Delaware Act provides that the fair value
of property subject to liability for which recourse of creditors is limited
shall be included in the assets of the limited partnership only to the extent
that the fair value of that property exceeds that nonrecourse liability. The
Delaware Act provides that a limited partner who receives such a distribution
and knew at the time of the distribution that the distribution was in
violation of the Delaware Act shall be liable to the limited partnership for
the amount of the distribution for three years from the date of the
distribution. Under the Delaware Act, an assignee who becomes a substituted
limited partner of a limited partnership is liable for the obligations of his
assignor to make contributions to the partnership, except the assignee is not
obligated for liabilities unknown to him at the time he became a limited
partner and which could not be ascertained from the partnership agreement.
The Operating Partnership will initially conduct business in at least eleven
states. Maintenance of limited liability may require compliance with legal
requirements in such jurisdictions in which the Operating Partnership conducts
business, including qualifying the Operating Partnership to do business there.
Limitations on the liability of limited partners for the obligations of a
limited partner have not been clearly established in many jurisdictions. If it
were determined that the Partnership was, by virtue of its limited partner
interest in the Operating Partnership or otherwise, conducting business in any
state without compliance with the applicable limited partnership statute, or
that the right or exercise of the right by the Limited Partners as a group to
remove or replace the General Partner, to approve certain amendments to the
Partnership Agreement, or to take other action pursuant to the Partnership
Agreement constituted "participation in the control" of the Partnership's
business for the purposes of the statutes of any relevant jurisdiction, then
the Limited Partners could be held personally liable for the Partnership's
obligations under the law of such jurisdiction to the same extent as the
General Partner under certain circumstances. The Partnership will operate in
such manner as the General Partner deems reasonable and necessary or
appropriate to preserve the limited liability of the Limited Partners.
ISSUANCE OF ADDITIONAL SECURITIES
The Partnership Agreement authorizes the Partnership to issue an unlimited
number of additional limited partner interests and other equity securities of
the Partnership for such consideration and on such terms and
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conditions as are established by the General Partner in its sole discretion
without the approval of any limited partners; provided that, during the
Subordination Period, except as provided in the following sentence, the
Partnership may not issue, without the approval of the holders of a Unit
Majority, (a) equity securities of the Partnership ranking prior or senior to
the Common Units or (b) an aggregate of more than 9,800,000 additional Common
Units or other securities ranking on a parity with the Common Units. During
the Subordination Period, the Partnership may also issue an unlimited number
of additional Common Units or parity securities without the approval of the
Unitholders (i) upon exercise of the Underwriter's overallotment option, (ii)
upon conversion of Subordinated Units, (iii) pursuant to employee benefit
plans, (iv) upon conversion of the general partner interests and Incentive
Distribution Rights as a result of a withdrawal of the General Partner, (v) in
connection with an Acquisition or Capital Improvement that would have resulted
in an increase in Adjusted Operating Surplus on a pro forma basis for the
preceding four-quarter period or (vi) if the proceeds from such issuance are
used exclusively to repay up to $40 million in indebtedness of a member of the
Partnership Group, provided that the aggregate amount of cash distributions
made to partners on a pro forma basis for the prior four-quarter period did
not exceed the interest costs actually incurred during such period on the
indebtedness that is to be repaid. In accordance with Delaware law and the
provisions of the Partnership Agreement, the Partnership may also issue
additional Partnership interests that, in the sole discretion of the General
Partner, may have special voting rights to which the Common Units are not
entitled.
Upon issuance of additional Partnership Securities (other than upon exercise
of the over-allotment option), the General Partner will be required to make
additional capital contributions to the extent necessary to maintain its 2%
general partner interest in the Partnership and Operating Partnership.
Moreover, the General Partner will have the right, which it may from time to
time assign in whole or in part to any of its affiliates, to purchase Common
Units, Subordinated Units or other equity securities of the Partnership from
the Partnership whenever, and on the same terms that, the Partnership issues
such securities or rights to persons other than the General Partner and its
affiliates, to the extent necessary to maintain the percentage interest of the
General Partner and its affiliates in the Partnership (including their
interest represented by Common Units and Subordinated Units) that existed
immediately prior to each such issuance. The holders of Common Units will not
have preemptive rights to acquire additional Common Units or other partnership
interests that may be issued by the Partnership.
AMENDMENT OF PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by or with the
consent of the General Partner, which consent may be given or withheld in its
sole discretion. In order to adopt a proposed amendment (other than certain
amendments discussed below), the General Partner is required to seek written
approval of the holders of the number of Units required to approve such
amendment or call a meeting of the Limited Partners to consider and vote upon
the proposed amendment. In general, proposed amendments must be approved by
holders of a Unit Majority, except that no amendment may be made which would
(i) enlarge the obligations of any Limited Partner without its consent, unless
approved by at least a majority of the type or class of limited partner
interests so affected, (ii) enlarge the obligations of, restrict in any way
any action by or rights of, or reduce in any way the amounts distributable,
reimbursable or otherwise payable by the Partnership to the General Partner or
any of its affiliates without its consent, which may be given or withheld in
its sole discretion, (iii) change the term of the Partnership, (iv) provide
that the Partnership is not dissolved upon the expiration of its term or upon
an election to dissolve the Partnership by the General Partner that is
approved by holders of a Unit Majority or (v) give any person the right to
dissolve the Partnership other than the General Partner's right to dissolve
the Partnership with the approval of holders of a Unit Majority. The provision
of the Partnership Agreement preventing the amendments having the effects
described in clauses (i)-(v) above can be amended upon the approval of the
holders of at least 90% of the outstanding Units voting together as a single
class.
The General Partner may generally make amendments to the Partnership
Agreement without the approval of any Limited Partner or assignee to reflect
(i) a change in the name of the Partnership, the location of the principal
place of business of the Partnership, the registered agent or the registered
office of the Partnership, (ii) the admission, substitution, withdrawal or
removal of partners in accordance with the Partnership Agreement,
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(iii) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability under the laws of any state or to ensure that
neither the Partnership nor the Operating Partnership will be treated as an
association taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes, (iv) an amendment that is necessary, in the
opinion of counsel to the Partnership, to prevent the Partnership, or the
General Partner or its directors, officers, agents or trustees, from in any
manner being subjected to the provisions of the Investment Company Act of
1940, as amended, the Investment Advisors Act of 1940, as amended, or "plan
asset" regulations adopted under the Employee Retirement Income Security Act
of 1974, as amended, whether or not substantially similar to plan asset
regulations currently applied or proposed, (v) subject to the limitations on
the issuance of additional Common Units or other limited or general partner
interests described above, an amendment that in the discretion of the General
Partner is necessary or advisable in connection with the authorization of
additional limited or general partner interests, (vi) any amendment expressly
permitted in the Partnership Agreement to be made by the General Partner
acting alone, (vii) an amendment effected, necessitated or contemplated by a
merger agreement that has been approved pursuant to the terms of the
Partnership Agreement, (viii) any amendment that, in the discretion of the
General Partner, is necessary or advisable in connection with the formation by
the Partnership of, or its investment in, any corporation, partnership or
other entity (other than the Operating Partnership) as otherwise permitted by
the Partnership Agreement, (ix) a change in the fiscal year or taxable year of
the Partnership and changes related thereto, and (x) any other amendments
substantially similar to any of the foregoing.
In addition to the General Partner's right to amend the Partnership
Agreement as described above, the General Partner may make amendments to the
Partnership Agreement without the approval of any Limited Partner or assignee
if such amendments, in the discretion of the General Partner, (i) do not
adversely affect the Limited Partners in any material respect, (ii) are
necessary or advisable to satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation of any
federal or state agency or judicial authority or contained in any federal or
state statute, (iii) are necessary or advisable to facilitate the trading of
limited partner interests (including the division of any class or classes of
outstanding limited partner interests into different classes to facilitate
uniformity of tax consequences within such classes of limited partner
interests) or to comply with any rule, regulation, guideline or requirement of
any securities exchange on which the limited partner interests are or will be
listed for trading, compliance with any of which the General Partner deems to
be in the best interests of the Partnership and the Limited Partners, (iv) are
necessary or advisable in connection with any action taken by the General
Partner relating to splits or combinations of Units pursuant to the provisions
of the Partnership Agreement or (v) are required to effect the intent
expressed in this Prospectus or the intent of the provisions of the
Partnership Agreement or is otherwise contemplated by the Partnership
Agreement.
The General Partner will not be required to obtain an Opinion of Counsel (as
defined below) in the event of the amendments described in the two immediately
preceding paragraphs. No other amendments to the Partnership Agreement will
become effective without the approval of holders of at least 90% of the Units
unless the Partnership obtains an Opinion of Counsel to the effect that such
amendment will not affect the limited liability under applicable law of any
limited partner in the Partnership or the limited partner of the Operating
Partnership.
Any amendment that would have a material adverse effect on the rights or
preferences of any type or class of outstanding Units in relation to other
classes of Units will require the approval of at least a majority of the type
or class of Units so affected. Any amendment that reduces the voting
percentage required to take any action is required to be approved by the
affirmative vote of limited partners constituting not less than the voting
requirement sought to be reduced.
MERGER, SALE OR OTHER DISPOSITION OF ASSETS
The General Partner is generally prohibited, without the prior approval of
holders of a Unit Majority, from causing the Partnership to, among other
things, sell, exchange or otherwise dispose of all or substantially all of its
assets in a single transaction or a series of related transactions (including
by way of merger, consolidation or
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other combination) or approving on behalf of the Partnership the sale,
exchange or other disposition of all or substantially all of the assets of the
Operating Partnership; provided that the General Partner may mortgage, pledge,
hypothecate or grant a security interest in all or substantially all of the
Partnership's assets without such approval. The General Partner may also sell
all or substantially all of the Partnership's assets pursuant to a foreclosure
or other realization upon the foregoing encumbrances without such approval.
Furthermore, provided that certain conditions are satisfied, the General
Partner may merge the Partnership or any member of the Partnership Group into,
or convey some or all of the Partnership Group's assets to, a newly formed
entity if the sole purpose of such merger or conveyance is to effect a mere
change in the legal form of the Partnership into another limited liability
entity. The Unitholders are not entitled to dissenters' rights of appraisal
under the Partnership Agreement or applicable Delaware law in the event of a
merger or consolidation of the Partnership, a sale of substantially all of the
Partnership's assets or any other transaction or event.
TERMINATION AND DISSOLUTION
The Partnership will continue until December 31, 2088, unless sooner
terminated pursuant to the Partnership Agreement. The Partnership will be
dissolved upon (i) the election of the General Partner to dissolve the
Partnership, if approved by the holders of a Unit Majority, (ii) the sale,
exchange or other disposition of all or substantially all of the assets and
properties of the Partnership and the Operating Partnership, (iii) the entry
of a decree of judicial dissolution of the Partnership or (iv) the withdrawal
or removal of the General Partner or any other event that results in its
ceasing to be the General Partner (other than by reason of a transfer of its
general partner interest in accordance with the Partnership Agreement or
withdrawal or removal following approval and admission of a successor). Upon a
dissolution pursuant to clause (iv), the holders of a Unit Majority may also
elect, within certain time limitations, to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in the
Partnership Agreement by forming a new limited partnership on terms identical
to those set forth in the Partnership Agreement and having as general partner
an entity approved by the holders of a Unit Majority subject to receipt by the
Partnership of an opinion of counsel to the effect that (x) such action would
not result in the loss of limited liability of any Limited Partner and (y)
neither the Partnership, the reconstituted limited partnership nor the
Operating Partnership would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax
purposes upon the exercise of such right to continue (hereinafter, an "Opinion
of Counsel").
LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon dissolution of the Partnership, unless the Partnership is reconstituted
and continued as a new limited partnership, the person authorized to wind up
the affairs of the Partnership (the "Liquidator") will, acting with all of the
powers of the General Partner that such Liquidator deems necessary or
desirable in its good faith judgment in connection therewith, liquidate the
Partnership's assets and apply the proceeds of the liquidation as provided in
"Cash Distribution Policy--Distributions of Cash Upon Liquidation." Under
certain circumstances and subject to certain limitations, the Liquidator may
defer liquidation or distribution of the Partnership's assets for a reasonable
period of time or distribute assets to partners in kind if it determines that
a sale would be impractical or would cause undue loss to the partners.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
The General Partner has agreed not to withdraw voluntarily as a general
partner of the Partnership and the Operating Partnership prior to December 31,
2008 (with limited exceptions described below), without obtaining the approval
of the holders of at least a majority of the outstanding Common Units
(excluding Common Units held by the General Partner and its affiliates) and
furnishing an Opinion of Counsel. On or after December 31, 2008, the General
Partner may withdraw as the General Partner (without first obtaining approval
from any Unitholder) by giving 90 days' written notice, and such withdrawal
will not constitute a violation of the Partnership Agreement. Notwithstanding
the foregoing, the General Partner may withdraw without Unitholder approval
upon 90 days' notice to the Limited Partners if at least 50% of the
outstanding Common Units are held
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or controlled by one person and its affiliates (other than the General Partner
and its affiliates). In addition, the Partnership Agreement permits the
General Partner (in certain limited instances) to sell or otherwise transfer
all of its general partner interests in the Partnership without the approval
of the Unitholders. See "--Transfer of General Partner Interest and Incentive
Distribution Rights."
Upon the withdrawal of the General Partner under any circumstances (other
than as a result of a transfer by the General Partner of all or a part of its
general partner interests in the Partnership), the holders of a Unit Majority
may select a successor to such withdrawing General Partner. If such a
successor is not elected, or is elected but an Opinion of Counsel cannot be
obtained, the Partnership will be dissolved, wound up and liquidated, unless
within 180 days after such withdrawal the holders of a Unit Majority agree in
writing to continue the business of the Partnership and to appoint a successor
General Partner. See "--Termination and Dissolution."
The General Partner may not be removed unless such removal is approved by
the vote of the holders of not less than 66 2/3% of the outstanding Units
(including Units held by the General Partner and its affiliates) and the
Partnership receives an Opinion of Counsel. The ownership of Units by the
General Partner and its affiliates effectively gives the General Partner the
ability to prevent its removal. Any such removal is also subject to the
approval of a successor general partner by the vote of the holders of a Unit
Majority. The Partnership Agreement also provides that if the General Partner
is removed as general partner of the Partnership under circumstances where
Cause does not exist and Units held by the General Partner and its affiliates
are not voted in favor of such removal (i) the Subordination Period will end
and all outstanding Subordinated Units will immediately convert into Common
Units on a one-for-one basis, (ii) any existing Common Unit Arrearages will be
extinguished and (iii) the General Partner will have the right to convert its
general partner interests and all the Incentive Distribution Rights into
Common Units or to receive cash in exchange for such interests.
Withdrawal or removal of the General Partner as a general partner of the
Partnership also constitutes withdrawal or removal, as the case may be, of the
General Partner as a general partner of the Operating Partnership.
In the event of removal of the General Partner under circumstances where
Cause exists or withdrawal of the General Partner where such withdrawal
violates the Partnership Agreement, a successor general partner will have the
option to purchase the general partner interests and Incentive Distribution
Rights of the departing General Partner (the "Departing Partner") in the
Partnership and the Operating Partnership for a cash payment equal to the fair
market value of such interests. Under all other circumstances where the
General Partner withdraws or is removed by the Limited Partners, the Departing
Partner will have the option to require the successor general partner to
purchase such general partner interests of the Departing Partner and its
Incentive Distribution Rights for such amount. In each case, such fair market
value will be determined by agreement between the Departing Partner and the
successor general partner, or if no agreement is reached, by an independent
investment banking firm or other independent expert selected by the Departing
Partner and the successor general partner (or if no expert can be agreed upon,
by an expert chosen by agreement of the experts selected by each of them). In
addition, the Partnership will be required to reimburse the Departing Partner
for all amounts due the Departing Partner, including, without limitation, all
employee-related liabilities, including severance liabilities, incurred in
connection with the termination of any employees employed by the Departing
Partner for the benefit of the Partnership.
If the above-described option is not exercised by either the Departing
Partner or the successor general partner, as applicable, the Departing
Partner's general partner interests in the Partnership and the Operating
Partnership and its Incentive Distribution Rights will automatically convert
into Common Units equal to the fair market value of such interests as
determined by an investment banking firm or other independent expert selected
in the manner described in the preceding paragraph.
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TRANSFER OF GENERAL PARTNER INTEREST AND INCENTIVE DISTRIBUTION RIGHTS
Except for a transfer by a General Partner of all, but not less than all, of
its general partner interest in the Partnership and the Operating Partnership
to (a) an affiliate of the General Partner or (b) another person in connection
with the merger or consolidation of the General Partner with or into another
person or the transfer by the General Partner of all or substantially all of
its assets to another person, the General Partner may not transfer all or any
part of its general partner interest in the Partnership and the Operating
Partnership to another person prior to December 31, 2008, without the approval
of the holders of at least a majority of the outstanding Common Units
(excluding Common Units held by the General Partner and its affiliates);
provided that, in each case, such transferee assumes the rights and duties of
the General Partner to whose interest such transferee has succeeded, agrees to
be bound by the provisions of the Partnership Agreement, furnishes an Opinion
of Counsel and agrees to acquire all (or the appropriate portion thereof, as
applicable) of the General Partner's interest in the Operating Partnership and
agrees to be bound by the provisions of the Operating Partnership Agreements.
The General Partner shall have the right at any time, however, to transfer its
Common Units and Subordinated Units to one or more persons (other than the
Partnership) without Unitholder approval. At any time, the stockholders of the
General Partner may sell or transfer all or part of their interest in the
General Partner to an affiliate or a third party without the approval of the
Unitholders. The General Partner or its affiliates or a subsequent holder may
transfer its Incentive Distribution Rights to an affiliate or another person
in connection with its merger or consolidation with or into, or sale of all or
substantially all of its assets to, such person without the prior approval of
the Unitholders; provided that, in each case, such transferee agrees to be
bound by the provisions of the Partnership Agreement. Prior to December 31,
2008, other transfers of the Incentive Distribution Rights will require the
affirmative vote of holders of a Unit Majority. On or after December 31, 2008,
the Incentive Distribution Rights will be freely transferable.
CHANGE OF MANAGEMENT PROVISIONS
The Partnership Agreement contains certain provisions that are intended to
discourage a person or group from attempting to remove the General Partner as
general partner of the Partnership or otherwise change the management of the
Partnership. If any person or group other than the General Partner and its
affiliates acquires beneficial ownership of 20% or more of any class of Units,
such person or group loses voting rights with respect to all of its Units. The
Partnership Agreement also provides that if the General Partner is removed as
a general partner of the Partnership under circumstances where Cause does not
exist and Units held by the General Partner and its affiliates are not voted
in favor of such removal, (i) the Subordination Period will end and all
outstanding Subordinated Units will immediately convert into Common Units on a
one-for-one basis, (ii) any existing Common Unit Arrearages will be
extinguished and (iii) the General Partner will have the right to convert its
general partner interests (and all of its Incentive Distribution Rights) into
Common Units or to receive cash in exchange for such interests.
LIMITED CALL RIGHT
If at any time not more than 20% of the then-issued and outstanding limited
partner interests of any class (including Common Units) are held by persons
other than the General Partner and its affiliates, the General Partner will
have the right, which it may assign in whole or in part to any of its
affiliates or to the Partnership, to acquire all, but not less than all, of
the remaining limited partner interests of such class held by such
unaffiliated persons as of a record date to be selected by the General
Partner, on at least 10 but not more than 60 days' notice. The purchase price
in the event of such a purchase shall be the greater of (i) the highest price
paid by the General Partner or any of its affiliates for any limited partner
interests of such class purchased within the 90 days preceding the date on
which the General Partner first mails notice of its election to purchase such
limited partner interests, and (ii) the Current Market Price (as defined in
the Glossary) as of the date three days prior to the date such notice is
mailed. As a consequence of the General Partner's right to purchase
outstanding limited partner interests, a holder of limited partner interests
may have his limited partner interests purchased even though he may not desire
to sell them, or the price paid may be less than the amount the holder would
desire to receive upon the sale of his limited partner interests. The tax
consequences to a Unitholder of the exercise of this
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call right are the same as a sale by such Unitholder of his Common Units in
the market. See "Tax Considerations--Disposition of Common Units."
MEETINGS; VOTING
Except as described below with respect to a Person or group owning 20% or
more of all Units, Unitholders or assignees who are record holders of Units on
the record date set pursuant to the Partnership Agreement will be entitled to
notice of, and to vote at, meetings of limited partners of the Partnership and
to act with respect to matters as to which approvals may be solicited. With
respect to voting rights attributable to Common Units that are owned by an
assignee who is a record holder but who has not yet been admitted as a limited
partner, the General Partner shall be deemed to be the limited partner with
respect thereto and shall, in exercising the voting rights in respect of such
Common Units on any matter, vote such Common Units at the written direction of
such record holder. Absent such direction, such Common Units will not be voted
(except that, in the case of Common Units held by the General Partner on
behalf of Non-citizen Assignees (as defined below), the General Partner shall
distribute the votes in respect of such Common Units in the same ratios as the
votes of limited partners in respect of other Units are cast).
The General Partner does not anticipate that any meeting of Unitholders will
be called in the foreseeable future. Any action that is required or permitted
to be taken by the Unitholders may be taken either at a meeting of the
Unitholders or without a meeting if consents in writing setting forth the
action so taken are signed by holders of such number of Units as would be
necessary to authorize or take such action at a meeting of all of the
Unitholders. Meetings of the Unitholders of the Partnership may be called by
the General Partner or by Unitholders owning at least 20% of the outstanding
Units of the class for which a meeting is proposed. Unitholders may vote
either in person or by proxy at meetings. The holders of a majority of the
outstanding Units of the class or classes for which a meeting has been called
represented in person or by proxy shall constitute a quorum at a meeting of
Unitholders of such class or classes, unless any such action by the
Unitholders requires approval by holders of a greater percentage of such
Units, in which case the quorum shall be such greater percentage.
Each record holder of a Unit has a vote according to his percentage interest
in the Partnership, although additional limited partner interests having
special voting rights could be issued by the Partnership. See "--Issuance of
Additional Securities." However, if at any time any person or group (other
than the General Partner and its affiliates or a direct transferee of the
General Partner or its affiliates) acquires, in the aggregate, beneficial
ownership of 20% or more of any class of Units then outstanding, such person
or group will lose voting rights with respect to all of its Units and such
Units may not be voted on any matter and will not be considered to be
outstanding when sending notices of a meeting of Unitholders, calculating
required votes, determining the presence of a quorum or for other similar
Partnership purposes. The Partnership Agreement provides that Common Units
held in nominee or street name account will be voted by the broker (or other
nominee) pursuant to the instruction of the beneficial owner unless the
arrangement between the beneficial owner and his nominee provides otherwise.
Except as otherwise provided in the Partnership Agreement, Subordinated Units
will vote together with Common Units as a single class.
Any notice, demand, request, report or proxy material required or permitted
to be given or made to record holders of Common Units (whether or not such
record holder has been admitted as a limited partner) under the terms of the
Partnership Agreement will be delivered to the record holder by the
Partnership or by the Transfer Agent at the request of the Partnership.
STATUS AS LIMITED PARTNER OR ASSIGNEE
Except as described above under "--Limited Liability," the Common Units will
be fully paid, and Unitholders will not be required to make additional
contributions to the Partnership.
An assignee of a Common Unit, subsequent to executing and delivering a
Transfer Application, but pending its admission as a substituted Limited
Partner in the Partnership, is entitled to an interest in the Partnership
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equivalent to that of a Limited Partner with respect to the right to share in
allocations and distributions from the Partnership, including liquidating
distributions. The General Partner will vote and exercise other powers
attributable to Common Units owned by an assignee who has not become a
substitute Limited Partner at the written direction of such assignee. See "--
Meetings; Voting." Transferees who do not execute and deliver a Transfer
Application will be treated neither as assignees nor as record holders of
Common Units, and will not receive cash distributions, federal income tax
allocations or reports furnished to record holders of Common Units. See
"Description of the Common Units--Transfer of Common Units."
NON-CITIZEN ASSIGNEES; REDEMPTION
If the Partnership is or becomes subject to federal, state or local laws or
regulations that, in the reasonable determination of the General Partner,
create a substantial risk of cancellation or forfeiture of any property in
which the Partnership has an interest because of the nationality, citizenship
or other related status of any Limited Partner or assignee, the Partnership
may redeem the Units held by such Limited Partner or assignee at their Current
Market Price. In order to avoid any such cancellation or forfeiture, the
General Partner may require each Limited Partner or assignee to furnish
information about his nationality, citizenship or related status. If a Limited
Partner or assignee fails to furnish information about such nationality,
citizenship or other related status within 30 days after a request for such
information or the General Partner determines after receipt of such
information that the Limited Partner or assignee is not an eligible citizen,
such Limited Partner or assignee may be treated as a non-citizen assignee
("Non-citizen Assignee"). In addition to other limitations on the rights of an
assignee who is not a substituted Limited Partner, a Non-citizen Assignee does
not have the right to direct the voting of his Units and may not receive
distributions in kind upon liquidation of the Partnership.
INDEMNIFICATION
The Partnership Agreement provides that the Partnership will indemnify (i)
the General Partner, (ii) any Departing Partner, (iii) any Person who is or
was an affiliate of a General Partner or any Departing Partner, (iv) any
Person who is or was a member, partner, officer, director, employee, agent or
trustee of a General Partner or any Departing Partner or any affiliate of a
General Partner or any Departing Partner, or (v) any Person who is or was
serving at the request of a General Partner or any Departing Partner or any
affiliate of a General Partner or any Departing Partner as an officer,
director, employee, member, partner, agent, fiduciary or trustee of another
Person ("Indemnitees"), to the fullest extent permitted by law, from and
against any and all losses, claims, damages, liabilities (joint or several),
expenses (including, without limitation, legal fees and expenses), judgments,
fines, penalties, interest, settlements and other amounts arising from any and
all claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or
is threatened to be involved, as a party or otherwise, by reason of its status
as an Indemnitee; provided that in each case the Indemnitee acted in good
faith and in a manner that such Indemnitee reasonably believed to be in or not
opposed to the best interests of the Partnership and, with respect to any
criminal proceeding, had no reasonable cause to believe its conduct was
unlawful. Any indemnification under these provisions will be only out of the
assets of the Partnership, and the General Partner shall not be personally
liable for, or have any obligation to contribute or loan funds or assets to
the Partnership to enable it to effectuate, such indemnification. The
Partnership is authorized to purchase (or to reimburse the General Partner or
its affiliates for the cost of) insurance against liabilities asserted against
and expenses incurred by such persons in connection with the Partnership's
activities, regardless of whether the Partnership would have the power to
indemnify such person against such liabilities under the provisions described
above.
BOOKS AND REPORTS
The General Partner is required to keep appropriate books of the business of
the Partnership at the principal offices of the Partnership. The books will be
maintained for both tax and financial reporting purposes on an accrual basis.
For tax and financial reporting purposes, the fiscal year of the Partnership
is the calendar year.
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The Partnership will furnish or make available to record holders of Common
Units (i) within 120 days after the close of each fiscal year of the
Partnership an annual report containing audited financial statements and a
report thereon by its independent public accountants and (ii) within 90 days
after the close of each quarter (other than the fourth quarter), certain
summary financial information.
The Partnership will furnish each record holder of a Unit information
reasonably required for tax reporting purposes within 90 days after the close
of each calendar year. Such information is expected to be furnished in summary
form so that certain complex calculations normally required of partners can be
avoided. The Partnership's ability to furnish such summary information to
Unitholders will depend on the cooperation of such Unitholders in supplying
certain information to the Partnership. Every Unitholder (without regard to
whether he supplies such information to the Partnership) will receive
information to assist him in determining his federal and state tax liability
and filing his federal and state income tax returns.
RIGHT TO INSPECT PARTNERSHIP BOOKS AND RECORDS
The Partnership Agreement provides that a Limited Partner can for a purpose
reasonably related to such Limited Partner's interest as a limited partner,
upon reasonable demand and at his own expense, have furnished to him (i) a
current list of the name and last known address of each partner, (ii) a copy
of the Partnership's tax returns, (iii) information as to the amount of cash,
and a description and statement of the agreed value of any other property or
services, contributed or to be contributed by each partner and the date on
which each became a partner, (iv) copies of the Partnership Agreement, the
certificate of limited partnership of the Partnership, amendments thereto and
powers of attorney pursuant to which the same have been executed, (v)
information regarding the status of the Partnership's business and financial
condition, and (vi) such other information regarding the affairs of the
Partnership as is just and reasonable. The General Partner may, and intends
to, keep confidential from the Limited Partners trade secrets or other
information the disclosure of which the General Partner believes in good faith
is not in the best interests of the Partnership or which the Partnership is
required by law or by agreements with third parties to keep confidential.
REGISTRATION RIGHTS
Pursuant to the terms of the Partnership Agreement and subject to certain
limitations described therein, the Partnership has agreed to register for
resale under the Securities Act and applicable state securities laws any
Common Units or other securities of the Partnership (including Subordinated
Units) proposed to be sold by the General Partner or any of its affiliates if
an exemption from such registration requirements is not otherwise available
for such proposed transaction. The Partnership is obligated to pay all
expenses incidental to such registration, excluding underwriting discounts and
commissions. See "Units Eligible for Future Sale."
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UNITS ELIGIBLE FOR FUTURE SALE
After the sale of the Common Units offered hereby, the General Partner will
hold 6,817,391 Common Units and 9,800,000 Subordinated Units (all of which
will convert into Common Units at the end of the Subordination Period and some
of which may convert earlier). The sale of these Units could have an adverse
impact on the price of the Common Units or on any trading market that may
develop.
The Common Units sold in this offering will generally be freely transferable
without restriction or further registration under the Securities Act, except
that any Common Units owned by an "affiliate" of the Partnership (as that term
is defined in the rules and regulations under the Securities Act) may not be
resold publicly except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption therefrom under Rule 144 thereunder
("Rule 144") or otherwise. Rule 144 permits securities acquired by an
affiliate of the issuer to be sold into the market in an amount that does not
exceed, during any three-month period, the greater of (i) 1% of the total
number of such securities outstanding or (ii) the average weekly reported
trading volume of the Common Units for the four calendar weeks prior to such
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Partnership. A person who is not deemed to have been an
affiliate of the Partnership at any time during the three months preceding a
sale, and who has beneficially owned his Common Units for at least two years,
would be entitled to sell such Common Units under Rule 144 without regard to
the public information requirements, volume limitations, manner of sale
provisions or notice requirements of Rule 144.
Prior to the end of the Subordination Period, the Partnership may not issue
equity securities of the Partnership ranking prior or senior to the Common
Units or an aggregate of more than 9,800,000 additional Common Units (which
number shall be subject to adjustment in the event of a combination or
subdivision of Common Units and shall exclude Common Units issued upon
exercise of the Underwriters' over-allotment option, upon conversion of
Subordinated Units, upon conversion of the General Partner interest as a
result of a withdrawal of the General Partner, pursuant to an employee benefit
plan, in connection with certain acquisitions or capital improvements or upon
the repayment of certain indebtedness), or an equivalent amount of securities
ranking on a parity with the Common Units, without the approval of the holders
of a Unit Majority. The Partnership Agreement provides that, after the
Subordination Period, the Partnership may issue an unlimited number of limited
partner interests of any type without a vote of the Unitholders. The
Partnership Agreement does not impose any restriction on the Partnership's
ability to issue equity securities ranking junior to the Common Units at any
time. Any issuance of additional Common Units or certain other equity
securities would result in a corresponding decrease in the proportionate
ownership interest in the Partnership represented by, and could adversely
affect the cash distributions to and market price of, Common Units then
outstanding. See "The Partnership Agreement--Issuance of Additional
Securities."
Pursuant to the Partnership Agreement, the General Partner and its
affiliates will have the right, upon the terms and subject to the conditions
therein, to cause the Partnership to register under the Securities Act and
state laws the offer and sale of any Units that they hold. Subject to the
terms and conditions of the Partnership Agreement, such registration rights
allow the General Partner and its affiliates or their assignees holding any
Units to require registration of any such Units and to include any such Units
in a registration by the Partnership of other Units, including Units offered
by the Partnership or by any Unitholder. Such registration rights will
continue in effect for two years following any withdrawal or removal of the
General Partner as a general partner of the Partnership. In connection with
any such registration, the Partnership will indemnify each Unitholder
participating in such registration and its officers, directors and controlling
persons from and against any liabilities under the Securities Act or any state
securities laws arising from the registration statement or prospectus. The
Partnership will bear all costs and expenses of any such registration. In
addition, the General Partner and its affiliates may sell their Units in
private transactions at any time, subject to compliance with applicable laws.
Each of the Partnership, the Operating Partnership, the General Partner,
Plains Resources and the officers and directors of the General Partner have
agreed not to (i) offer, sell, contract to sell, or otherwise dispose of any
Common Units or Subordinated Units, any securities convertible into, or
exercisable or exchangeable for, or that
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represent the right to receive, Common Units or Subordinated Units or any
securities that are senior to or pari passu with the Common Units or (ii)
grant any options or warrants to purchase Common Units or Subordinated Units
(other than the grant of Unit Options or Restricted Units pursuant to the
Long-Term Incentive Plan), for a period of 180 days after the date of this
Prospectus, without the prior written consent of Salomon Smith Barney Inc.,
except for issuances of Common Units in connection with certain Acquisitions
or Capital Improvements that are accretive on a per Unit basis.
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TAX CONSIDERATIONS
This section is a summary of material tax considerations that may be
relevant to prospective Unitholders and, to the extent set forth below under
"--Legal Opinions and Advice," expresses the opinion of Andrews & Kurth
L.L.P., special counsel to the General Partner and the Partnership
("Counsel"), insofar as it relates to matters of law and legal conclusions.
This section is based upon current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed regulations thereunder
and current administrative rulings and court decisions, all of which are
subject to change. Subsequent changes in such authorities may cause the tax
consequences to vary substantially from the consequences described below.
Unless the context otherwise requires, references in this section to the
Partnership are references to both the Partnership and the Operating
Partnership.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting the Partnership or the Unitholders.
Moreover, the discussion focuses on Unitholders who are individual citizens or
residents of the U.S. and has only limited application to corporations,
estates, trusts, non-resident aliens or other Unitholders subject to
specialized tax treatment (such as tax-exempt institutions, foreign persons,
individual retirement accounts, REITs or mutual funds). Accordingly, each
prospective Unitholder should consult, and should depend on, his own tax
advisor in analyzing the federal, state, local and foreign tax consequences
peculiar to him of the ownership or disposition of Common Units.
LEGAL OPINIONS AND ADVICE
Counsel is of the opinion that, based on the accuracy of the representations
and subject to the qualifications set forth in the detailed discussion that
follows, for federal income tax purposes (i) the Partnership and the Operating
Partnership will each be treated as a partnership, and (ii) owners of Common
Units (with certain exceptions, as described in "--Limited Partner Status"
below) will be treated as partners of the Partnership (but not the Operating
Partnership). In addition, all statements as to matters of law and legal
conclusions contained in this section, unless otherwise noted, reflect the
opinion of Counsel.
No ruling has been or will be requested from the IRS and the IRS has made no
determination with respect to the foregoing issues or any other matter
affecting the Partnership or prospective Unitholders. An opinion of counsel
represents only that counsel's best legal judgment and does not bind the IRS
or the courts. Thus, no assurance can be provided that the opinions and
statements set forth herein would be sustained by a court if contested by the
IRS. Any such contest with the IRS may materially and adversely impact the
market for the Common Units and the prices at which Common Units trade. In
addition, the costs of any contest with the IRS will be borne directly or
indirectly by the Unitholders and the General Partner. Furthermore, no
assurance can be given that the treatment of the Partnership or an investment
therein will not be significantly modified by future legislative or
administrative changes or court decisions. Any such modification may or may
not be retroactively applied.
For the reasons hereinafter described, Counsel has not rendered an opinion
with respect to the following specific federal income tax issues: (i) the
treatment of a Unitholder whose Common Units are loaned to a short seller to
cover a short sale of Common Units (see "--Tax Treatment of Operations--
Treatment of Short Sales"), (ii) whether a Unitholder acquiring Common Units
in separate transactions must maintain a single aggregate adjusted tax basis
in his Common Units (see "--Disposition of Common Units--Recognition of Gain
or Loss"), (iii) whether the Partnership's monthly convention for allocating
taxable income and losses is permitted by existing Treasury Regulations (see
"--Disposition of Common Units--Allocations Between Transferors and
Transferees"), and (iv) whether the Partnership's method for depreciating
Section 743 adjustments is sustainable (see "--Tax Treatment of Operations--
Section 754 Election").
TAX RATES
The top marginal income tax rate for individuals for 1998 is 39.6%. In
general, net capital gains of an individual are subject to a maximum 20% tax
rate if the asset was held for more than 12 months at the time of disposition.
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PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account his allocable share of items of income, gain, loss and deduction of
the partnership in computing his federal income tax liability, regardless of
whether cash distributions are made. Distributions by a partnership to a
partner are generally not taxable unless the amount of cash distributed is in
excess of the partner's adjusted basis in his partnership interest.
No ruling has been or will be sought from the IRS and the IRS has made no
determination as to the status of the Partnership or the Operating Partnership
as a partnership for federal income tax purposes. Instead the Partnership has
relied on the opinion of Counsel that, based upon the Code, the regulations
thereunder, published revenue rulings and court decisions, the Partnership and
the Operating Partnership will each be classified as a partnership for federal
income tax purposes.
In rendering its opinion, Counsel has relied on certain factual
representations made by the Partnership and the General Partner. Such factual
matters are as follows:
(a) Neither the Partnership nor the Operating Partnership will elect to
be treated as an association or corporation;
(b) The Partnership will be operated in accordance with (i) all
applicable partnership statutes, (ii) the Partnership Agreement, and (iii)
the description thereof in this Prospectus;
(c) The Operating Partnership will be operated in accordance with (i) all
applicable partnership statutes, (ii) the Operating Partnership Agreement,
and (iii) the description thereof in this Prospectus;
(d) For each taxable year, more than 90% of the gross income of the
Partnership will be income from sources that Counsel has opined or may
opine is "qualifying income" within the meaning of Section 7704(d) of the
Code;
(e) Each futures contract entered into by the Operating Partnership for
the purchase or sale of crude oil will be identified as a hedging
transaction pursuant to Treasury Regulation Section 1.1221-2(e)(1); and
(f) Gain or loss resulting from future transactions entered into by the
Operating Partnership will be treated as an adjustment in the computation
of cost of goods sold with respect to sales of crude oil for federal income
tax purposes.
Section 7704 of the Code provides that publicly-traded partnerships will, as
a general rule, be taxed as corporations. However, an exception (the
"Qualifying Income Exception") exists with respect to publicly-traded
partnerships of which 90% or more of the gross income for every taxable year
consists of "qualifying income." Qualifying income includes income and gains
derived from the transportation and marketing of crude oil. Other types of
qualifying income include interest (from other than a financial business),
dividends, gains from the sale of real property and gains from the sale or
other disposition of capital assets held for the production of income that
otherwise constitutes qualifying income. Based upon the representations of the
Partnership and the General Partner and a review of the applicable legal
authorities, Counsel is of the opinion that at least 90% of the Partnership's
gross income will constitute qualifying income. The Partnership estimates that
less than 1% of its gross income for each taxable year will not constitute
qualifying income.
If the Partnership fails to meet the Qualifying Income Exception (other than
a failure which is determined by the IRS to be inadvertent and which is cured
within a reasonable time after discovery), the Partnership will be treated as
if it had transferred all of its assets (subject to liabilities) to a newly
formed corporation (on the first day of the year in which it fails to meet the
Qualifying Income Exception) in return for stock in that corporation, and then
distributed that stock to the partners in liquidation of their interests in
the Partnership. This contribution and liquidation should be tax-free to
Unitholders and the Partnership, so long as the Partnership, at that time,
does not have liabilities in excess of the tax basis of its assets.
Thereafter, the Partnership would be treated as a corporation for federal
income tax purposes.
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If the Partnership or the Operating Partnership were treated as an
association taxable as a corporation in any taxable year, either as a result
of a failure to meet the Qualifying Income Exception or otherwise, its items
of income, gain, loss and deduction would be reflected only on its tax return
rather than being passed through to the Unitholders, and its net income would
be taxed to the Partnership or the Operating Partnership at corporate rates.
In addition, any distribution made to a Unitholder would be treated as either
taxable dividend income (to the extent of the Partnership's current or
accumulated earnings and profits) or (in the absence of earnings and profits)
a nontaxable return of capital (to the extent of the Unitholder's tax basis in
his Common Units) or taxable capital gain (after the Unitholder's tax basis in
his Common Units is reduced to zero). Accordingly, treatment of either the
Partnership or the Operating Partnership as an association taxable as a
corporation would result in a material reduction in a Unitholder's cash flow
and after-tax return and thus would likely result in a substantial reduction
of the value of the Units.
The discussion below is based on the assumption that the Partnership will be
classified as a partnership for federal income tax purposes.
LIMITED PARTNER STATUS
Unitholders who have become limited partners of the Partnership will be
treated as partners of the Partnership for federal income tax purposes.
Counsel is also of the opinion that (a) assignees who have executed and
delivered Transfer Applications, and are awaiting admission as limited
partners and (b) Unitholders whose Common Units are held in street name or by
a nominee and who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their Common Units will be
treated as partners of the Partnership for federal income tax purposes. As
there is no direct authority addressing assignees of Common Units who are
entitled to execute and deliver Transfer Applications and thereby become
entitled to direct the exercise of attendant rights, but who fail to execute
and deliver Transfer Applications, Counsel's opinion does not extend to these
persons. Furthermore, a purchaser or other transferee of Common Units who does
not execute and deliver a Transfer Application may not receive certain federal
income tax information or reports furnished to record holders of Common Units
unless the Common Units are held in a nominee or street name account and the
nominee or broker has executed and delivered a Transfer Application with
respect to such Common Units.
A beneficial owner of Common Units whose Common Units have been transferred
to a short seller to complete a short sale would appear to lose his status as
a partner with respect to such Common Units for federal income tax purposes.
See "--Tax Treatment of Operations--Treatment of Short Sales."
Income, gain, deductions or losses would not appear to be reportable by a
Unitholder who is not a partner for federal income tax purposes, and any cash
distributions received by such a Unitholder would therefore be fully taxable
as ordinary income. These holders should consult their own tax advisors with
respect to their status as partners in the Partnership for federal income tax
purposes.
TAX CONSEQUENCES OF UNIT OWNERSHIP
Flow-through of Taxable Income
No federal income tax will be paid by the Partnership. Instead, each
Unitholder will be required to report on his income tax return his allocable
share of the income, gains, losses and deductions of the Partnership without
regard to whether corresponding cash distributions are received by such
Unitholder. Consequently, a Unitholder may be allocated income from the
Partnership even if he has not received a cash distribution. Each Unitholder
will be required to include in income his allocable share of Partnership
income, gain, loss and deduction for the taxable year of the Partnership
ending with or within the taxable year of the Unitholder.
Treatment of Partnership Distributions
Distributions by the Partnership to a Unitholder generally will not be
taxable to the Unitholder for federal income tax purposes to the extent of his
tax basis in his Common Units immediately before the distribution.
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Cash distributions in excess of a Unitholder's tax basis generally will be
considered to be gain from the sale or exchange of the Common Units, taxable
in accordance with the rules described under "--Disposition of Common Units"
below. Any reduction in a Unitholder's share of the Partnership's liabilities
for which no partner, including the General Partner, bears the economic risk
of loss ("nonrecourse liabilities") will be treated as a distribution of cash
to that Unitholder. To the extent that Partnership distributions cause a
Unitholder's "at risk" amount to be less than zero at the end of any taxable
year, he must recapture any losses deducted in previous years. See "--
Limitations on Deductibility of Partnership Losses."
A decrease in a Unitholder's percentage interest in the Partnership because
of the issuance by the Partnership of additional Common Units will decrease
such Unitholder's share of nonrecourse liabilities of the Partnership, and
thus will result in a corresponding deemed distribution of cash. A non-pro
rata distribution of money or property may result in ordinary income to a
Unitholder, regardless of his tax basis in his Common Units, if such
distribution reduces the Unitholder's share of the Partnership's "unrealized
receivables" (including depreciation recapture) and/or substantially
appreciated "inventory items" (both as defined in Section 751 of the Code)
(collectively, "Section 751 Assets"). To that extent, the Unitholder will be
treated as having been distributed his proportionate share of the Section 751
Assets and having exchanged such assets with the Partnership in return for the
non-pro rata portion of the actual distribution made to him. This latter
deemed exchange will generally result in the Unitholder's realization of
ordinary income under Section 751(b) of the Code. Such income will equal the
excess of (1) the non-pro rata portion of such distribution over (2) the
Unitholder's tax basis for the share of such Section 751 Assets deemed
relinquished in the exchange.
Ratio of Taxable Income to Distributions
The Partnership estimates that a purchaser of Common Units in this offering
who holds such Common Units from the date of the closing of this offering
through December 31, 2003, will be allocated, on a cumulative basis, an amount
of federal taxable income for such period that will be approximately 30% of
the cash distributed with respect to that period. The Partnership further
estimates that for taxable years after the taxable year ending December 31,
2003 the taxable income allocable to the Unitholders may constitute a
significantly higher percentage of cash distributed to Unitholders. The
foregoing estimates are based upon the assumption that gross income from
operations will approximate the amount required to make the Minimum Quarterly
Distribution with respect to all Units and other assumptions with respect to
capital expenditures, cash flow and anticipated cash distributions. These
estimates and assumptions are subject to, among other things, numerous
business, economic, regulatory, competitive and political uncertainties beyond
the control of the Partnership. Further, the estimates are based on current
tax law and certain tax reporting positions that the Partnership intends to
adopt and with which the IRS could disagree. Accordingly, no assurance can be
given that the estimates will prove to be correct. The actual percentage could
be higher or lower, and any such differences could be material and could
materially affect the value of the Common Units.
Basis of Common Units
A Unitholder's initial tax basis for his Common Units will be the amount he
paid for the Common Units plus his share of the Partnership's nonrecourse
liabilities. That basis will be increased by his share of Partnership income
and by any increases in his share of Partnership nonrecourse liabilities. That
basis will be decreased (but not below zero) by distributions from the
Partnership, by the Unitholder's share of Partnership losses, by any decrease
in his share of Partnership nonrecourse liabilities and by his share of
expenditures of the Partnership that are not deductible in computing its
taxable income and are not required to be capitalized. A limited partner will
have no share of Partnership debt which is recourse to the General Partner,
but will have a share, generally based on his share of profits, of Partnership
nonrecourse liabilities. See "--Disposition of Common Units--Recognition of
Gain or Loss."
Limitations on Deductibility of Partnership Losses
The deduction by a Unitholder of his share of Partnership losses will be
limited to the tax basis in his Units and, in the case of an individual
Unitholder or a corporate Unitholder (if more than 50% of the value of its
stock
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is owned directly or indirectly by five or fewer individuals or certain tax-
exempt organizations), to the amount for which the Unitholder is considered to
be "at risk" with respect to the Partnership's activities, if that is less
than the Unitholder's tax basis. A Unitholder must recapture losses deducted
in previous years to the extent that Partnership distributions cause the
Unitholder's at risk amount to be less than zero at the end of any taxable
year. Losses disallowed to a Unitholder or recaptured as a result of these
limitations will carry forward and will be allowable to the extent that the
Unitholder's tax basis or at risk amount (whichever is the limiting factor) is
subsequently increased. Upon the taxable disposition of a Unit, any gain
recognized by a Unitholder can be offset by losses that were previously
suspended by the at risk limitation but may not be offset by losses suspended
by the basis limitation. Any excess loss (above such gain) previously
suspended by the at risk or basis limitations is no longer utilizable.
In general, a Unitholder will be at risk to the extent of the tax basis of
his Units, excluding any portion of that basis attributable to his share of
Partnership nonrecourse liabilities, reduced by any amount of money the
Unitholder borrows to acquire or hold his Units if the lender of such borrowed
funds owns an interest in the Partnership, is related to such a person or can
look only to Units for repayment. A Unitholder's at risk amount will increase
or decrease as the tax basis of the Unitholder's Units increases or decreases
(other than tax basis increases or decreases attributable to increases or
decreases in his share of Partnership nonrecourse liabilities).
The passive loss limitations generally provide that individuals, estates,
trusts and certain closely-held corporations and personal service corporations
can deduct losses from passive activities (generally, activities in which the
taxpayer does not materially participate) only to the extent of the taxpayer's
income from those passive activities. The passive loss limitations are applied
separately with respect to each publicly-traded partnership. Consequently, any
passive losses generated by the Partnership will only be available to offset
future income generated by the Partnership and will not be available to offset
income from other passive activities or investments (including other publicly-
traded partnerships) or salary or active business income. Passive losses which
are not deductible because they exceed a Unitholder's income generated by the
Partnership may be deducted in full when he disposes of his entire investment
in the Partnership in a fully taxable transaction to an unrelated party. The
passive activity loss rules are applied after other applicable limitations on
deductions such as the at risk rules and the basis limitation.
A Unitholder's share of net income from the Partnership may be offset by any
suspended passive losses from the Partnership, but it may not be offset by any
other current or carryover losses from other passive activities, including
those attributable to other publicly-traded partnerships. The IRS has
announced that Treasury Regulations will be issued which characterize net
passive income from a publicly-traded partnership as investment income for
purposes of the limitations on the deductibility of investment interest.
Limitations on Interest Deductions
The deductibility of a non-corporate taxpayer's "investment interest
expense" is generally limited to the amount of such taxpayer's "net investment
income." As noted, a Unitholder's net passive income from the Partnership will
be treated as investment income for this purpose. In addition, the
Unitholder's share of the Partnership's portfolio income will be treated as
investment income. Investment interest expense includes (i) interest on
indebtedness properly allocable to property held for investment, (ii) the
Partnership's interest expense attributed to portfolio income, and (iii) the
portion of interest expense incurred to purchase or carry an interest in a
passive activity to the extent attributable to portfolio income. The
computation of a Unitholder's investment interest expense will take into
account interest on any margin account borrowing or other loan incurred to
purchase or carry a Unit. Net investment income includes gross income from
property held for investment and amounts treated as portfolio income pursuant
to the passive loss rules less deductible expenses (other than interest)
directly connected with the production of investment income, but generally
does not include gains attributable to the disposition of property held for
investment.
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ALLOCATION OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION
In general, if the Partnership has a net profit, items of income, gain, loss
and deduction will be allocated among the General Partner and the Unitholders
in accordance with their respective percentage interests in the Partnership.
At any time that distributions are made to the Common Units and not to the
Subordinated Units, or that Incentive Distributions are made to the General
Partner, gross income will be allocated to the recipients to the extent of
such distribution. If the Partnership has a net loss, items of income, gain,
loss and deduction will generally be allocated first, to the General Partner
and the Unitholders in accordance with their respective Percentage Interests
to the extent of their positive capital accounts (as maintained under the
Partnership Agreement) and, second, to the General Partner.
As required by Section 704(c) of the Code and as permitted by Regulations
thereunder, certain items of Partnership income, deduction, gain and loss will
be allocated to account for the difference between the tax basis and fair
market value of property contributed to the Partnership by the General Partner
("Contributed Property"). The effect of these allocations to a Unitholder will
be essentially the same as if the tax basis of the Contributed Property were
equal to their fair market value at the time of contribution. In addition,
certain items of recapture income will be allocated to the extent possible to
the partner allocated the deduction giving rise to the treatment of such gain
as recapture income in order to minimize the recognition of ordinary income by
some Unitholders. Finally, although the Partnership does not expect that its
operations will result in the creation of negative capital accounts, if
negative capital accounts nevertheless result, items of Partnership income and
gain will be allocated in an amount and manner sufficient to eliminate the
negative balance as quickly as possible.
Regulations provide that an allocation of items of partnership income, gain,
loss or deduction, other than an allocation required by Section 704(c) of the
Code to eliminate the difference between a partner's "book" capital account
(credited with the fair market value of Contributed Property) and "tax"
capital account (credited with the tax basis of Contributed Property) (the
"Book-Tax Disparity"), will generally be given effect for federal income tax
purposes in determining a partner's distributive share of an item of income,
gain, loss or deduction only if the allocation has substantial economic
effect. In any other case, a partner's distributive share of an item will be
determined on the basis of the partner's interest in the partnership, which
will be determined by taking into account all the facts and circumstances,
including the partners' relative contributions to the partnership, the
interests of the partners in economic profits and losses, the interest of the
partners in cash flow and other nonliquidating distributions and rights of the
partners to distributions of capital upon liquidation.
Counsel is of the opinion that allocations under the Partnership Agreement
will be given effect for federal income tax purposes in determining a
Unitholder's distributive share of an item of income, gain, loss or deduction.
TAX TREATMENT OF OPERATIONS
Accounting Method and Taxable Year
The Partnership will use the year ending December 31 as its taxable year and
will adopt the accrual method of accounting for federal income tax purposes.
Each Unitholder will be required to include in income his allocable share of
Partnership income, gain, loss and deduction for the taxable year of the
Partnership ending within or with the taxable year of the Unitholder. In
addition, a Unitholder who has a taxable year ending on a date other than
December 31 and who disposes of all of his Units following the close of the
Partnership's taxable year but before the close of his taxable year must
include his allocable share of Partnership income, gain, loss and deduction in
income for his taxable year with the result that he will be required to report
in income for his taxable year his distributive share of more than one year of
Partnership income, gain, loss and deduction. See "--Disposition of Common
Units--Allocations Between Transferors and Transferees."
Initial Tax Basis, Depreciation and Amortization
The tax basis of the various assets of the Partnership will be used for
purposes of computing depreciation and cost recovery deductions and,
ultimately, gain or loss on the disposition of such assets. The Partnership
assets
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will initially have an aggregate tax basis equal to the tax basis of the
assets in the possession of the General Partner immediately prior to the
formation of the Partnership. The federal income tax burden associated with
the difference between the fair market value of property contributed by the
General Partner and the tax basis established for such property will be borne
by the General Partner. See "--Allocation of Partnership Income, Gain, Loss
and Deduction."
To the extent allowable, the Partnership may elect to use the depletion,
depreciation and cost recovery methods that will result in the largest
deductions in the early years of the Partnership. The Partnership will not be
entitled to any amortization deductions with respect to any goodwill conveyed
to the Partnership on formation. Property subsequently acquired or constructed
by the Partnership may be depreciated using accelerated methods permitted by
the Code.
If the Partnership disposes of depreciable property by sale, foreclosure or
otherwise, all or a portion of any gain (determined by reference to the amount
of depreciation previously deducted and the nature of the property) may be
subject to the recapture rules and taxed as ordinary income rather than
capital gain. Similarly, a partner who has taken cost recovery or depreciation
deductions with respect to property owned by the Partnership may be required
to recapture such deductions as ordinary income upon a sale of his interest in
the Partnership. See "--Allocation of Partnership Income, Gain, Loss and
Deduction" and "--Disposition of Common Units--Recognition of Gain or Loss."
Costs incurred in organizing the Partnership may be amortized over any
period selected by the Partnership not shorter than 60 months. The costs
incurred in promoting the issuance of Units (i.e. syndication expenses) must
be capitalized and cannot be deducted currently, ratably or upon termination
of the Partnership. There are uncertainties regarding the classification of
costs as organization expenses, which may be amortized, and as syndication
expenses, which may not be amortized. Under recently adopted regulations, the
underwriting discounts and commissions would be treated as a syndication cost.
Section 754 Election
The Partnership intends to make the election permitted by Section 754 of the
Code. That election is irrevocable without the consent of the IRS. The
election will generally permit the Partnership to adjust a Common Unit
purchaser's (other than a Common Unit purchaser that purchases Common Units
from the Partnership) tax basis in the Partnership's assets ("inside basis")
pursuant to Section 743(b) of the Code to reflect his purchase price. The
Section 743(b) adjustment belongs to the purchaser and not to other partners.
(For purposes of this discussion, a partner's inside basis in the
Partnership's assets will be considered to have two components: (1) his share
of the Partnership's tax basis in such assets ("common basis") and (2) his
Section 743(b) adjustment to that basis.)
Proposed Treasury regulations under Section 743 of the Code require, if the
remedial allocation method is adopted (which the Partnership intends to do), a
portion of the Section 743(b) adjustment attributable recovery property to be
depreciated over the remaining cost recovery period for the Section 704(c)
built-in gain. Nevertheless, the proposed regulations under Section 197
indicate that the Section 743(b) adjustment attributable to an amortizable
Section 197 intangible should be treated as a newly-acquired asset placed in
service in the month when the purchaser acquires the Unit. Under Treasury
Regulation Section 1.167(c)-1(a)(6), a Section 743(b) adjustment attributable
to property subject to depreciation under Section 167 of the Code rather than
cost recovery deductions under Section 168 is generally required to be
depreciated using either the straight-line method or the 150% declining
balance method. Although the proposed regulations under Section 743 will
likely eliminate many of the problems if finalized in their current form, the
depreciation and amortization methods and useful lives associated with the
Section 743(b) adjustment may differ from the methods and useful lives
generally used to depreciate the common basis in such properties. Pursuant to
the Partnership Agreement, the Partnership is authorized to adopt a convention
to preserve the uniformity of Units even if such convention is not consistent
with Treasury Regulation Section 1.167(c)-1(a)(6) and Proposed Treasury
Regulation Section 1.197-2(g)(3). See "--Uniformity of Units."
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Although Counsel is unable to opine as to the validity of such an approach,
the Partnership intends to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value of Contributed
Property (to the extent of any unamortized Book-Tax Disparity) using a rate of
depreciation or amortization derived from the depreciation or amortization
method and useful life applied to the common basis of such property, or treat
that portion as non-amortizable to the extent attributable to property the
common basis of which is not amortizable. This method is consistent with the
proposed regulations under Section 743 but is arguably inconsistent with
Treasury Regulation Section 1.167(c)-1(a)(6) and Proposed Treasury Regulation
Section 1.197-2(g)(3) (neither of which is expected to directly apply to a
material portion of the Partnership's assets). To the extent such Section
743(b) adjustment is attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, the Partnership will apply the rules described
in the Regulations and legislative history. If the Partnership determines that
such position cannot reasonably be taken, the Partnership may adopt a
depreciation or amortization convention under which all purchasers acquiring
Units in the same month would receive depreciation or amortization, whether
attributable to common basis or Section 743(b) adjustment, based upon the same
applicable rate as if they had purchased a direct interest in the
Partnership's assets. Such an aggregate approach may result in lower annual
depreciation or amortization deductions than would otherwise be allowable to
certain Unitholders. See "--Uniformity of Units."
The allocation of the Section 743(b) adjustment must be made in accordance
with the Code. The IRS may seek to reallocate some or all of any Section
743(b) adjustment not so allocated by the Partnership to goodwill which, as an
intangible asset, would be amortizable over a longer period of time than some
of the Partnership's tangible assets.
A Section 754 election is advantageous if the transferee's tax basis in his
Units is higher than such Units' share of the aggregate tax basis of the
Partnership's assets immediately prior to the transfer. In such a case, as a
result of the election, the transferee would have a higher tax basis in his
share of the Partnership's assets for purposes of calculating, among other
items, his depreciation and depletion deductions and his share of any gain or
loss on a sale of the Partnership's assets. Conversely, a Section 754 election
is disadvantageous if the transferee's tax basis in such Units is lower than
such Unit's share of the aggregate tax basis of the Partnership's assets
immediately prior to the transfer. Thus, the fair market value of the Units
may be affected either favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and will
be made by the Partnership on the basis of certain assumptions as to the value
of Partnership assets and other matters. There is no assurance that the
determinations made by the Partnership will not be successfully challenged by
the IRS and that the deductions resulting from them will not be reduced or
disallowed altogether. Should the IRS require a different basis adjustment to
be made, and should, in the Partnership's opinion, the expense of compliance
exceed the benefit of the election, the Partnership may seek permission from
the IRS to revoke the Section 754 election for the Partnership. If such
permission is granted, a subsequent purchaser of Units may be allocated more
income than he would have been allocated had the election not been revoked.
Alternative Minimum Tax
Although it is not expected that the Partnership will generate significant
tax preference items or adjustments, each Unitholder will be required to take
into account his distributive share of any items of Partnership income, gain,
deduction or loss for purposes of the alternative minimum tax. The minimum tax
rate for noncorporate taxpayers is 26% on the first $175,000 of alternative
minimum taxable income in excess of the exemption amount and 28% on any
additional alternative minimum taxable income. Prospective Unitholders should
consult with their tax advisors as to the impact of an investment in Units on
their liability for the alternative minimum tax.
Valuation of Partnership Property and Basis of Properties
The federal income tax consequences of the ownership and disposition of
Units will depend in part on estimates by the Partnership of the relative fair
market values, and determinations of the initial tax bases, of the
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assets of the Partnership. Although the Partnership may from time to time
consult with professional appraisers with respect to valuation matters, many
of the relative fair market value estimates will be made by the Partnership.
These estimates and determinations of basis are subject to challenge and will
not be binding on the IRS or the courts. If the estimates of fair market value
or determinations of basis are subsequently found to be incorrect, the
character and amount of items of income, gain, loss or deductions previously
reported by Unitholders might change, and Unitholders might be required to
adjust their tax liability for prior years.
Treatment of Short Sales
A Unitholder whose Units are loaned to a "short seller" to cover a short
sale of Units may be considered as having disposed of ownership of those
Units. If so, he would no longer be a partner with respect to those Units
during the period of the loan and may recognize gain or loss from the
disposition. As a result, during this period, any Partnership income, gain,
deduction or loss with respect to those Units would not be reportable by the
Unitholder, any cash distributions received by the Unitholder with respect to
those Units would be fully taxable and all of such distributions would appear
to be treated as ordinary income. Unitholders desiring to assure their status
as partners and avoid the risk of gain recognition should modify any
applicable brokerage account agreements to prohibit their brokers from
borrowing their Units. The IRS has announced that it is actively studying
issues relating to the tax treatment of short sales of partnership interests.
See also "--Disposition of Common Units--Recognition of Gain or Loss."
DISPOSITION OF COMMON UNITS
Recognition of Gain or Loss
Gain or loss will be recognized on a sale of Units equal to the difference
between the amount realized and the Unitholder's tax basis for the Units sold.
A Unitholder's amount realized will be measured by the sum of the cash or the
fair market value of other property received plus his share of Partnership
nonrecourse liabilities. Because the amount realized includes a Unitholder's
share of Partnership nonrecourse liabilities, the gain recognized on the sale
of Units could result in a tax liability in excess of any cash received from
such sale.
Prior Partnership distributions in excess of cumulative net taxable income
in respect of a Common Unit which decreased a Unitholder's tax basis in such
Common Unit will, in effect, become taxable income if the Common Unit is sold
at a price greater than the Unitholder's tax basis in such Common Unit, even
if the price is less than his original cost.
Should the IRS successfully contest the convention used by the Partnership
to amortize only a portion of the Section 743(b) adjustment (described under
"--Tax Treatment of Operations--Section 754 Election") attributable to an
amortizable Section 197 intangible after a sale by the General Partner of
Units, a Unitholder could realize additional gain from the sale of Units than
had such convention been respected. In that case, the Unitholder may have been
entitled to additional deductions against income in prior years but may be
unable to claim them, with the result to him of greater overall taxable income
than appropriate. Counsel is unable to opine as to the validity of the
convention but believes such a contest by the IRS to be unlikely because a
successful contest could result in substantial additional deductions to other
Unitholders.
Gain or loss recognized by a Unitholder (other than a "dealer" in Units) on
the sale or exchange of a Unit held for more than one year will generally be
taxable as capital gain or loss. Capital gain recognized on the sale of Units
held for more than 12 months will generally be taxed at a maximum rate of 20%.
A portion of this gain or loss (which could be substantial), however, will be
separately computed and taxed as ordinary income or loss under Section 751 of
the Code to the extent attributable to assets giving rise to depreciation
recapture or other "unrealized receivables" or to "inventory items" owned by
the Partnership. The term "unrealized receivables" includes potential
recapture items, including depreciation recapture. Ordinary income
attributable to unrealized receivables, inventory items and depreciation
recapture may exceed net taxable gain realized upon the sale of the Unit and
may be recognized even if there is a net taxable loss realized on the sale of
the Unit. Thus, a Unitholder
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may recognize both ordinary income and a capital loss upon a disposition of
Units. Net capital loss may offset no more than $3,000 of ordinary income in
the case of individuals and may only be used to offset capital gain in the
case of corporations.
The IRS has ruled that a partner who acquires interests in a partnership in
separate transactions must combine those interests and maintain a single
adjusted tax basis. Upon a sale or other disposition of less than all of such
interests, a portion of that tax basis must be allocated to the interests sold
using an "equitable apportionment" method. The ruling is unclear as to how the
holding period of these interests is determined once they are combined. If
this ruling is applicable to the holders of Common Units, a Common Unitholder
will be unable to select high or low basis Common Units to sell as would be
the case with corporate stock. It is not clear whether the ruling applies to
the Partnership because, similar to corporate stock, interests in the
Partnership are evidenced by separate certificates. Accordingly, Counsel is
unable to opine as to the effect such ruling will have on the Unitholders. A
Unitholder considering the purchase of additional Common Units or a sale of
Common Units purchased in separate transactions should consult his tax advisor
as to the possible consequences of such ruling.
Certain provisions of the Code affect the taxation of certain financial
products and securities, including partnership interests, by treating a
taxpayer as having sold an "appreciated" partnership interest (one in which
gain would be recognized if it were sold, assigned or terminated at its fair
market value) if the taxpayer or related persons enters into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to the partnership interest or substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to the partnership interest, the taxpayer will be treated as having
sold such position if the taxpayer or related person then acquires the
partnership interest or substantially identical property. The Secretary of
Treasury is also authorized to issue regulations that treat a taxpayer that
enters into transactions or positions that have substantially the same effect
as the preceding transactions as having constructively sold the financial
position.
Allocations Between Transferors and Transferees
In general, the Partnership's taxable income and losses will be determined
annually, will be prorated on a monthly basis and will be subsequently
apportioned among the Unitholders in proportion to the number of Units owned
by each of them as of the opening of the NYSE on the first business day of the
month (the "Allocation Date"). However, gain or loss realized on a sale or
other disposition of Partnership assets other than in the ordinary course of
business will be allocated among the Unitholders on the Allocation Date in the
month in which that gain or loss is recognized. As a result, a Unitholder
transferring Common Units in the open market may be allocated income, gain,
loss and deduction accrued after the date of transfer.
The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, Counsel is unable to opine on the validity of this
method of allocating income and deductions between the transferors and the
transferees of Units. If this method is not allowed under the Treasury
Regulations (or only applies to transfers of less than all of the Unitholder's
interest), taxable income or losses of the Partnership might be reallocated
among the Unitholders. The Partnership is authorized to revise its method of
allocation between transferors and transferees (as well as among partners
whose interests otherwise vary during a taxable period) to conform to a method
permitted under future Treasury Regulations.
A Unitholder who owns Units at any time during a quarter and who disposes of
such Units prior to the record date set for a cash distribution with respect
to such quarter will be allocated items of Partnership income, gain, loss and
deductions attributable to such quarter but will not be entitled to receive
that cash distribution.
Notification Requirements
A Unitholder who sells or exchanges Units is required to notify the
Partnership in writing of that sale or exchange within 30 days after the sale
or exchange and in any event by no later than January 15 of the year
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following the calendar year in which the sale or exchange occurred. The
Partnership is required to notify the IRS of that transaction and to furnish
certain information to the transferor and transferee. However, these reporting
requirements do not apply with respect to a sale by an individual who is a
citizen of the U.S. and who effects the sale or exchange through a broker.
Additionally, a transferor and a transferee of a Unit will be required to
furnish statements to the IRS, filed with their income tax returns for the
taxable year in which the sale or exchange occurred, that set forth the amount
of the consideration received for the Unit that is allocated to goodwill or
going concern value of the Partnership. Failure to satisfy these reporting
obligations may lead to the imposition of substantial penalties.
Constructive Termination
The Partnership and the Operating Partnership will be considered to have
been terminated if there is a sale or exchange of 50% or more of the total
interests in Partnership capital and profits within a 12-month period. If the
Partnership elects to be treated as a large partnership, it will not terminate
by reason of the sale or exchange of interests in the Partnership. A
termination of the Partnership will cause a termination of the Operating
Partnership. A termination of the Partnership will result in the closing of
the Partnership's taxable year for all Unitholders. In the case of a
Unitholder reporting on a taxable year other than a fiscal year ending
December 31, the closing of the Partnership's taxable year may result in more
than 12 months' taxable income or loss of the Partnership being includable in
his taxable income for the year of termination. New tax elections required to
be made by the Partnership, including a new election under Section 754 of the
Code, must be made subsequent to a termination, and a termination could result
in a deferral of Partnership deductions for depreciation. A termination could
also result in penalties if the Partnership were unable to determine that the
termination had occurred. Moreover, a termination might either accelerate the
application of, or subject the Partnership to, any tax legislation enacted
prior to the termination.
Entity-Level Collections
If the Partnership is required or elects under applicable law to pay any
federal, state or local income tax on behalf of any Unitholder or any General
Partner or any former Unitholder, the Partnership is authorized to pay those
taxes from Partnership funds. Such payment, if made, will be treated as a
distribution of cash to the partner on whose behalf the payment was made. If
the payment is made on behalf of a person whose identity cannot be determined,
the Partnership is authorized to treat the payment as a distribution to
current Unitholders. The Partnership is authorized to amend the Partnership
Agreement in the manner necessary to maintain uniformity of intrinsic tax
characteristics of Units and to adjust subsequent distributions, so that after
giving effect to such distributions, the priority and characterization of
distributions otherwise applicable under the Partnership Agreement is
maintained as nearly as is practicable. Payments by the Partnership as
described above could give rise to an overpayment of tax on behalf of an
individual partner in which event the partner could file a claim for credit or
refund.
UNIFORMITY OF UNITS
Because the Partnership cannot match transferors and transferees of Units,
uniformity of the economic and tax characteristics of the Units to a purchaser
of such Units must be maintained. In the absence of uniformity, compliance
with a number of federal income tax requirements, both statutory and
regulatory, could be substantially diminished. A lack of uniformity can result
from a literal application of Treasury Regulation Section 1.167(c)-1(a)(6) and
Proposed Treasury Regulation Section 1.197-2(g)(3). Any non-uniformity could
have a negative impact on the value of the Units. See "--Tax Treatment of
Operations--Section 754 Election."
The Partnership intends to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value of contributed
property or adjusted property (to the extent of any unamortized Book-Tax
Disparity) using a rate of depreciation or amortization derived from the
depreciation or amortization method and useful life applied to the Common
Basis of such property, or treat that portion as nonamortizable, to the extent
attributable to property the Common Basis of which is not amortizable,
consistent with the proposed regulations
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under Section 743 but despite its inconsistency with Treasury Regulation
Section 1.167(c)-1(a)(6) and Proposed Treasury Regulation Section 1.197-
2(g)(3) (neither of which is expected to directly apply to a material portion
of the Partnership's assets). See "--Tax Treatment of Operations--Section 754
Election." To the extent such Section 743(b) adjustment is attributable to
appreciation in value in excess of the unamortized Book-Tax Disparity, the
Partnership will apply the rules described in the Regulations and legislative
history. If the Partnership determines that such a position cannot reasonably
be taken, the Partnership may adopt a depreciation and amortization convention
under which all purchasers acquiring Units in the same month would receive
depreciation and amortization deductions, whether attributable to Common Basis
or Section 743(b) basis, based upon the same applicable rate as if they had
purchased a direct interest in the Partnership's property. If such an
aggregate approach is adopted, it may result in lower annual depreciation and
amortization deductions than would otherwise be allowable to certain
Unitholders and risk the loss of depreciation and amortization deductions not
taken in the year that such deductions are otherwise allowable. This
convention will not be adopted if the Partnership determines that the loss of
depreciation and amortization deductions will have a material adverse effect
on the Unitholders. If the Partnership chooses not to utilize this aggregate
method, the Partnership may use any other reasonable depreciation and
amortization convention to preserve the uniformity of the intrinsic tax
characteristics of any Units that would not have a material adverse effect on
the Unitholders. The IRS may challenge any method of depreciating the Section
743(b) adjustment described in this paragraph. If such a challenge were
sustained, the uniformity of Units might be affected, and the gain from the
sale of Units might be increased without the benefit of additional deductions.
See "--Disposition of Common Units--Recognition of Gain or Loss."
TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS
Ownership of Units by employee benefit plans, other tax-exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to such persons and,
as described below, may have substantially adverse tax consequences. Employee
benefit plans and most other organizations exempt from federal income tax
(including individual retirement accounts ("IRAs") and other retirement plans)
are subject to federal income tax on unrelated business taxable income.
Virtually all of the taxable income derived by such an organization from the
ownership of a Unit will be unrelated business taxable income and thus will be
taxable to such a Unitholder.
A regulated investment partnership or "mutual fund" is required to derive
90% or more of its gross income from interest, dividends, gains from the sale
of stocks or securities or foreign currency or certain related sources. It is
not anticipated that any significant amount of the Partnership's gross income
will include that type of income.
Non-resident aliens and foreign corporations, trusts or estates which hold
Units will be considered to be engaged in business in the U.S. on account of
ownership of Units. As a consequence they will be required to file federal tax
returns in respect of their share of Partnership income, gain, loss or
deduction and pay federal income tax at regular rates on any net income or
gain. Generally, a partnership is required to pay a withholding tax on the
portion of the partnership's income which is effectively connected with the
conduct of a U.S. trade or business and which is allocable to the foreign
partners, regardless of whether any actual distributions have been made to
such partners. However, under rules applicable to publicly-traded
partnerships, the Partnership will withhold (currently at the rate of 39.6%)
on actual cash distributions made quarterly to foreign Unitholders. Each
foreign Unitholder must obtain a taxpayer identification number from the IRS
and submit that number to the Transfer Agent of the Partnership on a Form W-8
in order to obtain credit for the taxes withheld. A change in applicable law
may require the Partnership to change these procedures.
Because a foreign corporation which owns Units will be treated as engaged in
a U.S. trade or business, such a corporation may be subject to U.S. branch
profits tax at a rate of 30%, in addition to regular federal income tax, on
its allocable share of the Partnership's income and gain (as adjusted for
changes in the foreign corporation's "U.S. net equity") which are effectively
connected with the conduct of a U.S. trade or business. That tax may be
reduced or eliminated by an income tax treaty between the U.S. and the country
with respect to
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which the foreign corporate Unitholder is a "qualified resident." In addition,
such a Unitholder is subject to special information reporting requirements
under Section 6038C of the Code.
Under a ruling of the IRS a foreign Unitholder who sells or otherwise
disposes of a Unit will be subject to federal income tax on gain realized on
the disposition of such Unit to the extent that such gain is effectively
connected with a U.S. trade or business of the foreign Unitholder. Apart from
the ruling, a foreign Unitholder will not be taxed or subject to withholding
upon the disposition of a Unit if that foreign Unitholder has held less than
5% in value of the Units during the five-year period ending on the date of the
disposition and if the Units are regularly traded on an established securities
market at the time of the disposition.
ADMINISTRATIVE MATTERS
Partnership Information Returns and Audit Procedures
The Partnership intends to furnish to each Unitholder, within 90 days after
the close of each calendar year, certain tax information, including a Schedule
K-1, which sets forth each Unitholder's share of the Partnership's income,
gain, loss and deduction for the preceding Partnership taxable year. In
preparing this information, which will generally not be reviewed by counsel,
the Partnership will use various accounting and reporting conventions, some of
which have been mentioned in the previous discussion, to determine the
Unitholder's share of income, gain, loss and deduction. There is no assurance
that any of those conventions will yield a result which conforms to the
requirements of the Code, regulations or administrative interpretations of the
IRS. The Partnership cannot assure prospective Unitholders that the IRS will
not successfully contend in court that such accounting and reporting
conventions are impermissible. Any such challenge by the IRS could negatively
affect the value of the Units.
The federal income tax information returns filed by the Partnership may be
audited by the IRS. Adjustments resulting from any such audit may require each
Unitholder to adjust a prior year's tax liability, and possibly may result in
an audit of the Unitholder's own return. Any audit of a Unitholder's return
could result in adjustments of non-Partnership as well as Partnership items.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS
and tax settlement proceedings. The tax treatment of partnership items of
income, gain, loss and deduction are determined in a partnership proceeding
rather than in separate proceedings with the partners. The Code provides for
one partner to be designated as the "Tax Matters Partner" for these purposes.
The Partnership Agreement appoints the General Partner as the Tax Matters
Partner of the Partnership.
The Tax Matters Partner will make certain elections on behalf of the
Partnership and Unitholders and can extend the statute of limitations for
assessment of tax deficiencies against Unitholders with respect to Partnership
items. The Tax Matters Partner may bind a Unitholder with less than a 1%
profits interest in the Partnership to a settlement with the IRS unless that
Unitholder elects, by filing a statement with the IRS, not to give such
authority to the Tax Matters Partner. The Tax Matters Partner may seek
judicial review (by which all the Unitholders are bound) of a final
partnership administrative adjustment and, if the Tax Matters Partner fails to
seek judicial review, such review may be sought by any Unitholder having at
least a 1% interest in the profits of the Partnership and by the Unitholders
having in the aggregate at least a 5% profits interest. However, only one
action for judicial review will go forward, and each Unitholder with an
interest in the outcome may participate. However, if the Partnership elects to
be treated as a large partnership, a partner will not have the right to
participate in settlement conferences with the IRS or to seek a refund.
A Unitholder must file a statement with the IRS identifying the treatment of
any item on his federal income tax return that is not consistent with the
treatment of the item on the Partnership's return. Intentional or negligent
disregard of the consistency requirement may subject a Unitholder to
substantial penalties. However, if the Partnership elects to be treated as a
large partnership, its partners would be required to treat all Partnership
items in a manner consistent with the Partnership return.
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If the Partnership elects to be treated as a large partnership, each partner
would take into account separately his share of the following items,
determined at the partnership level: (1) taxable income or loss from passive
loss limitation activities; (2) taxable income or loss from other activities
(such as portfolio income or loss); (3) net capital gains to the extent
allocable to passive loss limitation activities and other activities; (4) tax
exempt interest; (5) a net alternative minimum tax adjustment separately
computed for passive loss limitation activities and other activities; (6)
general credits; (7) low-income housing credit; (8) rehabilitation credit; (9)
foreign income taxes; (10) credit for producing fuel from a nonconventional
source; and (11) any other items the Secretary of Treasury deems appropriate.
Moreover, miscellaneous itemized deductions would not be passed through to the
partners and 30% of such deductions would be used at the partnership level.
A number of other changes to the tax compliance and administrative rules
relating to electing large partnerships have been made. One provision requires
that each partner in a large partnership, such as the Partnership, take into
account his share of any adjustments to partnership items in the year such
adjustments are made. Under prior law, adjustments relating to partnership
items for a previous taxable year were taken into account by those persons who
were partners in the previous taxable year. Alternatively, a partnership could
elect to or, in some circumstances, could be required to directly pay the tax
resulting from any such adjustments. In either case, therefore, Unitholders
could bear significant economic burdens associated with tax adjustments
relating to periods predating their acquisition of Units. It is not expected
that the Partnership will elect to have the large partnership provisions apply
because of the cost of their application.
Nominee Reporting
Persons who hold an interest in the Partnership as a nominee for another
person are required to furnish to the Partnership (a) the name, address and
taxpayer identification number of the beneficial owner and the nominee; (b)
whether the beneficial owner is (i) a person that is not a U.S. person, (ii) a
foreign government, an international organization or any wholly-owned agency
or instrumentality of either of the foregoing, or (iii) a tax-exempt entity;
(c) the amount and description of Units held, acquired or transferred for the
beneficial owner; and (d) certain information including the dates of
acquisitions and transfers, means of acquisitions and transfers, and
acquisition cost for purchases, as well as the amount of net proceeds from
sales. Brokers and financial institutions are required to furnish additional
information, including whether they are U.S. persons and certain information
on Units they acquire, hold or transfer for their own account. A penalty of
$50 per failure (up to a maximum of $100,000 per calendar year) is imposed by
the Code for failure to report such information to the Partnership. The
nominee is required to supply the beneficial owner of the Units with the
information furnished to the Partnership.
Registration as a Tax Shelter
The Code requires that "tax shelters" be registered with the Secretary of
the Treasury. The temporary Treasury Regulations interpreting the tax shelter
registration provisions of the Code are extremely broad. It is arguable that
the Partnership is not subject to the registration requirement on the basis
that it will not constitute a tax shelter. However, the General Partner, as a
principal organizer of the Partnership, will register the Partnership as a tax
shelter with the Secretary of the Treasury in the absence of assurance that
the Partnership will not be subject to tax shelter registration and in light
of the substantial penalties which might be imposed if registration is
required and not undertaken. ISSUANCE OF THE REGISTRATION NUMBER DOES NOT
INDICATE THAT AN INVESTMENT IN THE PARTNERSHIP OR THE CLAIMED TAX BENEFITS
HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS. The Partnership must
furnish the registration number to the Unitholders, and a Unitholder who sells
or otherwise transfers a Unit in a subsequent transaction must furnish the
registration number to the transferee. The penalty for failure of the
transferor of a Unit to furnish the registration number to the transferee is
$100 for each such failure. The Unitholders must disclose the tax shelter
registration number of the Partnership on Form 8271 to be attached to the tax
return on which any deduction, loss or other benefit generated by the
Partnership is claimed or income of the Partnership is included. A Unitholder
who fails to disclose the tax shelter registration number on his return,
without reasonable cause for
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that failure, will be subject to a $250 penalty for each failure. Any
penalties discussed herein are not deductible for federal income tax purposes.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an
underpayment of tax which is attributable to one or more of certain listed
causes, including negligence or disregard of rules or regulations, substantial
understatements of income tax and substantial valuation misstatements, is
imposed by the Code. No penalty will be imposed, however, with respect to any
portion of an underpayment if it is shown that there was a reasonable cause
for that portion and that the taxpayer acted in good faith with respect to
that portion.
A substantial understatement of income tax in any taxable year exists if the
amount of the understatement exceeds the greater of 10% of the tax required to
be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally
is reduced if any portion is attributable to a position adopted on the return
(i) with respect to which there is, or was, "substantial authority" or (ii) as
to which there is a reasonable basis and the pertinent facts of such position
are disclosed on the return. Certain more stringent rules apply to "tax
shelters," a term that in this context does not appear to include the
Partnership. If any Partnership item of income, gain, loss or deduction
included in the distributive shares of Unitholders might result in such an
"understatement" of income for which no "substantial authority" exists, the
Partnership must disclose the pertinent facts on its return. In addition, the
Partnership will make a reasonable effort to furnish sufficient information
for Unitholders to make adequate disclosure on their returns to avoid
liability for this penalty.
A substantial valuation misstatement exists if the value of any property (or
the adjusted basis of any property) claimed on a tax return is 200% or more of
the amount determined to be the correct amount of such valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds $5,000 ($10,000
for most corporations). If the valuation claimed on a return is 400% or more
than the correct valuation, the penalty imposed increases to 40%.
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
In addition to federal income taxes, Unitholders will be subject to other
taxes, such as state and local income taxes, unincorporated business taxes,
and estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which the Partnership does business or owns property.
Although an analysis of those various taxes is not presented here, each
prospective Unitholder should consider their potential impact on his
investment in the Partnership. The Partnership will initially own property and
conduct business in Arizona, California, Oklahoma, Kansas, New Mexico,
Illinois, Texas, Louisiana, Alabama, Mississippi and Florida. Of those, only
Texas and Florida do not currently impose a personal income tax. A Unitholder
will be required to file state income tax returns and to pay state income
taxes in some or all of the states in which the Partnership does business or
owns property and may be subject to penalties for failure to comply with those
requirements. In certain states, tax losses may not produce a tax benefit in
the year incurred (if, for example, the Partnership has no income from sources
within that state) and also may not be available to offset income in
subsequent taxable years. Some of the states may require the Partnership, or
the Partnership may elect, to withhold a percentage of income from amounts to
be distributed to a Unitholder who is not a resident of the state.
Withholding, the amount of which may be greater or less than a particular
Unitholder's income tax liability to the state, generally does not relieve the
non-resident Unitholder from the obligation to file an income tax return.
Amounts withheld may be treated as if distributed to Unitholders for purposes
of determining the amounts distributed by the Partnership. See "--Disposition
of Common Units--Entity-Level Collections." Based on current law and its
estimate of future Partnership operations, the General Partner anticipates
that any amounts required to be withheld will not be material.
It is the responsibility of each Unitholder to investigate the legal and tax
consequences, under the laws of pertinent states and localities, of his
investment in the Partnership. Accordingly, each prospective Unitholder
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should consult, and must depend upon, his own tax counsel or other advisor
with regard to those matters. Further, it is the responsibility of each
Unitholder to file all state and local, as well as U.S. federal, tax returns
that may be required of such Unitholder. Counsel has not rendered an opinion
on the state or local tax consequences of an investment in the Partnership.
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INVESTMENT IN THE PARTNERSHIP BY EMPLOYEE BENEFIT PLANS
An investment in the Partnership by an employee benefit plan is subject to
certain additional considerations because the investments of such plans are
subject to the fiduciary responsibility and prohibited transaction provisions
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and restrictions imposed by Section 4975 of the Code. As used herein, the term
"employee benefit plan" includes, but is not limited to, qualified pension,
profit-sharing and stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or IRAs established or maintained by an
employer or employee organization. Among other things, consideration should be
given to (a) whether such investment is prudent under Section 404(a)(1)(B) of
ERISA; (b) whether in making such investment, such plan will satisfy the
diversification requirement of Section 404(a)(1)(C) of ERISA; and (c) whether
such investment will result in recognition of unrelated business taxable
income by such plan and, if so, the potential after-tax investment return. See
"Tax Considerations--Uniformity of Units--Tax-Exempt Organizations and Certain
Other Investors." The person with investment discretion with respect to the
assets of an employee benefit plan (a "fiduciary") should determine whether an
investment in the Partnership is authorized by the appropriate governing
instrument and is a proper investment for such plan.
Section 406 of ERISA and Section 4975 of the Code (which also applies to
IRAs that are not considered part of an employee benefit plan) prohibit an
employee benefit plan from engaging in certain transactions involving "plan
assets" with parties that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the plan.
In addition to considering whether the purchase of Common Units is a
prohibited transaction, a fiduciary of an employee benefit plan should
consider whether such plan will, by investing in the Partnership, be deemed to
own an undivided interest in the assets of the Partnership, with the result
that the General Partner also would be a fiduciary of such plan and the
operations of the Partnership would be subject to the regulatory restrictions
of ERISA, including its prohibited transaction rules, as well as the
prohibited transaction rules of the Code.
The Department of Labor regulations provide guidance with respect to whether
the assets of an entity in which employee benefit plans acquire equity
interests would be deemed "plan assets" under certain circumstances. Pursuant
to these regulations, an entity's assets would not be considered to be "plan
assets" if, among other things, (a) the equity interest acquired by employee
benefit plans are publicly offered securities-- i.e., the equity interests are
widely held by 100 or more investors independent of the issuer and each other,
freely transferable and registered pursuant to certain provisions of the
federal securities laws, (b) the entity is an "Operating Partnership"--i.e.,
it is primarily engaged in the production or sale of a product or service
other than the investment of capital either directly or through a majority
owned subsidiary or subsidiaries, or (c) there is no significant investment by
benefit plan investors, which is defined to mean that less than 25% of the
value of each class of equity interest (disregarding certain interests held by
the General Partner, its affiliates, and certain other persons) is held by the
employee benefit plans referred to above, IRAs and other employee benefit
plans not subject to ERISA (such as governmental plans). The Partnership's
assets should not be considered "plan assets" under these regulations because
it is expected that the investment will satisfy the requirements in (a) and
(b) above and may also satisfy the requirements in (c).
Plan fiduciaries contemplating a purchase of Common Units should consult
with their own counsel regarding the consequences under ERISA and the Code in
light of the serious penalties imposed on persons who engage in prohibited
transactions or other violations.
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UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Partnership has agreed to sell to each of the Underwriters named below, and
each of the Underwriters has severally agreed to purchase from the
Partnership, the number of Common Units set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER COMMON UNITS
----------- ------------
<S> <C>
Salomon Smith Barney Inc. ...................................
PaineWebber Incorporated.....................................
A.G. Edwards & Sons, Inc. ...................................
Donaldson, Lufkin & Jenrette Securities Corporation..........
Goldman, Sachs & Co. ........................................
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated....................
ING Baring Furman Selz LLC...................................
----------
Total...................................................... 12,782,609
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Common Units offered hereby
are subject to approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are obligated to take and pay for
all Common Units offered hereby (other than those covered by the Underwriters'
over-allotment option described below) if any such Common Units are taken.
The Underwriters, for whom Salomon Smith Barney Inc., PaineWebber
Incorporated, A.G. Edwards & Sons, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, Goldman, Sachs & Co., Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, and ING Baring Furman Selz LLC are
acting as Representatives (the "Representatives"), propose to offer part of
the Common Units directly to the public at the offering price set forth on the
cover page of this Prospectus and part of such Common Units to certain dealers
at such price less a concession not in excess of $ per Common Unit. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per Common Unit to other Underwriters or to certain other
dealers. After the initial offering of the Common Units to the public, the
offering price and other selling terms may from time to time be varied by the
Representatives. The Representatives have informed the Partnership that the
Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority without the prior written approval of the
transaction by the customer.
The Partnership has granted to the Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to 1,917,391
additional Common Units at the Price to Public set forth on the cover page of
this Prospectus, minus the underwriting discounts and commissions. To the
extent such option is exercised by the Underwriters, the Partnership will use
the net proceeds received therefrom to redeem Common Units from the General
Partner and its affiliates equal to the number of Common Units issued upon the
exercise of such option. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, made in connection with the
offering of the Common Units offered hereby. To the extent such option is
exercised, each Underwriter will be obligated, subject to certain conditions,
to purchase approximately the same percentage of such additional Common Units
as the number of Common Units set forth opposite such Underwriter's name in
the preceding table bears to the total number of Common Units listed in such
table.
In connection with this offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Units than the total amount
shown on the list of Underwriters that appears above) and may effect
transactions that stabilize, maintain or otherwise affect the market price of
the Common Units at levels above those that might otherwise prevail in the
open market. Such transactions may include placing bids for the
141
<PAGE>
Common Units or effecting purchases of the Common Units for the purposes of
pegging, fixing or maintaining the price of the Common Units or for the
purpose of reducing a syndicate short position created in connection with the
offering. In addition, the contractual arrangements among the Underwriters
include a provision whereby, if the Representatives purchase Common Units in
the open market for the account of the underwriting syndicate and the Common
Units purchased can be traced to a particular Underwriter or member of the
selling group, the underwriting syndicate may impose a "penalty bid" whereby
it may require the Underwriter or selling group member in question to purchase
the Common Units in question at the cost price to the syndicate or may recover
from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the Common Units in question. As
a result, an Underwriter or selling group member and, in turn, brokers, may
lose the fees that they otherwise would have earned from a sale of the Common
Units if their customer resells the Common Units while the penalty bid is in
effect. The Underwriters are not required to engage in any of these activities
and any such activities, if commenced, may be discontinued at any time.
The Partnership, the Operating Partnership, the General Partner, Plains
Resources and the officers and directors of the General Partner have agreed
not to (i) offer, sell, contract to sell or otherwise dispose of any Common
Units or Subordinated Units, any securities that are convertible into, or
exercisable or exchangeable for, or that represent the right to receive,
Common Units or Subordinated Units or any securities that are senior to or
pari passu with Common Units, or (ii) grant any options or warrants to
purchase Common Units or Subordinated Units (other than the grant of Unit
Options or Restricted Units pursuant to the Long-Term Incentive Plan), for a
period of 180 days after the date of this Prospectus without the prior written
consent of Salomon Smith Barney Inc., except for issuances of Common Units in
connection with certain Acquisitions or Capital Improvements that are
accretive on a per Unit basis.
Prior to this offering, there has been no public market for the Common Units
of the Partnership. Consequently, the initial public offering price has been
determined by negotiations between the General Partner and the
Representatives. Among the factors considered in determining the initial
public offering price were the history of and prospects for the Partnership's
business and the industry in which it competes, an assessment of the
Partnership's management and the present state of the Partnership's
development, the past and present revenues, earnings and cash flows of the
Partnership, the prospects for growth of the Partnership's revenues, earnings
and cash flows, the current state of the economy in the United States and the
current level of economic activity in the industry in which the Partnership
competes and in related or comparable industries, and currently prevailing
conditions in the securities markets, including current market valuations of
publicly traded companies which are comparable to the Partnership.
The Common Units have been approved for listing on the NYSE, under the
symbol "PAA".
Because the National Association for Securities Dealers, Inc. ("NASD") views
the Common Units offered hereby as interests in a direct participation
program, the offering is being made in compliance with Rule 2810 of the NASD's
Conduct Rules. Investor suitability with respect to the Common Units should be
judged similarly to the suitability with respect to other securities that are
listed for trading on a national securities exchange.
The provisions of Rule 2710(c)(8) of the NASD's Conduct Rules apply to this
offering because more than 10% of the net proceeds of this offering will be
paid to ING (U.S.) Capital Corporation, which is an affiliate of ING Barings
Furman Selz LLC, as agent for loans entered into to finance the acquisition of
the Wingfoot entities. Rule 2710(c)(8) requires, among other things, that the
initial public offering price be no higher than that recommended by a
"qualified independent underwriter," who must participate in the preparation
of the registration statement and the prospectus and who must exercise the
usual standards of "due diligence" with respect thereto. Salomon Smith Barney
Inc. is acting as a qualified independent underwriter in this offering and the
initial public offering price of the Common Units will not be higher than the
price recommended by Salomon Smith Barney Inc., which price will be determined
based on the factors discussed above.
The Partnership, the Operating Partnership, the General Partner and Plains
Resources have agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act.
142
<PAGE>
VALIDITY OF THE COMMON UNITS
The validity of the Common Units will be passed upon for the Partnership by
Andrews & Kurth L.L.P., Houston, Texas. Certain legal matters in connection
with the Common Units offered hereby are being passed upon for the
Underwriters by Baker & Botts, L.L.P., Houston, Texas.
EXPERTS
The combined financial statements of the Plains Midstream Subsidiaries as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Wingfoot Ventures Seven, Inc. as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997 included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The balance sheet of Plains All American Inc. as of June 30, 1998 included
in this Prospectus has been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The balance sheet of the Partnership as of October 30, 1998 included in this
Prospectus has been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The pro forma consolidated income statement of the Partnership for the year
ended December 31, 1997 included in this Prospectus has been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in performing examinations of
pro forma financial information in accordance with standards established by
the American Institute of Certified Public Accountants.
With respect to the unaudited historical combined financial information of
the Plains Midstream Subsidiaries as of September 30, 1998 and for the nine
month periods ended September 30, 1997 and 1998, the unaudited historical
consolidated financial information of Wingfoot Ventures Seven, Inc. as of June
30, 1998 and for the six month periods ended June 30, 1997 and 1998, the
unaudited pro forma consolidated balance sheet of the Partnership as of
September 30, 1998 and the related unaudited pro forma consolidated income
statements for the nine month periods ended September 30, 1997 and 1998,
included in this Prospectus, PricewaterhouseCoopers LLP reported that they
have applied limited procedures in accordance with professional standards for
a review of such information. However, their separate reports dated September
16, 1998, September 23, 1998 and October 31, 1998, respectively, appearing
herein state that they did not audit and they do not express an opinion on the
unaudited historical interim combined financial information or the unaudited
pro forma consolidated financial information as of September 30, 1998 and for
the nine month periods ended September 30, 1997 and 1998 or the unaudited
historical interim consolidated financial information as of June 30, 1998 and
for the six month periods ended June 30, 1997 and 1998. PricewaterhouseCoopers
LLP has not carried out any significant or additional audit tests beyond those
which would have been necessary if their reports had not been included.
Accordingly, the degree of reliance on their reports on such information
should be restricted in light of the limited nature of the review procedures
applied. PricewaterhouseCoopers LLP is not subject to the liability provisions
of Section 11 of the Securities Act for their reports on the unaudited
historical interim combined financial information, unaudited historical
consolidated financial information and on the unaudited pro forma consolidated
financial information because those reports are not a "report" or a "part" of
the registration statement prepared or certified by PricewaterhouseCoopers LLP
within the meaning of Sections 7 and 11 of the Securities Act.
143
<PAGE>
AVAILABLE INFORMATION
The Partnership has not previously been subject to the informational
requirements of the Exchange Act. The Partnership has filed with the
Commission a Registration Statement on Form S-1 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Units offered hereby. This Prospectus, which constitutes
a part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement, certain items of which are contained
in exhibits and schedules to the Registration Statement as permitted by the
rules and regulations of the Commission. For further information with respect
to the Partnership and the Common Units offered hereby, reference is made to
the Registration Statement, including the exhibits and schedules thereto.
Statements made in this Prospectus concerning the contents of any contract,
agreement or other document are not necessarily complete; with respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement is qualified in
its entirety by such reference. The Registration Statement and the exhibits
and schedules thereto filed with the Commission by the Partnership may be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained upon written
request from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates or
from the Commission's Web site on the Internet at http://www.sec.gov.
144
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PLAINS ALL AMERICAN PIPELINE, L.P.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants on Review of Pro Forma Consolidated
Financial Information................................................. F-2
Report of Independent Accountants on Examination of Pro Forma
Consolidated Financial Information.................................... F-3
Introduction........................................................... F-4
Pro Forma Consolidated Balance Sheet as of September 30, 1998.......... F-5
Pro Forma Consolidated Income Statement for the nine months ended
September 30, 1998.................................................... F-6
Pro Forma Consolidated Income Statement for the nine months ended
September 30, 1997.................................................... F-7
Pro Forma Consolidated Income Statement for the year ended December 31,
1997.................................................................. F-8
Notes to Pro Forma Consolidated Financial Statements................... F-9
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
UNAUDITED COMBINED INTERIM FINANCIAL STATEMENTS:
Independent Accountants' Report........................................ F-12
Combined Balance Sheets as of December 31, 1997 and September 30, 1998. F-13
Combined Statements of Income for the nine months ended September 30,
1997 and 1998......................................................... F-14
Combined Statements of Cash Flows for the nine months ended September
30, 1997 and 1998..................................................... F-15
Notes to Combined Financial Statements................................. F-16
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
COMBINED FINANCIAL STATEMENTS:
Report of Independent Accountants...................................... F-19
Combined Balance Sheets as of December 31, 1996 and 1997............... F-20
Combined Statements of Operations and Combined Equity for the years
ended December 31, 1995, 1996, and 1997............................... F-21
Combined Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997................................................... F-22
Notes to Combined Financial Statements................................. F-23
WINGFOOT VENTURES SEVEN, INC.
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS:
Independent Accountants' Report........................................ F-29
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998.. F-30
Consolidated Statements of Income for the six months ended June 30,
1997 and 1998......................................................... F-31
Consolidated Statements of Cash Flows for the six months ended June 30,
1997 and 1998......................................................... F-32
Notes to Consolidated Financial Statements............................. F-33
WINGFOOT VENTURES SEVEN, INC.
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants...................................... F-34
Consolidated Balance Sheets as of December 31, 1996 and 1997........... F-35
Consolidated Statements of Operations and Accumulated Deficit for the
years ended December 31, 1995, 1996 and 1997.......................... F-36
Consolidated Statements of Cash Flows for the years ended December 31,
1995,
1996 and 1997......................................................... F-37
Notes to Consolidated Financial Statements............................. F-38
PLAINS ALL AMERICAN INC.:
Report of Independent Accountants...................................... F-48
Consolidated Balance Sheets as of June 30, 1998 and September 30, 1998. F-49
Note to Consolidated Financial Statement............................... F-50
PLAINS ALL AMERICAN PIPELINE, L.P.:
Report of Independent Accountants...................................... F-51
Balance Sheet as of October 30, 1998................................... F-52
Notes to Balance Sheet................................................. F-53
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON REVIEW OF
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
To the Board of Directors and Stockholders of
Plains Resources Inc.
We have reviewed the pro forma and offering adjustments reflecting the
offering, formation and related transactions described in the Notes to Pro
Forma Consolidated Financial Statements and application of those adjustments
to the historical amounts in the accompanying unaudited pro forma consolidated
balance sheet of Plains All American Pipeline, L.P., as of September 30, 1998
and the unaudited pro forma consolidated income statements for the nine months
ended September 30, 1997 and 1998. The historical combined balance sheet as of
September 30, 1998 and the historical combined income statements for the nine
months ended September 30, 1997 and 1998 are derived from the historical
unaudited combined financial statements of Plains Resources Inc. Midstream
Subsidiaries, which were reviewed by us, appearing elsewhere herein. The
historical unaudited consolidated income statements for the six months ended
June 30, 1997 and 1998 are derived from the historical unaudited consolidated
financial statements of Wingfoot Ventures Seven, Inc., which were reviewed by
us, appearing elsewhere herein. Such pro forma and offering adjustments are
based upon management's assumptions as described in the Notes to Pro Forma
Consolidated Financial Statements. Our review was made in accordance with
standards established by the American Institute of Certified Public
Accountants.
A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on management's assumptions, the pro
forma adjustments and the application of those adjustments to historical
financial information. Accordingly, we do not express an opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been
had the offering, formation and related transactions occurred at an earlier
date. However, the pro forma consolidated financial statements are not
necessarily indicative of the results of operations or related effects on
financial position that would have been attained had the above-mentioned
offering, formation and related transactions actually occurred earlier.
Based on our review, nothing came to our attention that caused us to believe
that management's assumptions do not provide a reasonable basis for presenting
the significant effects directly attributable to the above-mentioned offering,
formation and related transactions described in the Notes to Pro Forma
Consolidated Financial Statements, that the related pro forma and offering
adjustments do not give appropriate effect to those assumptions, or that the
pro forma as adjusted column does not reflect the proper application of those
adjustments to the historical financial statement amounts in the pro forma
consolidated balance sheet as of September 30, 1998, and the pro forma
consolidated income statements for the nine months ended September 30, 1997
and 1998.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
October 31, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON EXAMINATION OF
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
To the Board of Directors and Stockholders of
Plains Resources Inc.
We have examined the pro forma and offering adjustments reflecting the
offering, formation and related transactions described in the Notes to Pro
Forma Consolidated Financial Statements and the application of those
adjustments to the historical amounts in the accompanying unaudited pro forma
consolidated income statement of Plains All American Pipeline, L.P., for the
year ended December 31, 1997. This historical consolidated income statement
for the year ended December 31, 1997 is derived from the historical combined
statement of operations for the year ended December 31, 1997 of Plains
Resources Inc. Midstream Subsidiaries and the historical consolidated
statement of operations for the year ended December 31, 1997 of Wingfoot
Ventures Seven, Inc., which were audited by us, appearing elsewhere herein.
Such pro forma and offering adjustments are based upon management's
assumptions as described in the Notes to Pro Forma Consolidated Financial
Statements. Our examination was made in accordance with standards established
by the American Institute of Certified Public Accountants and, accordingly,
included such procedures as we considered necessary in the circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been
had the offering, formation and related transactions occurred at an earlier
date. However, the pro forma consolidated income statement is not necessarily
indicative of the results of operations that would have been attained had the
above-mentioned offering, formation and related transactions actually occurred
earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-
mentioned offering, formation and related transactions described in the Notes
to Pro Forma Consolidated Financial Statements, the related pro forma and
offering adjustments give appropriate effect to those assumptions, and the pro
forma as adjusted column reflects the proper application of those adjustments
to the historical consolidated income statement amounts in the pro forma
consolidated income statement for the year ended December 31, 1997.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
October 31, 1998
F-3
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
PLAINS ALL AMERICAN PIPELINE, L.P.
The following pro forma consolidated financial statements are based upon the
historical financial statements of the Plains Resources Inc. Midstream
Subsidiaries (the "Plains Midstream Subsidiaries"), comprised of wholly owned
subsidiaries of Plains Resources Inc. ("Plains Resources"), including Plains
All American Inc. (the "General Partner"), and Wingfoot Ventures Seven, Inc.
("Wingfoot"), a wholly owned subsidiary of The Goodyear Tire & Rubber Company
("Goodyear"). The September 30, 1998 financial statements of the Plains
Midstream Subsidiaries reflect the July 30, 1998 acquisition (the
"Acquisition") of all of the outstanding capital stock of the All American
Pipeline Company, Celeron Gathering Corporation and Celeron Trading &
Transportation Company (collectively, the "Celeron Companies," which comprise
substantially all of Wingfoot) from Wingfoot for approximately $400 million in
cash, which was financed in part through a borrowing of $300 million under the
Plains Midstream Subsidiaries' $325 million limited recourse bank facility
(the "Plains Midstream Credit Facility") (a portion of which funded initial
working capital) and a capital contribution of $114 million from Plains
Resources. The Acquisition was accounted for by the Plains Midstream
Subsidiaries using the purchase method of accounting.
The pro forma consolidated financial statements reflect the acquisition and
the following transactions to occur concurrently with, or at the closing of,
the offering of the Common Units made hereby (the "Transactions" and the
"Offering," respectively): (i) the Plains Midstream Subsidiaries will be
merged into Plains Resources, which will sell the assets of these subsidiaries
to the Partnership in exchange for $93.7 million and related indebtedness,
(ii) the General Partner will convey all of its interest in the All American
Pipeline and the SJV Gathering System to the Partnership in exchange for
Units, (iii) the public offering by Plains All American Pipeline, L.P. (the
"Partnership") of 12,782,609 Common Units at an assumed initial public
offering price of $20.00 per Common Unit resulting in aggregate net proceeds
to the Partnership of $236.0 million, net of underwriters' discounts and
commissions and offering expenses, and (iv) the distribution of $142.3 million
to the General Partner. Following these Transactions, the General Partner and
its affiliates will hold, in the aggregate, 6,817,391 Common Units, 9,800,000
Subordinated Units, a 2% general partner interest in the Partnership and the
right to receive Incentive Distributions. In addition, the Partnership will
assume approximately $175 million in debt from the General Partner incurred in
connection with the purchase of the All American Pipeline and the SJV
Gathering System. The Partnership will not assume $110 million of Bank Debt
and $29.7 million of long-term Intercompany Payable to Affiliates of the
Plains Midstream Subsidiaries.
The pro forma and Offering adjustments are based upon currently available
information and certain estimates and assumptions, and therefore, the actual
adjustments may differ from the unaudited pro forma and Offering adjustments.
However, management believes that the assumptions provide a reasonable basis
for presenting the significant effects of the transactions as contemplated and
that the unaudited pro forma and Offering adjustments give appropriate effect
to those assumptions and are properly applied in the unaudited pro forma
consolidated financial statements. The pro forma consolidated financial
statements do not purport to present the financial position or results of
operations of the Partnership had the Transactions to be effected at the
closing of this Offering actually been completed as of the dates indicated. In
addition, the pro forma consolidated financial statements are not necessarily
indicative of the results of future operations of the Partnership and should
be read in conjunction with the historical financial statements of the Plains
Midstream Subsidiaries and Wingfoot appearing elsewhere in this Prospectus.
The following pro forma and Offering adjustments have been prepared as if
the Transactions and Offering had taken place on September 30, 1998, in the
case of the Pro Forma Consolidated Balance Sheet or as of January 1, 1997, in
the case of the Pro Forma Consolidated Income Statements for the year ended
December 31, 1997 and the nine months ended September 30, 1997 and 1998.
F-4
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO
PLAINS PRO FORMA PRO OFFERING FORMA AS
MIDSTREAM ADJUSTMENTS FORMA ADJUSTMENTS ADJUSTED
---------- ----------- -------- ----------- --------
ASSETS
------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash
equivalents............. $ 9,986 $ $ 9,986 $236,035 L $ 9,986
(142,335)N
(93,700)M
Accounts receivable...... 110,027 110,027 110,027
Inventory................ 24,691 24,691 24,691
Other.................... 1,350 1,350 1,350
-------- -------- -------- -------- --------
Total current assets..... 146,054 -- 146,054 -- 146,054
-------- -------- -------- -------- --------
PROPERTY AND EQUIPMENT... 433,479 (32,667)G 394,752 32,667 M 427,419
(6,060)H
Less accumulated
depreciation............ (6,060) 6,060 H -- --
-------- -------- -------- -------- --------
427,419 (32,667) 394,752 32,667 427,419
-------- -------- -------- -------- --------
OTHER ASSETS............. 8,095 8,095 8,095
-------- -------- -------- -------- --------
$581,568 $(32,667) $548,901 $32,667 $581,568
======== ======== ======== ======== ========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable and
accrued liabilities..... $112,657 $112,657 $112,657
Notes payable............ 11,500 11,500 11,500
Intercompany payable to
affiliates.............. 11,739 $ (2,237)H 9,502 9,502
Accrued interest payable. 4,395 4,395 4,395
-------- -------- -------- -------- --------
Total current
liabilities............. 140,291 (2,237) 138,054 -- 138,054
LONG-TERM LIABILITIES
Bank debt................ 285,000 (110,000)H 175,000 175,000
Intercompany payable to
affiliates.............. 29,681 (29,681)H -- -- --
Payable in lieu of
deferred taxes.......... 3,966 (3,966)I --
-------- -------- -------- -------- --------
Total liabilities........ 458,938 (145,884) 313,054 -- 313,054
-------- -------- -------- -------- --------
COMBINED EQUITY.......... 122,630 (32,667)G -- --
(93,929)H
3,966 I
-------- -------- -------- -------- --------
122,630 (122,630) -- -- --
-------- -------- -------- -------- --------
PARTNERS' EQUITY
Common Units............. -- 93,369 H 93,369 236,035 L 305,242
(24,162)M
Subordinated Units....... -- 134,259 H 134,259 (34,744)M 99,515
General Partner Interest. -- 8,219 H 8,219 (2,127)M (136,243)
(142,335)N
-------- -------- -------- -------- --------
-- 235,847 235,847 32,667 268,514
-------- -------- -------- -------- --------
$581,568 $(32,667) $548,901 $ 32,667 $581,568
======== ======== ======== ======== ========
</TABLE>
See notes to pro forma consolidated financial statements.
F-5
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
PLAINS
MIDSTREAM
SUBSIDIARIES WINGFOOT
------------- ----------
NINE MONTHS
ENDED SIX MONTHS PRO FORMA
SEPTEMBER 30, ENDED JUNE PRO FORMA OFFERING AS
1998 30, 1998 ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
------------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $755,653 $374,654 $ 62,995 A $1,193,302 $1,346 O $1,194,648
COST OF SALES AND
OPERATIONS............. 732,539 344,538 59,962 A 1,136,062 1,136,062
(977)F
-------- -------- -------- ---------- ------ ----------
Gross margin............ 23,114 30,116 4,010 57,240 1,346 58,586
EXPENSES
General and
administrative......... 3,561 1,053 151 A 4,765 4,765
Depreciation and
amortization........... 2,605 6,808 1,025 A 8,067 8,067
(7,833)B
5,462 C
-------- -------- -------- ---------- ------ ----------
Operating income........ 16,948 22,255 5,205 44,408 1,346 45,754
Related party interest
expense................ 2,250 21,929 (21,929)D -- --
(2,250)J
Interest expense........ 4,952 -- (4,347)J 10,722 10,722
10,117 K
Interest and other
income................. 647 -- 5 A 652 652
-------- -------- -------- ---------- ------ ----------
NET INCOME BEFORE INCOME
TAXES.................. 10,393 326 23,619 34,338 1,346 35,684
Provision in lieu of
income taxes........... 3,881 84 419 A -- --
(4,384)I
-------- -------- -------- ---------- ------ ----------
NET INCOME.............. $ 6,512 $ 242 $ 27,584 $ 34,338 $1,346 $ 35,684
======== ======== ======== ========== ====== ==========
Net income per Unit..... $ 1.19
==========
</TABLE>
See notes to pro forma consolidated financial statements.
F-6
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
PLAINS
MIDSTREAM
SUBSIDIARIES WINGFOOT
------------- ----------
NINE MONTHS
ENDED SIX MONTHS
SEPTEMBER 30, ENDED JUNE PRO FORMA OFFERING PRO FORMA
1997 30, 1997 ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $536,332 $541,698 $204,872 A $1,282,902 $1,200 O $1,284,102
COST OF SALES AND
OPERATIONS............. 527,477 503,085 187,694 A 1,217,572 1,217,572
293 E
(977)F
-------- -------- -------- ---------- ------ ----------
Gross margin............ 8,855 38,613 17,862 65,330 1,200 66,530
EXPENSES
General and
administrative......... 2,617 1,603 494 A 4,628 4,628
(86)E
Depreciation and
amortization........... 873 8,145 4,073 A 7,887 7,887
(12,218)B
7,014 C
-------- -------- -------- ---------- ------ ----------
Operating income........ 5,365 28,865 18,585 52,815 1,200 54,015
Related party interest
expense................ 2,253 25,112 14,119 A -- --
(39,231)D
(2,253)J
Interest expense........ 564 -- 10,117 K 10,681 10,681
Interest and other in-
come................... 105 -- -- 105 105
-------- -------- -------- ---------- ------ ----------
NET INCOME BEFORE INCOME
TAXES.................. 2,653 3,753 35,833 42,239 1,200 43,439
Provision in lieu of in-
come taxes............. 951 572 285 A -- --
(1,808)I
-------- -------- -------- ---------- ------ ----------
NET INCOME.............. $ 1,702 $ 3,181 $ 37,356 $ 42,239 $1,200 $ 43,439
======== ======== ======== ========== ====== ==========
Net Income per Unit..... $ 1.45
==========
</TABLE>
See notes to pro forma consolidated financial statements.
F-7
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------
PLAINS
MIDSTREAM PRO FORMA PRO FORMA
SUBSIDIARIES WINGFOOT ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ -------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................ $752,522 $992,318 $ $1,744,840 $1,651 O $1,746,491
COST OF SALES AND
OPERATIONS............. 740,042 923,152 391 E 1,662,282 1,662,282
(1,303)F
-------- -------- ------- ---------- ------ ----------
Gross margin............ 12,480 69,166 912 82,558 1,651 84,209
EXPENSES
General and
administrative......... 3,529 2,767 (114)E 6,182 6,182
Depreciation and
amortization........... 1,165 16,290 (16,290)B 10,516 10,516
9,351 C
Impairment of pipeline
assets................. -- 64,173 -- 64,173 64,173
-------- -------- ------- ---------- ------ ----------
Operating income........ 7,786 (14,064) 7,965 1,687 1,651 3,338
Related party interest
expense................ 3,622 52,745 (52,745)D -- --
(3,622)J
Interest expense........ 894 -- 13,489 K 14,383 14,383
Interest and other
income................. 138 -- -- 138 138
-------- -------- ------- ---------- ------ ----------
NET INCOME (LOSS) BEFORE
INCOME TAXES........... 3,408 (66,809) 50,843 (12,558) 1,651 (10,907)
Provision in lieu of
income taxes........... 1,268 276 (1,544)I -- --
-------- -------- ------- ---------- ------ ----------
NET INCOME (LOSS)....... $ 2,140 $(67,085) $52,387 $ (12,558) $1,651 $ (10,907)
======== ======== ======= ========== ====== ==========
Net Loss per Unit....... $ (.36)
==========
</TABLE>
See notes to pro forma consolidated financial statements.
F-8
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
PRO FORMA ADJUSTMENTS
Introduction
The pro forma consolidated financial statements are based upon the
historical financial statements of the Plains Midstream Subsidiaries,
comprised of wholly owned subsidiaries of Plains Resources, including Plains
All American Inc. (the "General Partner"), and Wingfoot, a wholly owned
subsidiary of Goodyear. The September 30, 1998 financial statements of the
Plains Midstream Subsidiaries reflect the July 30, 1998 Acquisition of all of
the outstanding capital stock of the Celeron Companies, (which comprise
substantially all of Wingfoot) from Wingfoot for approximately $400 million in
cash, which was financed in part through a borrowing of $300 million under the
Plains Midstream Subsidiaries' $325 million limited recourse bank facility (a
portion of which funded initial working capital) and a capital contribution of
$114 million from Plains Resources. The Acquisition was accounted for by the
Plains Midstream Subsidiaries using the purchase method of accounting.
The pro forma consolidated financial statements reflect the Acquisition and
the following Transactions to occur concurrently with, or at the closing of,
the Offering of the Common Units made hereby: (i) the Plains Midstream
Subsidiaries will be merged into Plains Resources, which will sell the assets
of these subsidiaries to the Partnership in exchange for $93.7 million and
related indebtedness, (ii) the General Partner will convey all of its interest
in the All American Pipeline and the SJV Gathering System to the Partnership
in exchange for Units, (iii) the public Offering by Plains All American
Pipeline, L.P. of 12,782,609 Common Units at an assumed initial public
offering price of $20.00 per Common Unit resulting in aggregate net proceeds
to the Partnership of $236.0 million, net of underwriters' discounts and
commissions and Offering expenses, and (iv) the distribution of $142.3 million
to the General Partner. Following these Transactions, the General Partner and
its affiliates will hold, in the aggregate, 6,817,391 Common Units, 9,800,000
Subordinated Units, a 2% general partner interest in the Partnership and the
right to receive Incentive Distributions. In addition, the Partnership will
assume approximately $175 million in debt from the General Partner incurred in
connection with the purchase of the All American Pipeline and the SJV
Gathering System. The Partnership will not assume $110 million of Bank Debt
and $29.7 million of long-term Intercompany Payable to Affiliates of the
Plains Midstream Subsidiaries.
The Acquisition adjustments which follow reflect the effect of the
Acquisition on the Pro Forma Consolidated Income Statements, including related
acquisition financing. The purchase price was allocated in accordance with APB
16 as follows (in thousands):
<TABLE>
<S> <C>
Property and equipment.......................................... $392,393
Other assets (debt issue costs)................................. 6,138
Net working capital items....................................... 8,979
--------
$407,510
========
</TABLE>
In addition to the Acquisition, Formation and Offering adjustments below,
the Partnership estimates that incremental expenses will be incurred due to
the Acquisition. Such amounts include estimated expenses associated with the
operation of the Partnership as a separate public entity (e.g., costs of tax
return preparation, audit fees, annual and quarterly reports to Unitholders,
investor relations, and registrar and transfer agent fees), estimated expenses
for issuance of letters of credit in excess of such amounts incurred by the
Plains Midstream Subsidiaries and Wingfoot due primarily to the elimination of
Goodyear as a guarantor of Wingfoot's crude oil purchase obligations and
additional estimated amounts included for insurance expenses related to the
assets and operations of Wingfoot. The additional insurance expense reflects
Goodyear's past practice of self insuring the assets and operations of
Wingfoot. The pro forma and Offering adjustments do not give effect to these
incremental expenses. Additionally, the pro forma consolidated income
statement for the year ended December 31, 1997 does not include a pro forma
adjustment related to the non-cash impairment charge of $64.2 million related
to the writedown of property and equipment by Wingfoot in connection with the
sale of Wingfoot by Goodyear to the General Partner.
F-9
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
However, based on the Partnership's purchase price allocation to property and
equipment, the Partnership would not have incurred an impairment charge during
1997 had it actually acquired Wingfoot as of January 1, 1997.
Acquisition
A. The acquisition of the Celeron Companies was completed on July 30, 1998.
As a result, the historical financial information of the Plains Midstream
Subsidiaries for the nine months ended September 30, 1998 includes the results
of operations of the Celeron Companies from July 30, 1998 through September
30, 1998. The amounts below reflect the results of operations for periods not
otherwise included in the historical financial information of the Plains
Midstream Subsidiaries or Wingfoot.
<TABLE>
<CAPTION>
THREE MONTHS
PERIOD FROM JULY 1, ENDED
1998 TO JULY 30, 1998 SEPTEMBER 30,
(DATE OF ACQUISITION) 1997
--------------------- -------------
<S> <C> <C>
Revenues.................................... $62,995 $204,872
Cost of Sales and Operations................ 59,962 187,694
------- --------
Gross margin................................ 3,033 17,178
General and administrative.................. 151 494
Depreciation and amortization............... 1,025 4,073
------- --------
Operating income............................ 1,857 12,611
Related party interest expense.............. -- 14,119
Interest and other income................... 5 --
------- --------
Net income before taxes..................... 1,862 (1,508)
Provision in lieu of income taxes........... 419 285
------- --------
Net income (loss)........................... $ 1,443 $ (1,793)
======= ========
</TABLE>
B. Reflects the elimination of historical Wingfoot depreciation and
amortization expense.
C. Reflects pro forma depreciation and amortization expense based on the
purchase price of the Wingfoot assets by the Plains Midstream Subsidiaries.
The pro forma composite useful depreciable life of the Partnership's fixed
assets is 36 years.
D. Reflects the elimination of interest expense on loans from Goodyear to
Wingfoot. In connection with the Acquisition, Goodyear made a capital
contribution of $866.1 million to Wingfoot. Concurrently, the related party
debt and accrued interest of approximately $865.2 million was repaid in full
to Goodyear on June 15, 1998.
E. Reflects the elimination of expenses and credits associated with
Wingfoot's post retirement pension, health and benefit plans in which the
Partnership employees are no longer entitled to participate so that cost of
sales and operations and general and administrative expense reflect the
ongoing cost of employee benefits to the Partnership. The credits reflected in
1997 relate to amounts earned by Wingfoot on its prepaid pension assets.
F. Reflects the reduction in compensation and benefits expense due to the
recent termination of personnel. Such amounts are based on historical expenses
incurred by Wingfoot. The terminations occurred in August 1998 and the General
Partner has no plans to replace these personnel. The reduction in personnel is
not expected to adversely impact the Partnership's revenues or costs.
Formation
G. Reflects the transfer of certain of the Plains Midstream Subsidiaries'
crude oil terminalling and storage and gathering and marketing assets to
Plains Resources at the net book value of $32.7 million.
F-10
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
H. Reflects the transactions by which the Partnership obtains ownership of
the assets of the Plains Midstream Subsidiaries at net book value in exchange
for 6.8 million Common Units, 9.8 million Subordinated Units and a 2% general
partner interest in the Partnership as well as the assumption of $175 million
in Bank Debt. The Partnership will not assume $110 million of Bank Debt and
$29.7 million of long-term Intercompany Payable to Affiliates of the Plains
Midstream Subsidiaries. Additionally, upon completion of the Offering, the
Partnership will have $8.0 million of net working capital, resulting in $2.2
million of currently payable Intercompany Payable to Affiliates in the Pro
Forma Consolidated Balance Sheet not being assumed by the Partnership.
Accumulated depreciation in the amount of $6.1 million has been credited
against the Property and Equipment balance to reflect the Partnership's bases
in the assets. The book value assigned to the Common Units, Subordinated Units
and 2% general partner interest is based on the pro rata number of units of
each class issued. The general partner interest was reduced by the cash
distribution of $142.3 million (see Adjustment N).
I. Reflects the elimination of the historical income tax provision and
related deferred income tax liabilities as income taxes will be borne by the
partners and not the Partnership.
J. Reflects the elimination of historical interest expense on the
Acquisition indebtedness and loans from Plains Resources to the Plains
Midstream Subsidiaries. Such loans were not assumed by the Partnership.
K. Reflects pro forma interest expense on borrowings of $175 million assumed
from the Plains Midstream Subsidiaries under the Bank Credit Agreement. The
Partnership has entered into a series of 10-year interest rate swaps which fix
the LIBOR portion of the interest rate at a weighted average rate of 5.96%
(7.71% after giving effect to the weighted average interest rate margin under
the Bank Credit Agreement).
Offering
L. Reflects the estimated net proceeds to the Partnership of $236.0 million
from the issuance and sale of 12.8 million Common Units at an assumed initial
public offering price of $20.00 per Common Unit in the Offering, net of
underwriters' discounts and commissions of approximately $16.6 million and
Offering expenses of approximately $3.0 million.
M. Reflects the purchase by the Partnership of the assets transferred to
Plains Resources in adjustment G for $93.7 million. As this transaction is
between entities under common control, it has been recorded at historical net
book value of $32.7 million, with the incremental amount paid by the
Partnership of $61.0 million recorded as a reduction in Partners' Equity.
N. Reflects the distribution of cash to the General Partner from the net
proceeds of the Offering.
O. Reflects the pro forma revenues from a marketing agreement entered into
upon consummation of the Offering pursuant to which the Partnership will
market all of Plains Resources' crude oil production for a fee of $0.20 per
barrel. Pro forma revenues from such marketing agreement were calculated based
on Plains Resources historical crude oil production volumes which were
marketed by the Plains Midstream Subsidiaries.
PRO FORMA NET INCOME PER UNIT
Pro forma net income per Unit is determined by dividing the pro forma net
income that would have been allocated to the Common and Subordinated
Unitholders, which is 98% of pro forma net income, by the number of Common and
Subordinated Units expected to be outstanding at the closing of the Offering.
For purposes of this calculation the Minimum Quarterly Distribution was
assumed to have been paid to both Common and Subordinated Unitholders and the
number of Common and Subordinated Units outstanding, 29.4 million, were
assumed to have been outstanding the entire period. Pursuant to the
partnership agreement, to the extent that the Minimum Quarterly Distribution
is exceeded, the General Partner is entitled to certain incentive
distributions which will result in less income proportionately being allocated
to the Common and Subordinated Unitholders. Basic and diluted pro forma net
income per Common and Subordinated Unit are equal as there are no dilutive
Units.
F-11
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholder
of Plains Resources Inc. Midstream Subsidiaries
We have reviewed the accompanying combined balance sheet of Plains Resources
Inc. Midstream Subsidiaries as of September 30, 1998, and the related combined
statements of income and of cash flows for the nine month periods ended
September 30, 1997 and 1998. This financial information is the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying combined interim financial information for
it to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards the combined balance sheet as of December 31, 1997 and the related
combined statements of operations and combined equity and of cash flows for
the year then ended, and in our report dated September 16, 1998 presented on
page F-19 of this Registration Statement we expressed an unqualified opinion
on those combined financial statements. In our opinion, the information set
forth in the accompanying combined balance sheet information as of December
31, 1997 is fairly stated in all material respects in relation to the combined
balance sheet from which it has been derived.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
October 30, 1998
F-12
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ --------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.......................... $ 2 $ 9,986
Accounts receivable................................ 96,319 110,027
Inventory.......................................... 18,909 24,691
Prepaid expenses and other......................... 197 1,350
-------- --------
Total current assets............................... 115,427 146,054
-------- --------
PROPERTY AND EQUIPMENT
Crude oil pipeline, gathering, terminal and storage
facilities........................................ 33,491 428,714
Trucking equipment, injection stations and other... 2,798 4,765
Less accumulated depreciation...................... (3,903) (6,060)
-------- --------
32,386 427,419
-------- --------
OTHER ASSETS....................................... 1,806 8,095
-------- --------
$149,619 $581,568
======== ========
<CAPTION>
LIABILITIES AND COMBINED EQUITY
-------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities........... $ 86,415 $112,657
Notes payable...................................... 18,000 11,500
Intercompany payable to affiliates................. 8,945 11,739
Accrued interest payable........................... 50 4,395
-------- --------
Total current liabilities.......................... 113,410 140,291
LONG-TERM LIABILITIES
Bank debt.......................................... -- 285,000
Intercompany payable to affiliates................. 28,531 29,681
Payable in lieu of deferred taxes.................. 1,703 3,966
-------- --------
Total liabilities.................................. 143,644 458,938
-------- --------
COMBINED EQUITY.................................... 5,975 122,630
-------- --------
$149,619 $581,568
======== ========
</TABLE>
See notes to combined financial statements.
F-13
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
COMBINED STATEMENTS OF INCOME
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1997 1998
-------- --------
<S> <C> <C>
REVENUES..................................................... $536,332 $755,653
COST OF SALES AND OPERATIONS................................. 527,477 732,539
-------- --------
Gross margin................................................. 8,855 23,114
-------- --------
EXPENSES
General and administrative................................... 2,617 3,561
Depreciation and amortization................................ 873 2,605
-------- --------
Total expenses............................................... 3,490 6,166
-------- --------
Operating income............................................. 5,365 16,948
Related party interest expense............................... 2,253 2,250
Interest expense............................................. 564 4,952
Interest and other income.................................... 105 647
-------- --------
Net income before income taxes............................... 2,653 10,393
Provision in lieu of income taxes............................ 951 3,881
-------- --------
NET INCOME .................................................. $ 1,702 $ 6,512
======== ========
</TABLE>
See notes to combined financial statements.
F-14
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
30,
-----------------
1997 1998
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 1,702 $ 6,512
Items not affecting cash flows from operating activities:
Depreciation and amortization............................. 873 2,605
(Gain) loss on sale of property and equipment ............ (28) 124
Change in payable in lieu of deferred taxes............... 848 2,263
Change in assets and liabilities resulting from operating
activities:
Accounts receivable....................................... (2,605) 38,078
Accounts payable and accrued liabilities.................. (4,816) (24,223)
Accrued interest.......................................... 55 4,345
Inventory................................................. (27,185) (5,121)
Other..................................................... (121) (1,153)
------- --------
Net cash (used in) provided by operating activities......... (31,277) 23,430
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition (see Note 2).................................... -- (401,372)
Additions to property and equipment......................... (623) (3,927)
Disposals of property and equipment......................... 84 --
Additions to other assets................................... (14) (6,872)
------- --------
Net cash used in investing activities....................... (553) (412,171)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from affiliates.................................... 6,432 3,944
Debt issue costs incurred in connection with Acquisition
(see Note 2)............................................... -- 6,138
Proceeds from long-term debt................................ -- 285,000
Proceeds from short-term debt............................... 25,000 28,800
Repayments of short-term debt............................... -- (35,300)
Capital contribution from Plains Resources.................. -- 113,700
Dividend to Plains Resources................................ -- (3,557)
------- --------
Net cash provided by financing activities................... 31,432 398,725
------- --------
Net (decrease) increase in cash............................. (398) 9,984
Cash, beginning of period................................... 404 2
------- --------
Cash, end of period......................................... $ 6 $ 9,986
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................... $ 2,762 $ 2,807
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--ORGANIZATION AND ACCOUNTING POLICIES
Organization
Plains Resources Inc. Midstream Subsidiaries (the "Plains Midstream
Subsidiaries") consist of wholly owned subsidiaries of Plains Resources Inc.
("Plains Resources"). The Plains Midstream Subsidiaries are in the business of
interstate and intrastate crude oil pipeline transportation, crude oil
terminalling, storage, gathering and marketing primarily in California, Texas,
Oklahoma, Louisiana and the Gulf of Mexico.
Accounting Policies
The accompanying unaudited combined financial statements have been prepared
in accordance with the instructions to interim financial reporting as
prescribed by the Securities and Exchange Commission. All material adjustments
consisting only of normal recurring adjustments which, in the opinion of
management, are necessary for a fair statement of the results for the interim
periods, have been reflected. These interim financial statements should be
read in conjunction with the annual combined financial statements of the
Plains Midstream Subsidiaries included elsewhere in this Prospectus.
NOTE 2--ACQUISITION
On July 30, 1998, the Plains Midstream Subsidiaries acquired all of the
outstanding capital stock of the All American Pipeline Company, Celeron
Gathering Corporation and Celeron Trading & Transportation Company
(collectively the "Celeron Companies") from Wingfoot Ventures Seven, Inc., a
wholly-owned subsidiary of Goodyear, for approximately $400 million, including
transaction costs. The principal assets of the entities acquired include the
All American Pipeline, a 1,233-mile crude oil pipeline extending from
California to Texas, and a 45-mile crude oil gathering system in the San
Joaquin Valley of California, as well as other assets related to such
operations. The acquisition was accounted for utilizing the purchase method of
accounting with the assets, liabilities and results of operations included in
the Combined Financial Statements effective July 30, 1998. The following
unaudited pro forma information is presented to show the effect on revenues
and net income had the acquisition been consummated on January 1, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revenues............................................ $1,284,102 $1,194,648
========== ==========
Net Income.......................................... $ 43,439 $ 35,684
========== ==========
</TABLE>
Financing for the acquisition was provided through (i) a $325 million,
limited recourse bank facility with ING (U.S.) Capital Corporation,
BankBoston, N.A. and other lenders (the "Plains Midstream Credit Facility")
and (ii) an approximate $114 million capital contribution by Plains Resources.
Actual borrowings under the Plains Midstream Credit Facility at closing were
$300 million. Proceeds from such borrowings, together with the capital
contribution from Plains, were used to acquire all of the outstanding capital
stock of the Celeron Companies from Goodyear and to provide initial working
capital.
The Plains Midstream Credit Facility is guaranteed by the Celeron Companies
and is secured by certain assets of the Celeron Companies, including all
pipelines, gathering lines, available accounts receivable,
F-16
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
inventory, linefill and the capital stock of the Celeron Companies. The Plains
Midstream Credit Facility consists of (i) a $100 million reducing, revolving
line of credit with a $30 million sub-limit for letters of credit ("Tranche
A") and (ii) a $225 million non-amortizing term loan ("Tranche B"). The Plains
Midstream Subsidiaries incur a commitment fee of 0.5% per annum on the unused
portion of Tranche A. The commitment for Tranche A reduces in twenty-four
equal quarterly amounts commencing September 30, 1998, with final maturity on
June 30, 2004. Tranche B of the Plains Midstream Credit Facility is repayable
at maturity on June 30, 2005. Prepayment of principal on Tranche B is subject
to a penalty of 1% on amounts prepaid prior to December 31, 1998, and 0.5%
thereafter through June 30, 1999. The Plains Midstream Credit Facility bears
interest at the Plains Midstream Subsidiaries option at the Base Rate (as
defined therein) or (i) LIBOR plus 1.75% for Tranche A and (ii) LIBOR plus
3.00% prior to September 30, 1998 and LIBOR plus 2.75% thereafter for Tranche
B. The Plains Midstream Subsidiaries have entered into 10 year interest rate
swaps with three of the lending banks to fix the LIBOR portion of the interest
rate on $200 million of indebtedness under Tranche B at 5.96% plus the
applicable margin.
The Plains Midstream Credit Facility contains covenants which, among other
things, requires the Plains Midstream Subsidiaries to maintain certain
financial ratios and minimum net worth. In addition, the Plains Midstream
Credit Facility contains restrictions on additional debt or liens, hedging
contracts, asset sales other than those in the ordinary course of business,
dividends and other distributions, investments and capital expenditures above
a specified amount.
As a result of the acquisition, the Plains Midstream Subsidiaries increased
their letter of credit and inventory credit facility from $90 million to $175
million. On July 30, 1998, the Plains Midstream Subsidiaries established a
$175 million secured revolving credit facility with BankBoston, N.A., ING
(U.S.) Capital Corporation and other lenders (the "Letter of Credit
Facility"). The purpose of the Letter of Credit Facility is to provide standby
letters of credit to support the purchase of crude oil for resale and
borrowings to finance crude oil inventory which has been hedged against future
price risk. The Letter of Credit Facility is guaranteed by Plains Resources.
The Letter of Credit Facility is secured by certain assets of the Plains
Midstream Subsidiaries, primarily accounts receivable and crude oil inventory.
Aggregate availability under the Letter of Credit Facility is subject to
certain borrowing base tests which are determined monthly.
The Plains Midstream Subsidiaries have established a $40 million sublimit
(the "Sublimit") within the Letter of Credit Facility for borrowings to
finance crude oil purchased in connection with operations at the Plains
Midstream Subsidiaries' crude oil terminal and storage facilities. Under the
terms of the Sublimit, all purchases of crude oil inventory financed are
required to be hedged against future price risk on terms acceptable to the
lenders.
Letters of credit under the Letter of Credit Facility are generally issued
for up to seventy day periods. Borrowings incur interest at the borrower's
option of either (i) the Base Rate, as defined, or (ii) LIBOR plus an
applicable margin. The Plains Midstream Subsidiaries incur a commitment fee of
0.25% per annum on the unused portion of the Letter of Credit Facility. The
Letter of Credit Facility has a final maturity date of July 30, 2001.
The Letter of Credit Facility contains covenants which, among other things,
require the Plains Midstream Subsidiaries to maintain certain financial ratios
and minimum levels of working capital and net worth. In addition, the Letter
of Credit Facility contains restrictions on additional indebtedness,
acquisitions, mergers, sale of assets, affiliate transactions, derivative
contracts and capital expenditures.
F-17
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 3--COMBINED EQUITY
The following is a reconciliation of the combined equity balance of the
Plains Midstream Subsidiaries Inc.:
<TABLE>
<CAPTION>
1997 1998
------ --------
<S> <C> <C>
Balance--December 31.................................... $3,835 $ 5,975
Net income for the nine months ended September 30....... 1,702 6,512
Capital contribution in connection with the acquisition
of the Celeron Companies............................... -- 113,700
Dividend to Plains Resources............................ -- (3,557)
------ --------
Balance--September 30................................... $5,537 $122,630
====== ========
</TABLE>
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Plains Resources Inc. Midstream Subsidiaries
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations and combined equity and of cash flows
present fairly, in all material respects, the financial position of Plains
Resources Inc. Midstream Subsidiaries (wholly owned subsidiaries of Plains
Resources Inc.) at December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Plains
Resources Inc. Midstream Subsidiaries' management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
September 16, 1998
F-19
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash........................................................ $ 404 $ 2
Accounts receivable......................................... 85,904 96,319
Inventory................................................... 2,459 18,909
Other....................................................... 158 197
-------- --------
Total current assets........................................ 88,925 115,427
-------- --------
PROPERTY AND EQUIPMENT
Crude oil terminal and storage facilities................... 33,349 33,491
Trucking equipment, injection stations and other............ 2,492 2,798
Less accumulated depreciation............................... (3,027) (3,903)
-------- --------
32,814 32,386
-------- --------
OTHER ASSETS................................................ 818 1,806
-------- --------
$122,557 $149,619
======== ========
<CAPTION>
LIABILITIES AND COMBINED EQUITY
-------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................... $ 76,838 $ 86,415
Notes payable............................................... -- 18,000
Intercompany payable to affiliates.......................... 9,501 8,945
Accrued interest payable.................................... -- 50
-------- --------
Total current liabilities................................... 86,339 113,410
LONG-TERM LIABILITIES
Intercompany payable to affiliates.......................... 31,811 28,531
Payable in lieu of deferred taxes........................... 572 1,703
-------- --------
Total liabilities........................................... 118,722 143,644
-------- --------
COMBINED EQUITY............................................. 3,835 5,975
-------- --------
$122,557 $149,619
======== ========
</TABLE>
See notes to combined financial statements.
F-20
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
COMBINED STATEMENTS OF OPERATIONS AND COMBINED EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES........................................... $339,825 $531,698 $752,522
COST OF SALES AND OPERATIONS....................... 333,459 522,167 740,042
-------- -------- --------
Gross margin....................................... 6,366 9,531 12,480
-------- -------- --------
EXPENSES
General and administrative......................... 2,415 2,974 3,529
Depreciation and amortization...................... 944 1,140 1,165
-------- -------- --------
Total expenses..................................... 3,359 4,114 4,694
-------- -------- --------
Operating income................................... 3,007 5,417 7,786
Related party interest expense..................... 3,460 3,559 3,622
Interest expense................................... -- -- 894
Interest and other income.......................... 115 90 138
-------- -------- --------
Net (loss) income before (benefit) provision in
lieu of income taxes.............................. (338) 1,948 3,408
(Benefit) provision in lieu of income taxes........ (93) 726 1,268
-------- -------- --------
NET (LOSS) INCOME.................................. (245) 1,222 2,140
Beginning combined equity.......................... 2,858 2,613 3,835
-------- -------- --------
Ending combined equity............................. $ 2,613 $ 3,835 $ 5,975
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-21
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income.................................. $ (245) $ 1,222 $ 2,140
Items not affecting cash flows from operating
activities:
Depreciation and amortization.................... 944 1,140 1,165
Gain on sale of property and equipment .......... (3) (34) (28)
Change in payable in lieu of deferred taxes...... (93) 706 1,131
Change in assets and liabilities resulting from
operating activities:
Accounts receivable.............................. (21,999) (38,771) (10,415)
Accounts payable and accrued liabilities......... 14,559 35,994 9,577
Accrued interest................................. -- -- 50
Inventory........................................ 1,007 435 (16,450)
Other............................................ 30 41 (39)
------- ------- -------
Net cash (used in) provided by operating
activities........................................ (5,800) 733 (12,869)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment................ (571) (3,346) (678)
Disposals of property and equipment................ 34 97 85
Additions to other assets.......................... (184) (36) (1,261)
------- ------- -------
Net cash used in investing activities.............. (721) (3,285) (1,854)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (payments to) affiliates............. 4,963 2,759 (3,679)
Proceeds from short-term debt...................... -- -- 39,000
Repayments of short-term debt...................... -- -- (21,000)
Cash in compensating balance account............... 1,494 -- --
------- ------- -------
Net cash provided by financing activities.......... 6,457 2,759 14,321
------- ------- -------
Net (decrease) increase in cash.................... (64) 207 (402)
Cash, beginning of period.......................... 261 197 404
------- ------- -------
Cash, end of period................................ $ 197 $ 404 $ 2
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid...................................... $ 3,460 $ 3,559 $ 4,466
</TABLE>
See notes to combined financial statements.
F-22
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Plains Resources Inc. Midstream Subsidiaries (the "Plains Midstream
Subsidiaries") consist of wholly owned subsidiaries of Plains Resources Inc.
("Plains Resources"). The Plains Midstream Subsidiaries are in the business of
crude oil terminalling and storage and gathering and marketing primarily in
Oklahoma (where they own a two million barrel, above ground crude oil
terminalling and storage facility (the "Cushing Terminal")), Texas, Louisiana
and Kansas.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although management believes these estimates are reasonable,
actual results could differ from these estimates.
Revenue Recognition
Revenues are accrued at the time title to the product sold transfers to the
purchaser, which typically occurs upon receipt of the product by the
purchaser, and purchases are accrued at the time title to the product
purchased transfers to the Plains Midstream Subsidiaries, which typically
occurs upon receipt of the product by the Plains Midstream Subsidiaries.
Except for crude oil purchased from time to time as inventory to service the
needs of its terminalling and storage customers, the Plains Midstream
Subsidiaries' policy is to purchase only crude oil for which they have a
market to sell and to structure their sales contracts so that crude oil price
fluctuations do not materially affect the gross margin which they receive. As
the Plains Midstream Subsidiaries purchase crude oil, they establish a margin
by selling crude oil for physical delivery to third party users, such as
independent refiners or major oil companies, or by entering into a future
delivery obligation with respect to futures contracts on the New York
Mercantile Exchange ("NYMEX"). Through these transactions, the Plains
Midstream Subsidiaries seek to maintain a position that is substantially
balanced between crude oil purchases and sales and future delivery
obligations.
Cash
The Plains Midstream Subsidiaries' cash management program utilizes zero-
balance accounts, which are funded on a daily basis by Plains Resources.
Accordingly, the Plains Midstream Subsidiaries maintain book overdraft
balances which have been reclassified to current liabilities.
Inventory
Inventory consists of crude oil in pipelines and in storage tanks which is
valued at the lower of cost or market, with cost determined using the average
cost method.
Property and Equipment
Property and equipment is recorded at cost. Acquisitions and betterments are
capitalized; maintenance and repairs are expensed. Depreciation on the Cushing
Terminal is provided using the straight-line method over an estimated useful
life of forty years; other property and equipment is also depreciated using
the straight-line method over estimated useful lives of five to ten years.
F-23
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Other Assets
Other assets include goodwill associated with the purchase of certain
transportation and crude oil gathering assets and are amortized over a period
of twenty years.
Federal Income Taxes
The Plains Midstream Subsidiaries are included in the combined federal
income tax return of Plains Resources. Income taxes are calculated as if the
Plains Midstream Subsidiaries had filed a return on a separate company basis
utilizing a statutory rate of 35%. Payables in lieu of deferred taxes
represent deferred tax liabilities which are recognized based on the temporary
differences between the tax basis of the Plains Midstream Subsidiaries' assets
and liabilities and the amounts reported in the financial statements. These
amounts are owed to Plains Resources. Current amounts payable are also owed to
Plains Resources and are included in intercompany payable to affiliates in the
accompanying Combined Balance Sheets (see Note 2).
Hedging
The Plains Midstream Subsidiaries utilize various derivative instruments to
hedge their exposure to price fluctuations on crude oil transactions. The
derivative instruments used consist primarily of futures and option contracts
traded on the NYMEX and crude oil swap contracts entered into with financial
institutions. These instruments are utilized to hedge transactions which are
based on NYMEX oil prices; therefore, a high correlation exists between the
hedged item and the hedge contract.
Recognized gains and losses on hedge contracts are reported as a component
of the related transaction. Cash flows from hedging activities are included in
operating activities in the Combined Statements of Cash Flows. Net deferred
gains and losses on futures contracts, including closed futures contracts,
entered into to hedge anticipated crude oil purchases and sales are included
in accounts payable and accrued liabilities in the Combined Balance Sheets.
Deferred gains or losses from inventory hedges are included as part of the
inventory cost and recognized when the related inventory is sold. Crude oil
swap contracts have no carrying value and therefore are not reflected in the
Combined Balance Sheets.
Recent Accounting Pronouncements
In July 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures
About Segments of an Enterprise and Related Information, effective for fiscal
years beginning after December 15, 1997. SFAS 131 introduces a new model for
segment reporting and requires disclosures for each segment that are similar
to those required under current standards with the addition of quarterly
disclosure requirements and a finer partitioning of geographic disclosures.
Reportable segments are based on products and services, geography, legal
structure, management structure or any manner in which management
disaggregates a company. This statement replaces the notion of industry and
geographic segments in current FASB standards. Management is currently
evaluating the impact of this statement on the Plains Midstream Subsidiaries'
disclosures.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 is effective for all fiscal years beginning after June 15,
1999. SFAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it
F-24
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
is, the type of hedge transaction. For fair-value hedge transactions in which
the Plains Midstream Subsidiaries are hedging changes in an asset's,
liability's, or firm commitment's fair value, changes in the fair value of the
derivative instrument will generally be offset in the income statement by
changes in the hedged item's fair value. For cash-flow hedge transactions, in
which the Plains Midstream Subsidiaries are hedging the variability of cash
flows related to a variable-rate asset, liability, or a forecasted
transaction, changes in the fair value of the derivative instrument will be
reported in other comprehensive income. The gains and losses on the derivative
instrument that are reported in other comprehensive income will be
reclassified as earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item. The Plains Midstream
Subsidiaries have not yet determined the impact that the adoption of SFAS 133
will have on their earnings or statement of financial position.
NOTE 2--INCOME TAXES
As discussed in Note 1, the Plains Midstream Subsidiaries' results are
included in Plains Resources' combined federal income tax return. The amounts
presented below were calculated as if the Plains Midstream Subsidiaries filed
a separate tax return. Current amounts payable per the calculations in the
amount of $20,000 and $137,000 for the years ended December 31, 1996 and 1997,
respectively, are payable to Plains Resources and are included in intercompany
payable to affiliates in the accompanying Combined Balance Sheets.
(Benefit) provision in lieu of income taxes consists of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1995 1996 1997
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current............................................... $ -- $ 1 $ 38
Deferred.............................................. (93) 706 1,131
State
Current............................................... -- 19 99
---- ---- ------
Total................................................... $(93) $726 $1,268
==== ==== ======
</TABLE>
Actual (benefit) provision in lieu of income taxes differs from (benefit)
provision in lieu of income taxes computed by applying the U.S. federal
statutory corporate tax rate of 35% to (loss) income before such (benefit)
provision as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1996 1997
----- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision at the statutory rate....................... $(118) $682 $1,169
State income tax, net of benefit for federal
deduction............................................ -- 12 65
Permanent differences................................. 25 32 34
----- ---- ------
Total................................................. $ (93) $726 $1,268
===== ==== ======
</TABLE>
The Plains Midstream Subsidiaries' payable in lieu of deferred taxes at
December 31, 1996 and 1997, results from differences in depreciation methods
used for financial purposes and for tax purposes.
F-25
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--CREDIT FACILITIES
The Plains Midstream Subsidiaries have a $90 million Uncommitted Secured
Demand Transactional Line of Credit Facility ("the Transactional Facility")
with five banks. The purpose of the Transactional Facility is to provide
standby letters of credit to support the purchase by the Plains Midstream
Subsidiaries of crude oil for resale and borrowings by the Plains Midstream
Subsidiaries to finance crude oil inventory which has been hedged against
future price risk. The Transactional Facility is secured by all of the assets
of the Plains Midstream Subsidiaries and is guaranteed by Plains Resources.
Plains Resources' guarantee is secured by a $1 million standby letter of
credit issued under Plains Resources' revolving credit facility.
Generally, letters of credit under the Transactional Facility are issued for
up to seventy day periods. At December 31, 1996 and 1997, the Plains Midstream
Subsidiaries had outstanding letters of credit of approximately $39.6 million
and $37.8 million, respectively, issued under the Transactional Facility. To
date, no amounts have been drawn on such letters of credit issued by the
Plains Midstream Subsidiaries.
The Plains Midstream Subsidiaries have established a $25 million sublimit
(the "Sublimit") within the Transactional Facility for standby letters of
credit and borrowings to finance crude oil purchases. Under the terms of the
Sublimit, all purchases of crude oil inventory financed are required to be
hedged against future price risk on terms acceptable to the lenders. No
borrowings were outstanding under the Sublimit as of December 31, 1996. At
December 31, 1997, approximately $18.0 million in borrowings were outstanding
under the Sublimit.
Borrowings under the Transactional Facility incur interest at the borrower's
option of either (i) the Base Rate, as defined, or (ii) LIBOR plus an
applicable margin. All financings under the Transactional Facility, which
expire in November 1998, are at the discretion of the lenders on a transaction
by transaction basis. Aggregate cash borrowings by the Plains Midstream
Subsidiaries for inventory transactions are limited to $25 million.
In July 1998, Plains All American Inc., a wholly owned subsidiary of Plains
Resources, acquired the All American Pipeline, a 1,233-mile crude oil pipeline
extending from California to Texas, and a 45-mile crude oil gathering system
in the San Joaquin Valley of California, as well as certain other assets
related to such operations. As a result of Plains Resources' acquisition of
such assets, the Plains Midstream Subsidiaries increased their letter of
credit and inventory credit facility from $90 million to $175 million. On July
30, 1998, the Plains Midstream Subsidiaries established a $175 million secured
revolving credit facility with BankBoston, N.A., ING (U.S.) Capital
Corporation and other lenders (the "Letter of Credit Facility"). The purpose
of the Letter of Credit Facility is to provide standby letters of credit to
support the purchase of crude oil for resale and borrowings to finance crude
oil inventory which has been hedged against future price risk. The Letter of
Credit Facility is guaranteed by Plains Resources. The Letter of Credit
Facility is secured by certain assets of the Plains Midstream Subsidiaries,
primarily accounts receivable and crude oil inventory. Aggregate availability
under the Letter of Credit Facility is subject to certain borrowing base tests
which are determined monthly.
The Plains Midstream Subsidiaries have established a $40 million sublimit
(the "Sublimit") within the Letter of Credit Facility for borrowings to
finance crude oil purchased in connection with operations at the Plains
Midstream Subsidiaries' crude oil terminal and storage facilities. Under the
terms of the Sublimit, all purchases of crude oil inventory financed are
required to be hedged against future price risk on terms acceptable to the
lenders.
Letters of credit under the Letter of Credit Facility are generally issued
for up to seventy day periods. Borrowings incur interest at the borrower's
option of either (i) the Base Rate, as defined, or (ii) LIBOR plus an
applicable margin. The Plains Midstream Subsidiaries incur a commitment fee of
0.25% per annum on the unused portion of the Letter of Credit Facility. The
Letter of Credit Facility has a final maturity date of July 30, 2001.
F-26
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Letter of Credit Facility contains covenants which, among other things,
require the Plains Midstream Subsidiaries to maintain certain financial ratios
and minimum levels of working capital and net worth. In addition, the Letter
of Credit Facility contains restrictions on additional indebtedness,
acquisitions, mergers, sale of assets, affiliate transactions, derivative
contracts and capital expenditures.
NOTE 4--MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During 1995, Phibro, Inc. ("Phibro") and Basis Petroleum, Inc. ("Basis"),
formerly Phibro Energy U.S.A., Inc., accounted for 19% and 15%, respectively,
of the Plains Midstream Subsidiaries' total sales. For 1996 and 1997,
customers accounting for more than 10% of total sales are as follows: 1996--
Koch Oil Company ("Koch")--16% and Basis--11%; 1997--Koch--30%, Sempra Energy
Trading Corporation, formerly AIG Trading Corporation--12% and Basis--11%. No
other purchaser accounted for as much as 10% of total sales during 1995, 1996
and 1997.
Financial instruments which potentially subject the Plains Midstream
Subsidiaries to concentrations of credit risk consist principally of trade
receivables. The Plains Midstream Subsidiaries' accounts receivable are
primarily from purchasers of crude oil. This industry concentration has the
potential to impact the Plains Midstream Subsidiaries' overall exposure to
credit risk, either positively or negatively, in that the customers may be
similarly affected by changes in economic, industry or other conditions. The
Plains Midstream Subsidiaries generally require letters of credit for
receivables from customers which are not considered investment grade, unless
the credit risk can otherwise be reduced.
NOTE 5--RELATED PARTY TRANSACTIONS
The Plains Midstream Subsidiaries market certain crude oil production of
Plains Resources, its subsidiaries and its royalty owners. The Plains
Midstream Subsidiaries paid approximately $43.8 million, $100.5 million and
$101.2 million for the purchase of these products for the years ended December
31, 1995, 1996 and 1997, respectively. In management's opinion, such purchases
were made at prevailing market rates. The Plains Midstream Subsidiaries did
not recognize a profit on the sale of the barrels purchased from Plains
Resources.
The Plains Midstream Subsidiaries are guarantors of Plains Resources' $225
million revolving credit facility and $200 million 10 1/4% Senior Subordinated
Notes due 2006. The agreements under which such debt was issued contain
covenants which, among other things, restrict the Plains Midstream
Subsidiaries' ability to make certain loans and investments and restrict
additional borrowings by the Plains Midstream Subsidiaries.
Plains Resources allocated certain direct and indirect general and
administrative expenses to the Plains Midstream Subsidiaries during 1995, 1996
and 1997. Indirect costs were allocated based on the number of employees. The
types of indirect expenses allocated to the Plains Midstream Subsidiaries
during this period were office rent, utilities, telephone services, data
processing services, office supplies and equipment maintenance. Direct
expenses allocated by Plains Resources were primarily salaries and benefits of
employees engaged in the business activities of the Plains Midstream
Subsidiaries. Management believes that the method used to allocate expenses is
reasonable.
The Plains Midstream Subsidiaries fund the acquisition of certain asset and
inventory purchases through borrowings from Plains Resources. In addition, the
Plains Midstream Subsidiaries participate in a cash management arrangement
with Plains Resources covering the funding of daily cash requirements and the
investing of excess cash. Amounts due to the Parent Company under the
arrangements bear interest at a rate of 10 1/4%. The balance due to Plains
Resources as of December 31, 1996 and 1997, was approximately $30.0
F-27
<PAGE>
PLAINS RESOURCES INC. MIDSTREAM SUBSIDIARIES
(WHOLLY OWNED SUBSIDIARIES OF PLAINS RESOURCES INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
million and $26.7 million, respectively. Such amounts include approximately
$0.2 million and $0.3 million of cumulative federal and state income taxes
payable at December 31, 1996 and 1997, respectively. Balances due to other
subsidiaries of Plains Resources as of December 31, 1996 and 1997 were
approximately $11.3 million and $10.8 million, respectively.
The Plains Midstream Subsidiaries have entered into various derivative
financial instruments (see Note 6) on Plains Resources's behalf. The principal
objective is to hedge exposure to price volatility on crude oil produced by
Plains Resources. Any gains or losses on these transactions are passed on to
Plains Resources.
NOTE 6--FINANCIAL INSTRUMENTS
Derivatives
The Plains Midstream Subsidiaries utilize derivative financial instruments,
as defined in SFAS No. 119, "Disclosure About Derivative Financial Instruments
and Fair Value of Financial Instruments," to hedge exposure to price
volatility on crude oil and do not use such instruments for speculative
trading purposes. These arrangements expose the Plains Midstream Subsidiaries
to credit risk (as to counterparties) and to risk of adverse price movements
in certain cases where the Plains Midstream Subsidiaries' purchases are less
than expected.
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," the carrying values of items comprising
current assets and current liabilities approximate fair value due to the
short-term maturities of these instruments. Crude oil futures contracts permit
settlement by delivery of the crude oil and, therefore, are not financial
instruments, as defined. The unrealized gain on crude oil swap transactions
entered into on behalf of the Parent Company was approximately $0.1 million
and $1.0 million as of December 31, 1996 and 1997, respectively. These amounts
represent the calculated difference between the NYMEX crude oil price and the
contract price of the hedge arrangements as of December 31, 1996 and 1997.
NOTE 7--LITIGATION
The Plains Midstream Subsidiaries, in the ordinary course of business, are
defendants in various legal proceedings in which their exposure, individually
and in the aggregate, is not considered material to the accompanying financial
statements.
F-28
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholder
of Wingfoot Ventures Seven, Inc.
We have reviewed the accompanying consolidated balance sheets of Wingfoot
Ventures Seven, Inc. as of June 30, 1998, and the related consolidated
statements of income and of cash flows for the six month periods ended June
30, 1998 and 1997. This financial information is the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated interim financial information
for it to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing
standards the consolidated balance sheet as of December 31, 1997 and the
related consolidated statements of operations and accumulated deficit, and of
cash flows for the year then ended, and in our report dated July 27, 1998
presented on page F-34 of this Registration Statement we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet information as of December 31, 1997 is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
September 23, 1998
F-29
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash................................................. $ 104 $ 150
Accounts receivable.................................. 64,077 53,367
Receivable from affiliate............................ -- 26,304
Working oil inventory................................ 2,240 5,714
Prepaid expenses and other current assets............ 5,179 6,577
----------- -----------
Total current assets................................. 71,600 92,112
----------- -----------
Property, plant and equipment........................ 1,629,391 1,631,009
Less allowance for depreciation and amortization..... (1,228,465) (1,235,273)
----------- -----------
400,926 395,736
----------- -----------
Total assets......................................... $ 472,526 $ 487,848
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable..................................... $ 53,065 $ 43,992
Benefits and compensation............................ 1,834 1,459
Accrued expenses..................................... 1,591 1,872
Accrued interest to related party.................... 34,121 --
Accrued taxes........................................ 6,670 7,102
Short-term debt to related party..................... 102,439 --
Other current liabilities............................ 1,071 1,080
----------- -----------
Total current liabilities............................ 200,791 55,505
LONG-TERM LIABILITIES
Long-term debt to related party...................... 705,243 --
Deferred income taxes................................ 7,130 6,830
Benefits and compensation............................ 7,971 7,749
----------- -----------
Total liabilities.................................... 921,135 70,084
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $100 par value, 1,000 shares
authorized;
issued and outstanding 12 shares.................... 1 1
Additional paid-in capital........................... 907,374 1,773,505
Accumulated deficit.................................. (1,355,984) (1,355,742)
----------- -----------
(448,609) 417,764
----------- -----------
Total liabilities and stockholder's equity........... $ 472,526 $ 487,848
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1998
-------- --------
<S> <C> <C>
REVENUES..................................................... $541,698 $374,654
COST OF SALES AND OPERATIONS................................. 503,085 344,538
-------- --------
Gross margin................................................. 38,613 30,116
EXPENSES
Depreciation and amortization................................ 8,145 6,808
General and administrative................................... 1,603 1,053
-------- --------
Total expenses............................................... 9,748 7,861
-------- --------
Operating income............................................. 28,865 22,255
Related party interest expense............................... 25,112 21,929
-------- --------
Income before income taxes................................... 3,753 326
Provision in lieu of income taxes............................ 572 84
-------- --------
NET INCOME................................................... $ 3,181 $ 242
======== ========
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 3,181 $ 242
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 8,145 6,808
Deferred income taxes................................... (103) (300)
Changes in assets and liabilities resulting from operating
activities:
Accounts receivable..................................... 5,064 10,710
Receivable from affiliate............................... -- (26,304)
Working oil inventory, prepaid expenses and other
current assets......................................... (15,650) (4,872)
Accounts payable........................................ (5,886) (9,073)
Accrued taxes........................................... 225 432
Accruals and other current liabilities.................. (26,903) (34,206)
Benefits and compensation............................... 40 (222)
-------- --------
Net cash used in operating activities..................... (31,887) (56,785)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (1,238) (850)
Linefill.................................................. (3,236) (768)
-------- --------
Net cash used in investing activities..................... (4,474) (1,618)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital contribution........................ -- 866,131
Net proceeds (repayments) of debt to related party........ 35,417 (807,682)
-------- --------
Net cash provided by financing activities................. 35,417 58,449
-------- --------
Net (decrease) increase in cash........................... (944) 46
Cash, beginning of period................................. 1,448 104
-------- --------
Cash, end of period....................................... $ 504 $ 150
======== ========
</TABLE>
See notes to consolidated financial statements.
F-32
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(IN THOUSANDS)
(UNAUDITED)
1. THE COMPANY
Wingfoot Ventures Seven, Inc. ("Wingfoot") is a wholly-owned subsidiary of
The Goodyear Tire & Rubber Company ("Goodyear"). Wingfoot operates in the mid-
stream segment of the energy transportation business and consists of four
operating subsidiaries: All American Pipeline Company ("AAPL") and its wholly-
owned subsidiary, Celeron Gathering Corporation ("CGC"), Celeron Trading and
Transportation ("CT&T") and Celeron Corporation ("CC"). AAPL is engaged in the
operation of a heated crude oil pipeline which extends approximately 1,233
miles from Las Flores and Gaviota on the California coast to West Texas. As a
common carrier, AAPL charges transportation tariffs which must be filed with
the Federal Energy Regulatory Commission ("FERC") and the Public Utilities
Commission of the State of California ("CPUC"). CGC operates a proprietary
crude oil gathering pipeline in the San Joaquin Valley area of California.
CT&T is engaged in purchasing, selling and exchanging crude oil, a substantial
portion of which is transported through AAPL's pipeline. CC provides
management services to AAPL, CGC and CT&T.
On March 21, 1998, a Stock Purchase Agreement ("the Agreement") was executed
between Wingfoot and Plains All American Inc. ("PAAI"), a wholly-owned
subsidiary of Plains Resources Inc., whereby all of the issued and outstanding
shares of the capital stock of AAPL and CT&T would be sold to PAAI contingent
upon, among other things, approval by the Federal Trade Commission and the
CPUC. The net assets to be sold are comprised of assets and liabilities of
AAPL, CGC and CT&T and include or exclude all assets and liabilities listed in
certain Bills of Sale and Assumption Agreements included in the Agreement. In
addition, the following items have been excluded from the net assets to be
sold: all of Wingfoot's intercompany transactions with Goodyear; certain other
liabilities; and debt and interest owed to Goodyear and its subsidiaries. On
July 30, 1998, the Agreement was consummated by PAAI for approximately $400
million, including transaction costs.
2. ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions of interim financial reporting as
prescribed by the Securities and Exchange Commission. All material adjustments
consisting only of normal recurring adjustments which, in the opinion of
management, were necessary for a fair statement of the results for the interim
periods, have been reflected. These consolidated unaudited interim financial
statements should be read in conjunction with the annual consolidated
financial statements of Wingfoot included elsewhere in this Prospectus.
3. RELATED PARTY DEBT
Pursuant to the Agreement, Wingfoot is obligated to repay the outstanding
related party debt and accrued interest of certain of its subsidiaries prior
to closing. On June 15, 1998, Goodyear made capital contributions of $866,131
and cash payments of $15,494 for repayments to Wingfoot. Upon receipt of the
$881,625, Wingfoot paid Goodyear $865,219 ($843,269 for repayment of certain
outstanding related party debt and accrued interest at December 31, 1997 and
$21,950 for repayment of related party accrued interest from January 1, 1998
to May 29, 1998) and remitted the remaining $16,406 to Goodyear for payment of
certain other liabilities to be assumed by Goodyear as a result of the
Agreement.
4. SUBSEQUENT EVENT
Pursuant to the Agreement, in July 1998, an affiliate of Goodyear repaid
$26.3 million to Wingfoot. Concurrently, Wingfoot distributed $25.1 million to
Goodyear.
F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Wingfoot Ventures Seven, Inc. (a wholly-owned subsidiary of
The Goodyear Tire and Rubber Company)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and accumulated deficit and of cash
flows present fairly, in all material respects, the financial position of
Wingfoot Ventures Seven, Inc. (a wholly-owned subsidiary of The Goodyear Tire
& Rubber Company) and its subsidiaries at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
July 27, 1998
F-34
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
ASSETS
------
<S> <C> <C>
Cash................................................. $ 1,448 $ 104
Accounts receivable.................................. 66,433 64,077
Working oil inventory................................ 5,789 2,240
Prepaid expenses and other current assets............ 4,862 5,179
----------- -----------
Total current assets............................. 78,532 71,600
----------- -----------
Property, plant and equipment (Note 3)............... 1,578,450 1,629,391
Less--accumulated depreciation....................... (1,148,002) (1,228,465)
----------- -----------
430,448 400,926
----------- -----------
Total assets..................................... $ 508,980 $ 472,526
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Accounts payable..................................... $ 67,097 $ 53,065
Benefits and compensation............................ 1,465 1,834
Accrued expenses..................................... 4,804 1,591
Accrued interest to related party (Note 4)........... 30,282 34,121
Accrued taxes........................................ 8,594 6,670
Short-term debt to related party (Note 4)............ 56,581 102,439
Other current liabilities............................ 368 1,071
----------- -----------
Total current liabilities........................ 169,191 200,791
Long-term debt to related party (Note 4)............. 705,243 705,243
Deferred income taxes................................ 7,833 7,130
Benefits and compensation............................ 8,237 7,971
----------- -----------
Total liabilities................................ 890,504 921,135
----------- -----------
Commitments and contingencies (Note 12)
Stockholder's equity:
Common stock, $100 par value--authorized 1,000
shares; issued and outstanding 12 shares.......... 1 1
Additional paid-in capital......................... 907,374 907,374
Accumulated deficit................................ (1,288,899) (1,355,984)
----------- -----------
Total equity..................................... (381,524) (448,609)
----------- -----------
Total liabilities and stockholders' equity......... $ 508,980 $ 472,526
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-35
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Revenues (Note 11)........................ $ 619,277 $ 929,299 $ 992,318
--------- ----------- -----------
Expenses:
Purchases, transportation, and storage.. 482,130 791,729 892,618
Property taxes.......................... 7,100 8,500 7,450
Operations and maintenance.............. 28,573 25,812 23,084
Depreciation and amortization........... 39,276 42,760 16,290
Impairment of pipeline assets (Note 3).. -- 851,878 64,173
Loss on sale of pipeline assets......... 5,000 -- --
Related party interest expense (Note 4). 50,869 49,000 52,745
General and administrative.............. 4,834 2,961 2,767
--------- ----------- -----------
Total expenses........................ 617,782 1,772,640 1,059,127
--------- ----------- -----------
(Loss) income before income taxes......... 1,495 (843,341) (66,809)
Charge/(benefit) in lieu of income taxes.. (324) 4,227 276
--------- ----------- -----------
Net income (loss)......................... 1,819 (847,568) (67,085)
Beginning accumulated deficit............. (443,150) (441,331) (1,288,899)
--------- ----------- -----------
Ending accumulated deficit................ $(441,331) $(1,288,899) $(1,355,984)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-36
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)............................. $ 1,819 $(847,568) $(67,085)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 39,276 42,760 16,290
Impairment of pipeline assets............... -- 851,878 64,173
Loss on sale of pipeline assets............. 5,000 -- --
Deferred income taxes....................... 2,341 (933) (703)
Changes in assets and liabilities resulting
from operating activities:
Accounts receivable......................... (982) (28,183) 2,356
Working oil inventory....................... (971) 305 3,549
Prepaid expenses and other current assets... (855) (218) (317)
Accounts payable............................ 2,898 41,316 (14,032)
Benefits and compensation................... (2,580) -- 103
Accrued expenses............................ 526 (1,596) (3,213)
Accrued interest to related party........... 4,841 (3,906) 3,839
Accrued taxes............................... (1,051) 4,149 (1,924)
Other current liabilities................... (31) 368 703
-------- --------- --------
Net cash provided by operating activities... 50,231 58,372 3,739
-------- --------- --------
Cash flows from investing activities:
Capital expenditures.......................... (4,319) (3,983) (2,463)
Proceeds from sale of pipeline assets......... 1,998 125 1,249
(Purchase) sale of pipeline linefill.......... 31,187 (2,870) (49,727)
-------- --------- --------
Net cash provided by (used in) investing
activities................................. 28,866 (6,728) (50,941)
-------- --------- --------
Cash flows from financing activities:
Net (repayments) proceeds of debt to related
party (Note 4)............................... (84,060) (51,024) 45,858
-------- --------- --------
Net cash (used in) provided by financing
activities................................. (84,060) (51,024) 45,858
-------- --------- --------
Net (decrease) increase in cash................. (4,963) 620 (1,344)
Cash, beginning of the year..................... 5,791 828 1,448
-------- --------- --------
Cash, end of the year........................... $ 828 $ 1,448 $ 104
======== ========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-37
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
1. THE COMPANY
Wingfoot Ventures Seven, Inc. ("Wingfoot") is a wholly-owned subsidiary of
The Goodyear Tire & Rubber Company ("Goodyear or the Parent"). The Company
operates in the mid-stream segment of the energy transportation business and
consists of four operating subsidiaries; All American Pipeline Company
("AAPL") and its wholly-owned subsidiary, Celeron Gathering Corporation
("CGC"), Celeron Trading and Transportation ("CT&T") and Celeron Corporation
("CC"). AAPL is engaged in the operation of a heated crude oil pipeline which
extends approximately 1,233 miles from Las Flores and Gaviota on the
California coast to West Texas. As a common carrier, AAPL charges
transportation tariffs which must be filed with the Federal Energy Regulatory
Commission ("FERC") and the Public Utilities Commission of the State of
California ("CPUC"). CGC operates a proprietary crude oil gathering pipeline
in the San Joaquin Valley area of California. CT&T is engaged in purchasing,
selling and exchanging crude oil, a substantial portion of which is
transported through AAPL's pipeline. CC provides management services to AAPL,
CGC and CT&T.
On March 21, 1998, a Stock Purchase Agreement ("the Agreement") was executed
between Wingfoot and Plains All American Inc. ("PAAI"), a wholly-owned
subsidiary of Plains Resources Inc., whereby all of the issued and outstanding
shares of the capital stock of AAPL and CT&T would be sold to PAAI contingent
upon, among other things, approval by the Federal Trade Commission and the
CPUC. The net assets to be sold are comprised of assets and liabilities of
AAPL, CGC and CT&T and include or exclude all assets and liabilities listed in
certain Bills of Sale and Assumption Agreements included in the Agreement. In
addition, the following items have been excluded from the net assets to be
sold: all of Wingfoot's intercompany transactions with Goodyear; certain other
liabilities; and debt and interest owed to Goodyear and its subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of Wingfoot and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of credit risk and major customers
Financial instruments which potentially expose Wingfoot to concentrations of
credit risk consist primarily of accounts receivable. Wingfoot's accounts
receivable are primarily from major oil companies and their affiliates, as
well as independent oil companies. Wingfoot generally requires its smaller
independent customers to provide letters of credit. Although Wingfoot is
directly affected by the financial well being of the oil and gas industry,
management does not believe significant credit risk exists. Historically,
credit losses have not been significant.
F-38
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Revenue recognition
As a regulated interstate pipeline, AAPL recognizes revenues for the
transportation of crude oil based upon FERC and CPUC filed tariff rates and
the related transported volume. AAPL recognizes tariff revenue at the time
such volume is delivered. CT&T and CGC recognize revenue from the sale of
crude oil to third parties at the time title to the product sold transfers to
the purchaser.
Statement of cash flows
There was no cash used to pay income taxes during the years ended December
31, 1995, 1996 and 1997. Interest of $46,028, $52,906 and $48,906 was paid for
the years ended December 31, 1995, 1996 and 1997, respectively.
Working oil inventory
Working oil inventory is carried at the lower of current market value or
cost and determined under the last-in, first-out method.
Property, plant and equipment
Property, plant and equipment (the "System") consists primarily of crude oil
linefill (crude oil used to pack a pipeline such that when an incremental
barrel enters a pipeline it forces a barrel out at another location) and oil
pipeline facilities, which include the cost of land, rights-of-way, pipe, pump
station equipment, storage tanks, vehicles, material, labor, overhead and
interest incurred during the construction period. Depreciation on oil pipeline
facilities is computed using the straight-line method, principally over 37
years (see Note 3). Proceeds from the sale and repurchase of linefill are
reflected as cash flows from investing activities in the accompanying
consolidated statements of cash flows. Repairs and maintenance costs are
charged to expense as incurred.
The System is assessed for possible impairment in accordance with the
provisions of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS 121). Under this standard, the occurrence of certain events
may trigger a review of affected assets for possible impairment. An impairment
is deemed to exist if the sum of undiscounted before-tax expected future cash
flows for the asset are less than the asset's carrying value. If an impairment
is indicated, the amount of the impairment is measured as the difference
between the asset's fair market value and its carrying value. Where a market
value is not available, it is approximated by Wingfoot's best estimate of the
sum of discounted before-tax expected future cash flows. Impairment amounts
are recorded as impairment of pipeline assets in the period in which a
specific event occurs (see Note 3).
Income taxes
Wingfoot and its subsidiaries' results are included in the consolidated
federal income tax return of its parent, Goodyear. Tax losses and investment
tax credits have been generated by AAPL and have been utilized in the
consolidated federal income tax returns of Goodyear. In accordance with AAPL's
tax sharing agreement with Goodyear, the tax benefits from the cumulative tax
losses and investment tax credits are not payable by Goodyear to AAPL until
such time as these credits can be utilized on the basis of a separate company
tax computation. While Goodyear has realized tax benefits from losses and tax
credits of AAPL in its consolidated return, AAPL will not receive
reimbursement until a tax liability is incurred as calculated on a separate
company basis. To the extent that future taxable income is generated, AAPL has
a potential future net reimbursement from Goodyear for the benefit of prior
years' tax losses and investment tax credits generated in the amount of
approximately $573,000 and $569,000 at December 31, 1996 and 1997,
respectively. Utilizing the stand-alone calculation
F-39
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
required by the tax sharing agreement, this potential reimbursement results in
a net deferred tax asset on AAPL's balance sheet. Following the terms of the
tax sharing agreement, the net asset has been fully offset by a valuation
allowance.
In connection with the Agreement, PAAI and Goodyear will execute an IRS
Section 338(h)(10) election that provides for a step-up in basis of the
acquired assets, which will eliminate any deferred tax liability at the
acquisition date. In addition, any future net reimbursement from Goodyear for
the benefit of prior years' tax losses and investment tax credits will be
extinguished.
Wingfoot's provision for income taxes includes federal and state taxes
currently payable and deferred taxes arising from temporary differences.
Financial instruments
Wingfoot utilizes New York Mercantile Exchange crude oil futures contracts
to manage its exposure to price volatility for its crude trading activities.
Specifically, Wingfoot enters into these contracts to hedge its firm
commitments and anticipated transactions. All contracts permit settlement by
physical delivery of crude oil. Gains and losses related to these contracts
are deferred and recorded when the underlying hedged transaction occurs.
3. PROPERTY, PLANT AND EQUIPMENT
The System consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Oil pipeline facilities and linefill............ $ 1,578,450 $ 1,629,391
Less: accumulated depreciation.................. (1,148,002) (1,228,465)
----------- -----------
$ 430,448 $ 400,926
=========== ===========
</TABLE>
During 1996, industry developments occurred indicating that the quantities
of California and Alaska North Slope crude oil expected to be tendered in the
future to the System for transportation would be below prior estimates and
that volumes of crude oil expected to be tendered to the System for
transportation to markets outside of California in the future would be
significantly lower than previously anticipated. As a result, management
determined that the future cash flows expected to be generated by the System
would be less than its carrying value. In accordance with SFAS 121, Wingfoot
reduced the carrying value of the System to its fair value of $430,448 at
December 31, 1996, and recorded a charge of $851,878.
As a result of the Agreement, Wingfoot reviewed the System, which was held
for use at December 31, 1997, for impairment since it was more likely than not
that a sale would occur significantly before the end of its previously
estimated remaining useful life. Management determined that the undiscounted
before-tax future cash flows expected to be generated by the System would be
less than its carrying value. In accordance with SFAS 121, Wingfoot reduced
the carrying value of the System to its fair value of $400,926 at December 31,
1997, determined using discounted before-tax expected future cash flows from
the System, and recorded a charge of $64,173.
F-40
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
4. DEBT
Line of credit
At December 31, 1996 and 1997 to satisfy margin requirements associated with
its futures contracts, Wingfoot had a short-term uncommitted credit
arrangement totaling $1,500 and $3,000, respectively, of which $1,162 and
$2,973, respectively, was unused. This arrangement bears interest at London
Interbank Offered Rate (LIBOR) plus 0.75%. There are no commitment fees or
compensating balances associated with this arrangement.
Short-term debt to related party
Short-term debt at December 31, 1996 and 1997 represents advances from
Goodyear and its subsidiaries. These advances do not accrue interest and are
payable on demand (see Note 13).
Long-term debt to related party
On April 25, 1994, Wingfoot entered into a term loan with Goodyear and its
subsidiaries under which Wingfoot may borrow up to $825,000. The loan bears
interest annually, at a variable rate, generally tied to LIBOR and other
factors relating to the borrowing capacity of Goodyear and its subsidiaries.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Term loan due to an affiliate, interest at 12-month LIBOR
plus 1 1/2%, 6.72% and 7.52% at December 31, 1996 and
1997, respectively....................................... $705,243 $705,243
Less amount due in one year............................... -- --
-------- --------
$705,243 $705,243
======== ========
</TABLE>
At December 31, 1996 and 1997, Wingfoot had an outstanding balance of
$705,243 under this loan. Wingfoot is required to make annual mandatory
principal repayments of $100,000 beginning April 30, 1999, $100,000 in 2000,
$125,000 in 2001, $150,000 in 2002, $150,000 in 2003 and $80,243 in 2004.
Interest costs incurred through the term loan totaled $50,869, $49,000 and
$52,745 for the years ended December 31, 1995, 1996, and 1997, respectively.
Substantially all amounts outstanding were repaid subsequent to December 31,
1997 (see Note 13).
Credit agreement
On April 25, 1994, Wingfoot entered into a credit agreement with an
affiliate under which Wingfoot may borrow up to $250,000. The agreement
provides for a .10% per annum commitment fee on the daily average unused
amount of the facility. The loan bears interest at a variable rate based on
LIBOR. There is no balance outstanding at December 31, 1996 and 1997.
5. FINANCIAL INSTRUMENTS
The carrying values of Wingfoot's accounts receivable, other current assets,
accounts payable, accrued expenses, and other current liabilities approximate
fair value due to the short-term maturities of these assets and liabilities.
The carrying value of Wingfoot's line of credit approximates fair value as
interest rates are variable,
F-41
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
based upon prevailing rates for similar agreements. Deferred gains associated
with Wingfoot's futures contracts at December 31, 1996 and 1997 totaled $13
and $1,071, respectively.
6. BOOK OVERDRAFTS
At December 31, 1996 and 1997, Wingfoot had $3,281 and $626, respectively,
in book overdrafts representing outstanding checks in excess of funds on
deposit. These amounts have been included in accounts payable.
7. APPLICABILITY OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS NO. 71)
SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation,"
provides guidance in preparing financial statements for entities with
operations subject to rate-making authorities. The tariff rates of Wingfoot's
pipeline are regulated by the FERC and the CPUC.
Prior to commencement of operations in 1989, as allowed by FERC, Wingfoot
had capitalized an Allowance for Funds Used During Construction (AFUDC) for
rate-making purposes. The recording of any AFUDC represents the implicit cost
of financing construction as if the construction was financed through a
combination of borrowings and equity contributions. SFAS No. 71 requires that
an AFUDC recorded for rate-making purposes should be recorded for financial
reporting purposes as well, as long as there is reasonable assurance that
costs incurred will be recoverable in the future.
At year end 1996, Wingfoot did not expect to recover the costs that had been
previously capitalized. Accordingly, Wingfoot has discontinued the application
of SFAS No. 71 and in December 1996 adopted the provisions of SFAS No. 101,
"Regulated Enterprise Accounting for the Discontinuation of Application of
FASB Statement No. 71." This statement requires Wingfoot to eliminate the
effects of any actions of regulators that had been recognized as an asset that
would not have normally been recognized by a non-regulated entity. As the only
cost capitalized under the provisions of SFAS No. 71 was AFUDC, no additional
impairment was recorded as the AFUDC balance was included in the FAS No. 121
impairment writedown (see Note 3).
8. RELATED PARTY TRANSACTIONS
During 1996, Wingfoot transferred long-term credits of $30,843 to Goodyear,
increasing Wingfoot's long-term debt payable to Goodyear. Wingfoot has no
further benefit or obligation related to these matters.
Wingfoot's related party financing arrangements are described in Note 4.
Affiliated companies provide personnel and support services to Wingfoot. For
the years ended December 31, 1995, 1996 and 1997, Wingfoot incurred
approximately $400, $361 and $477, respectively, for such services.
Goodyear has guaranteed Wingfoot's obligations with various counter parties
in connection with crude purchase agreements and crude exchanges made in the
ordinary course of business (see Note 12).
F-42
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
9. EMPLOYEE BENEFIT PLANS
Postretirement health care benefits
Wingfoot provides its associates with health care benefits upon retirement.
The healthcare benefits are provided by insurance companies through premiums
based on expected benefits to be paid during the year. Portions of the
healthcare benefits are not insured and are paid by the plan.
The net periodic postretirement benefit cost:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER
31,
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost............................................ $ 63 $ 71 $ 86
Interest cost........................................... 185 183 186
Net amortization........................................ (23) (9) (10)
---- ---- ----
Net periodic postretirement benefit cost................ $225 $245 $262
==== ==== ====
</TABLE>
The following table sets forth the funded status and amounts recognized on
Wingfoot's Consolidated Balance Sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Retirees................................................... $(1,838) $(1,759)
Vested active plan participants............................ (116) (194)
Other active plan participants............................. (480) (566)
------- -------
Accumulated benefit obligation in excess of plan assets...... (2,434) (2,519)
Unrecognized net (gain)...................................... (409) (243)
------- -------
Accrued postretirement benefit cost recognized on the
Consolidated Balance Sheet.................................. $(2,843) $(2,762)
======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
The assumptions used were:
Discount rate......................................... 7.75% 7.75% 7.75%
Rate of increase in compensation levels............... 4.50 4.50 4.50
</TABLE>
An 8.00% annual rate of increase in the cost of health care benefits for
retirees under 65 years of age and a 5.75% annual rate of increase for
retirees 65 years or older is assumed in 1998. This rate gradually decreases
to 5.00% in 2010 and remains at that level thereafter. To illustrate the
significance of a 1.00% increase in the assumed healthcare cost trend, the
accumulated benefit obligation would increase by $30 at December 31, 1997 and
the aggregate service and interest cost by $3 for the year then ended.
The Agreement specifies that postretirement healthcare benefit obligations
for only non-vested employees will be assumed by PAAI. PAAI does not intend to
continue such benefits subsequent to the acquisition. After the close of the
sale, postretirement healthcare benefits for retirees and vested employees
will be funded by Goodyear.
F-43
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Pension plan
Substantially all of Wingfoot's associates participate in the pension plan
of CC. CC makes contributions to the pension plan equal to the amount accrued
for pension costs.
Net periodic pension (credit) follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Service cost.................................... $ 305 $ 315 $ 340
Interest cost................................... 544 578 616
Expected return on plan assets.................. (990) (1,292) (1,536)
Amortization.................................... (187) (222) (323)
----- ------- -------
Net periodic pension (credit)................... $(328) $ (621) $ (903)
===== ======= =======
</TABLE>
The following table sets forth the funded status and amounts recognized on
Wingfoot's Consolidated Balance Sheet dated December 31, 1996 and 1997. At the
end of 1996 and 1997, assets exceeded accumulated benefits. Plan assets are
invested primarily in common stocks and fixed income securities.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $(5,380) $(5,625)
------- -------
Accumulated benefit obligation......................... (6,796) (7,434)
------- -------
Projected benefit obligation........................... (8,115) (9,073)
Plan assets............................................ 17,234 21,446
------- -------
Projected benefit obligation less than plan assets..... 9,119 12,373
Unrecognized net gain.................................. (3,775) (6,313)
Unrecognized prior service cost........................ (55) (51)
Unrecognized net (assets) at transition................ (1,238) (1,054)
Adjustment required to recognize minimum liability..... -- --
------- -------
Pension asset recognized on the Consolidated Balance
Sheet................................................. $ 4,051 $ 4,955
======= =======
</TABLE>
In connection with the sale, CC has amended the Pension Plan document to
provide for an election to participants to request a lump-sum or annuity
distribution of vested benefits, for a six-month period after July 31, 1998,
the expected consummation date of the sale of Wingfoot. Further, on July 31,
1998, the accrued benefits under the Plan will be frozen and will become the
responsibility of Goodyear. This amendment has been approved by CC's Board of
Directors.
F-44
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Management plans
AAPL and CC have two non-qualified, unfunded plans that cover certain past
management and designated current management. The net periodic pension cost
for these plans consisted of:
<TABLE>
<CAPTION>
FOR THE YEAR END
DECEMBER 31,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Interest cost........................................ $ 416 $ 409 $ 375
Amortization of gain................................. (28) (2) (11)
----- ----- -----
Net periodic pension cost............................ $ 388 $ 407 $ 364
===== ===== =====
</TABLE>
The funded status of these plans consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $(3,122) $(2,822)
------- -------
Accumulated benefit obligation......................... (3,122) (2,822)
------- -------
Projected benefit obligation........................... (5,164) (4,838)
Plan assets............................................ -- --
------- -------
Projected benefit obligation less than plan assets..... (5,164) (4,838)
Unrecognized net gain.................................. (332) (369)
Adjustment required to recognize minimum liability..... (42) --
------- -------
Pension liability recognized on the Consolidated
Balance Sheet......................................... $(5,538) $(5,207)
======= =======
</TABLE>
Under the Agreement, the liability associated with the management plans will
not be transferred to PAAI. The vested benefits under the management plans
will be paid by Goodyear.
Significant assumptions used in the calculation of pension expense and
obligations for the pension and management plans were:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Discount rate........................................... 7.75% 7.75% 7.50%
Rate of increase in compensation levels................. 5.00% 5.00% 5.00%
Expected long-term rate of return on plan assets........ 9.00% 9.00% 9.00%
</TABLE>
Employee savings plan
Substantially all of Wingfoot's associates are eligible to participate in a
savings plan administered by Goodyear. Under this plan associates elect to
contribute a percentage of their pay. In 1995, 1996 and 1997, the plan
provided for Wingfoot's matching of these contributions (up to a maximum of
6.00% of the associate's annual pay or, if less, $9,500) at a rate of 50.00%.
Wingfoot's contributions were $251, $229 and $172 for the years ended December
31, 1995, 1996 and 1997, respectively. In connection with the sale, Wingfoot's
associates can no longer contribute to the savings plan after the closing. All
vested Wingfoot contributions will be funded by Goodyear.
F-45
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
10. INCOME TAXES
Wingfoot's effective income tax rate varied from the statutory U.S. federal
income tax rate of 35% due to state taxes and the valuation allowance recorded
to offset net deferred tax assets.
Deferred tax liabilities at December 31, 1996 and 1997 result primarily from
temporary differences between book and tax treatments of depreciation, and
capitalized construction costs, including interest. Deferred tax assets at
December 31, 1996 and 1997 result primarily from AAPL's prior year tax losses
and investment tax credits. The resulting deferred tax assets have been fully
offset by a valuation allowance of $202,000 and $488,000 at December 31, 1996
and 1997, respectively.
Wingfoot records its deferred taxes on a tax jurisdiction basis and
classifies the net deferred tax amounts as current or non-current based on the
balance sheet classifications of the related assets or liabilities. Based on
this methodology, Wingfoot has recorded its net deferred tax liability as
long-term.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996 1997
------- ------ -----
<S> <C> <C> <C>
Federal:
Current......................................... $(3,505) $4,320 $ 139
Deferred........................................ 2,341 (933) (703)
State:
Current......................................... 840 840 840
------- ------ -----
Charge/(benefit) in lieu of income taxes.......... $ (324) $4,227 $ 276
======= ====== =====
</TABLE>
In connection with the Agreement, PAAI and Goodyear will execute an IRS
Section 338(h)(10) election (see Note 2).
11. REVENUES ATTRIBUTABLE TO MAJOR CUSTOMERS
During 1995, sales to three companies accounted for 64% (32% to Company B,
18% to Company A and 14% to Company D) of Wingfoot's total revenues. During
1996, sales to two companies accounted for 38% (21% to Company B and 17% to
Company A) of Wingfoot's total revenues. Sales to three companies accounted
for 46% (18% to Company A, 15% to Company B and 13% to Company C) of
Wingfoot's total revenue during 1997. No other single customer accounted for
as much as 10% of total sales during 1995, 1996 or 1997.
F-46
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
12. COMMITMENTS AND CONTINGENCIES
Wingfoot leases office space under leases accounted for as operating leases.
Rental expense amounted to $1,605, $1,195 and $981 for the years ended
December 31, 1995, 1996 and 1997, respectively. Minimum rental payments under
operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
------------------------ ---------
<S> <C>
1998.......................................................... $ 924
1999.......................................................... 893
2000.......................................................... 878
2001.......................................................... 874
2002.......................................................... 875
Thereafter.................................................... 3,273
------
$7,717
======
</TABLE>
Wingfoot incurred costs associated with leased land, rights-of-way, permits
and regulatory fees of $701, $590 and $479 for the years ended December 31,
1995, 1996 and 1997, respectively. At December 31, 1997, minimum future
payments, net of sublease income, associated with these contracts are
approximately $476 for the following year. Generally these contracts extend
beyond one year but can be canceled at any time should they not be required
for operations.
In connection with its crude oil marketing, Goodyear provides certain
parties with Parent Guaranties to secure Wingfoot's obligation for the
purchase of crude oil. Generally, these Guaranties are issued from one year to
unlimited periods. At December 31, 1997, Wingfoot had outstanding letters of
credit of approximately $2,860. Such letters of credit are secured by the
crude inventory and accounts receivable of Wingfoot and are guaranteed by
Goodyear.
In order to receive electrical power service at certain remote locations,
Wingfoot has entered into facilities contracts with several utility companies.
These facilities charges are calculated periodically based upon, among other
factors, actual electricity energy used. Minimum future payments for these
contracts at December 31, 1997 are approximately $760 annually for each of the
next five years.
At December 31, 1997, Wingfoot was not a subject of any significant
litigation, loss contingencies or other claims. Under the terms of the
Agreement, Wingfoot has agreed in certain circumstances to indemnify PAAI,
above a minimum aggregate amount and subject to a limitation, as defined in
the Agreement, for losses arising from future litigation, loss contingencies
and claims relating to events that occurred prior to the closing date.
13. SUBSEQUENT EVENTS
Pursuant to the Agreement, Wingfoot is obligated to repay the outstanding
related party debt and accrued interest of certain of its subsidiaries prior
to closing. On June 15, 1998, Goodyear made capital contributions of $866,131
and cash payments of $15,494 for repayments to Wingfoot. Upon receipt of the
$881,625, Wingfoot paid Goodyear $865,219 ($843,269 for repayment of certain
outstanding related party debt and accrued interest at December 31, 1997 and
$21,950 for repayment of related party accrued interest from January 1, 1998
to May 29, 1998) and remitted the remaining $16,406 to Goodyear for payment of
certain other liabilities to be assumed by Goodyear as a result of the
Agreement.
F-47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Plains All American Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Plains All American Inc. (a
wholly owned subsidiary of Plains Resources Inc.) at June 30, 1998 in
conformity with generally accepted accounting principles. This financial
statement is the responsibility of Plains All American Inc.'s management; our
responsibility is to express an opinion on this financial statement based upon
our audit. We conducted our audit of this statement in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statement
is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statement, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
September 14, 1998
F-48
<PAGE>
PLAINS ALL AMERICAN INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1998 1998
-------- -------------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................... $ 29,229 $ 9,901
Accounts receivable..................................... -- 8,344
Receivables from affiliates............................. -- 610
Inventory............................................... -- 1,048
Prepaid expenses........................................ -- 1,003
-------- --------
29,229 20,906
-------- --------
PROPERTY AND EQUIPMENT
Property and equipment.................................. -- 395,051
Less accumulated depreciation and amortization.......... -- (1,332)
-------- --------
-- 393,719
-------- --------
OTHER ASSETS............................................ -- 6,084
-------- --------
$ 29,229 $420,709
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable........................................ $ -- $ 17,560
Accrued interest payable................................ 4,375
-------- --------
Total current liabilities............................... -- 21,935
-------- --------
LONG-TERM LIABILITIES
Bank debt............................................... -- 285,000
-------- --------
Total liabilities....................................... -- 306,935
-------- --------
STOCKHOLDER'S EQUITY
Common Stock, $.01 par value, 1,000 shares authorized;
issued and outstanding 100 shares...................... -- --
Additional paid-in capital.............................. 28,700 113,701
Retained earnings....................................... 529 73
-------- --------
29,229 113,774
-------- --------
$ 29,229 $420,709
======== ========
</TABLE>
See note to consolidated financial statement.
F-49
<PAGE>
PLAINS ALL AMERICAN INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENT
Plains All American Inc. ("PAAI") is a recently formed Delaware corporation
which is owned 100% by Plains Resources Inc. ("Plains Resources"). PAAI was
formed to acquire, own and operate the interstate crude oil pipeline assets
and operations acquired from The Goodyear Tire & Rubber Company ("Goodyear").
On July 30, 1998, PAAI acquired all of the outstanding capital stock of the
All American Pipeline Company, Celeron Gathering Corporation and Celeron
Trading & Transportation Company (collectively the "Celeron Companies") from
Wingfoot Ventures Seven, Inc., a wholly-owned subsidiary of Goodyear for
approximately $400 million, including transaction costs. The principal assets
of the entities acquired include the All American Pipeline, a 1,233-mile crude
oil pipeline extending from California to Texas, and a 45-mile crude oil
gathering system in the San Joaquin Valley of California, as well as other
assets related to such operations. The acquisition was accounted for utilizing
the purchase method of accounting and the purchase price was allocated in
accordance with APB 16 as follows (in thousands):
<TABLE>
<S> <C>
Property and equipment.............................................. $392,393
Other assets (debt issue costs)..................................... 6,138
Net working capital items........................................... 8,979
--------
$407,510
========
</TABLE>
Financing for the acquisition was provided through (i) The Plains Midstream
Subsidiaries $325 million, limited recourse bank facility with ING (U.S.)
Capital Corporation, BankBoston, N.A. and other lenders (the "Plains Midstream
Credit Facility") and (ii) an approximate $114 million capital contribution
from Plains Resources. Approximately $29 million of the capital contribution
was made in the first quarter of 1998 and the remainder was made in July 1998.
On July 30, 1998, The Plains Midstream Subsidiaries borrowed $300 million
under the Plains Midstream Credit Facility. Such proceeds were used to acquire
all of the outstanding capital stock of the Celeron Companies from Goodyear
and to provide initial working capital.
The Plains Midstream Credit Facility is guaranteed by the Celeron Companies
and is secured by the assets of the Plains Midstream Subsidiaries and the
Celeron Companies, including all pipelines, gathering lines, available
accounts receivable, inventory, linefill and the capital stock of the Celeron
Companies. The Plains Midstream Credit Facility consists of (i) a $100 million
reducing, revolving line of credit with a $30 million sub-limit for letters of
credit ("Tranche A") and (ii) a $225 million non-amortizing term loan
("Tranche B"). The Plains Midstream Subsidiaries incur a commitment fee of
0.5% per annum on the unused portion of Tranche A. The commitment for Tranche
A reduces in twenty-four equal quarterly amounts commencing September 30,
1998, with final maturity on June 30, 2004. Tranche B of the Plains Midstream
Credit Facility is repayable at maturity on June 30, 2005. Prepayment of
principal on Tranche B is subject to a penalty of 1% on amounts prepaid prior
to December 31, 1998, and 0.5% thereafter through June 30, 1999. The Plains
Midstream Credit Facility bears interest at the Plains Midstream Subsidiaries
option at the Base Rate (as defined therein) or (i) LIBOR plus 1.75% for
Tranche A and (ii) LIBOR plus 3.00% prior to September 30, 1998 and LIBOR plus
2.75% thereafter for Tranche B. The Plains Midstream Subsidiaries have entered
into 10 year interest rate swaps with three of the lending banks to fix the
LIBOR portion of the interest rate on $200 million of indebtedness under
Tranche B at 5.96% plus the applicable margin.
The Plains Midstream Credit Facility contains covenants which, among other
things, requires the Plains Midstream Subsidiaries to maintain certain
financial ratios and minimum net worth. In addition, the Plains Midstream
Credit Facility contains restrictions on additional debt or liens, hedging
contracts, asset sales other than those in the ordinary course of business,
dividends and other distributions, investments and capital expenditures above
a specified amount.
Retained earnings at June 30, 1998 reflects interest income on the $29
million Plains Resources capital contribution from the date of inception to
June 30, 1998.
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Plains All American Pipeline, L.P.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Plains All American Pipeline,
L.P. ("the Partnership") at October 30, 1998 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Partnership's management; our responsibility is to express an opinion
on this financial statement based upon our audit. We conducted our audit of
this statement in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
October 31, 1998
F-51
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
BALANCE SHEET
OCTOBER 30, 1998
<TABLE>
<CAPTION>
ASSET
-----
<S> <C>
CURRENT ASSET
Cash................................................................... $1,980
======
<CAPTION>
PARTNERS' EQUITY
----------------
<S> <C>
LIMITED PARTNER'S EQUITY................................................. $ 990
GENERAL PARTNER'S EQUITY................................................. 990
------
Total partners' equity............................................... $1,980
======
</TABLE>
See notes to Balance Sheet.
F-52
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
NOTES TO BALANCE SHEET
OCTOBER 30, 1998
1. THE COMPANY
Plains All American Pipeline, L.P. ("the Partnership") is a Delaware limited
partnership that was formed on September 17, 1998 to acquire, own and operate
the interstate crude oil pipeline assets and operations and the terminalling
and storage and gathering and marketing assets of Plains Resources Inc. and
its subsidiaries. The general partner of the Partnership is Plains All
American Inc. (the "General Partner").
2. LONG-TERM INCENTIVE PLAN AND MANAGEMENT INCENTIVE PLAN
LONG-TERM INCENTIVE PLAN
The General Partner anticipates adopting the Plains All American Inc. 1998
Long-Term Incentive Plan (the "Long-Term Incentive Plan") for employees and
directors of the General Partner and its affiliates who perform services for
the Partnership. The Long-Term Incentive Plan consists of two components, a
restricted unit plan (the "Restricted Unit Plan") and a unit option plan (the
"Unit Option Plan"). The Long-Term Incentive Plan currently permits the grant
of Restricted Units and Unit Options covering an aggregate of 975,000 Common
Units. The plan will be administered by the Compensation Committee of the
General Partner's Board of Directors.
Restricted Unit Plan. A Restricted Unit is a "phantom" unit that entitles
the grantee to receive a Common Unit upon the vesting of the phantom unit.
Management currently estimates that an aggregate of approximately 600,000
Restricted Units will be granted upon consummation of the Transactions to
employees of the General Partner. Management expects that approximately
500,000 Restricted Units will be granted to various non-officer employees. The
Compensation Committee may, in the future, determine to make additional grants
under such plan to employees and directors containing such terms as the
Committee shall determine. In general, Restricted Units granted to employees
during the Subordination Period will vest only upon, and in the same
proportions as, the conversion of the Subordinated Units to Common Units.
Grants made to non-employee directors of the General Partner will be eligible
to vest prior to termination of the Subordination Period.
If a grantee terminates employment or membership on the Board for any
reason, the grantee's Restricted Units will be automatically forfeited unless,
and to the extent, the Compensation Committee provides otherwise. Common Units
to be delivered upon the "vesting" of rights may be Common Units acquired by
the General Partner in the open market, Common Units already owned by the
General Partner, Common Units acquired by the General Partner directly from
the Partnership or any other person, or any combination of the foregoing. The
General Partner will be entitled to reimbursement by the Partnership for the
cost incurred in acquiring such Common Units. If the Partnership issues new
Common Units upon vesting of the Restricted Units, the total number of Common
Units outstanding will increase. Following the Subordination Period, the
Compensation Committee, in its discretion, may grant tandem distribution
equivalent rights with respect to Restricted Units.
The issuance of the Common Units pursuant to the Restricted Unit Plan is
intended to serve as a means of incentive compensation for performance and not
primarily as an opportunity to participate in the equity appreciation in
respect of the Common Units. Therefore, no consideration will be payable by
the plan participants upon receipt of the Common Units and the Partnership
will receive no remuneration for such Units.
Unit Option Plan. The Unit Option Plan currently permits the grant of
options ("Unit Options") covering Common Units. No grants will initially be
made under the Unit Option Plan. The Compensation Committee may, in the
future, determine to make grants under such plan to employees and directors
containing such terms as the Committee shall determine.
F-53
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P.
NOTES TO BALANCE SHEET--(CONTINUED)
OCTOBER 30, 1998
Unit Options will have an exercise price equal to fair market value on the
date of grant. Unit Options granted during the Subordination Period will
become exercisable automatically upon, and in the same proportions as, the
conversion of the Subordinated Units to Common Units, unless a later vesting
date is provided.
Upon exercise of a Unit Option, the General Partner will acquire Common
Units in the open market at a price equal to the then-prevailing price on the
principal national securities exchange upon which the Common Units are then
traded, or directly from the Partnership or any other person, or use Common
Units already owned by the General Partner, or any combination of the
foregoing. The General Partner will be entitled to reimbursement by the
Partnership for the difference between the cost incurred by the General
Partner in acquiring such Common Units and the proceeds received by the
General Partner from an optionee at the time of exercise. Thus, the cost of
the Unit Options will be borne by the Partnership. If the Partnership issues
new Common Units upon exercise of the Unit Options, the total number of Common
Units outstanding will increase, and the General Partner will remit, the
proceeds it received from the optionee upon exercise of the Unit Option to the
Partnership.
The Unit Option Plan has been designed to furnish additional compensation to
employees and directors and to align their economic interests with those of
Common Unitholders.
The General Partner's Board of Directors in its discretion may terminate the
Long-Term Incentive Plan at any time with respect to any Common Units for
which a grant has not theretofore been made. The General Partner's Board of
Directors will also have the right to alter or amend the Long-Term Incentive
Plan or any part thereof from time to time, including increasing the number of
Common Units with respect to which awards may be granted; provided, however,
that no change in any outstanding grant may be made that would materially
impair the rights of the participant without the consent of such participant.
MANAGEMENT INCENTIVE PLAN
The General Partner anticipates adopting the Plains All American Inc.
Management Incentive Plan (the "Management Incentive Plan"). The Management
Incentive Plan is designed to enhance the financial performance of the General
Partner's key employees by rewarding them with cash awards for achieving
quarterly and/or annual financial performance objectives. The Management
Incentive Plan will be administered by the Compensation Committee. Individual
participants and payments, if any, for each fiscal quarter and year will be
determined by and in the discretion of the Compensation Committee. Any
incentive payments will be at the discretion of the Compensation Committee,
and the General Partner will be able to amend or change the Management
Incentive Plan at any time. The General Partner will be entitled to
reimbursement by the Partnership for payments and costs incurred under the
plan.
F-54
<PAGE>
APPENDIX A
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PLAINS ALL AMERICAN PIPELINE, L.P.
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
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Section 1.1 Definitions................................................ A-1
Section 1.2 Construction............................................... A-14
ARTICLE II
ORGANIZATION
Section 2.1 Formation.................................................. A-15
Section 2.2 Name....................................................... A-15
Section 2.3 Registered Office; Registered Agent; Principal Office;
Other Offices............................................. A-15
Section 2.4 Purpose and Business....................................... A-15
Section 2.5 Powers..................................................... A-16
Section 2.6 Power of Attorney.......................................... A-16
Section 2.7 Term....................................................... A-17
Section 2.8 Title to Partnership Assets................................ A-17
ARTICLE III
RIGHTS OF LIMITED PARTNERS
Section 3.1 Limitation of Liability.................................... A-18
Section 3.2 Management of Business..................................... A-18
Section 3.3 Outside Activities of the Limited Partners................. A-18
Section 3.4 Rights of Limited Partners................................. A-18
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS; REDEMPTION OF
PARTNERSHIP INTERESTS
Section 4.1 Certificates .............................................. A-19
Section 4.2 Mutilated, Destroyed, Lost or Stolen Certificates.......... A-19
Section 4.3 Record Holders............................................. A-20
Section 4.4 Transfer Generally......................................... A-20
Section 4.5 Registration and Transfer of Limited Partner Interests..... A-20
Section 4.6 Transfer of the General Partner's General Partner Interest. A-21
Section 4.7 Transfer of Incentive Distribution Rights.................. A-22
Section 4.8 Restrictions on Transfers.................................. A-22
Section 4.9 Citizenship Certificates; Non-citizen Assignees............ A-22
Section 4.10 Redemption of Partnership Interests of Non-citizen
Assignees................................................. A-23
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1 Organizational Contributions............................... A-24
Section 5.2 Contributions by the General Partner and its Affiliates.... A-24
Section 5.3 Contributions by Initial Limited Partners and Reimbursement
of the General Partner.................................... A-24
Section 5.4 Interest and Withdrawal.................................... A-25
Section 5.5 Capital Accounts........................................... A-25
Section 5.6 Issuances of Additional Partnership Securities............. A-27
Section 5.7 Limitations on Issuance of Additional Partnership
Securities................................................ A-28
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Section 5.8 Conversion of Subordinated Units............................ A-29
Section 5.9 Limited Preemptive Right.................................... A-30
Section 5.10 Splits and Combination...................................... A-30
Section 5.11 Fully Paid and Non-Assessable Nature of Limited Partner
Interests.................................................. A-31
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes.................... A-31
Section 6.2 Allocations for Tax Purposes................................ A-36
Section 6.3 Requirement and Characterization of Distributions;
Distributions to Record Holders............................ A-38
Section 6.4 Distributions of Available Cash from Operating Surplus...... A-39
Section 6.5 Distributions of Available Cash from Capital Surplus........ A-40
Section 6.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels........................................ A-40
Section 6.7 Special Provisions Relating to the Holders of Subordinated
Units...................................................... A-40
Section 6.8 Special Provisions Relating to the Holders of Incentive
Distribution Rights........................................ A-41
Section 6.9 Entity-Level Taxation....................................... A-41
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management.................................................. A-42
Section 7.2 Certificate of Limited Partnership.......................... A-43
Section 7.3 Restrictions on General Partner's Authority................. A-43
Section 7.4 Reimbursement of the General Partner........................ A-44
Section 7.5 Outside Activities.......................................... A-45
Section 7.6 Loans from the General Partner; Loans or Contributions from
the Partnership; Contracts with Affiliates; Certain
Restrictions on the General Partner........................ A-46
Section 7.7 Indemnification............................................. A-47
Section 7.8 Liability of Indemnitees.................................... A-48
Section 7.9 Resolution of Conflicts of Interest......................... A-48
Section 7.10 Other Matters Concerning the General Partner................ A-50
Section 7.11 Purchase or Sale of Partnership Securities.................. A-50
Section 7.12 Registration Rights of the General Partner and its
Affiliates................................................. A-50
Section 7.13 Reliance by Third Parties................................... A-52
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting...................................... A-52
Section 8.2 Fiscal Year................................................. A-53
Section 8.3 Reports..................................................... A-53
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information................................. A-53
Section 9.2 Tax Elections............................................... A-53
Section 9.3 Tax Controversies........................................... A-53
Section 9.4 Withholding................................................. A-54
ARTICLE X
ADMISSION OF PARTNERS
Section 10.1 Admission of Initial Limited Partners....................... A-54
Section 10.2 Admission of Substituted Limited Partner.................... A-54
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Section 10.3 Admission of Successor General Partner...................... A-55
Section 10.4 Admission of Additional Limited Partners.................... A-55
Section 10.5 Amendment of Agreement and Certificate of Limited
Partnership................................................ A-55
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
Section 11.1 Withdrawal of the General Partner........................... A-55
Section 11.2 Removal of the General Partner.............................. A-57
Section 11.3 Interest of Departing Partner and Successor General Partner. A-57
Section 11.4 Termination of Subordination Period, Conversion of
Subordinated Units and Extinguishment of Cumulative Common
Unit Arrearages............................................ A-58
Section 11.5 Withdrawal of Limited Partners.............................. A-58
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution................................................. A-58
Section 12.2 Continuation of the Business of the Partnership After
Dissolution................................................ A-59
Section 12.3 Liquidator.................................................. A-59
Section 12.4 Liquidation................................................. A-60
Section 12.5 Cancellation of Certificate of Limited Partnership.......... A-60
Section 12.6 Return of Contributions..................................... A-60
Section 12.7 Waiver of Partition......................................... A-61
Section 12.8 Capital Account Restoration................................. A-61
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
Section 13.1 Amendment to be Adopted Solely by the General Partner....... A-61
Section 13.2 Amendment Procedures........................................ A-62
Section 13.3 Amendment Requirements...................................... A-62
Section 13.4 Special Meetings............................................ A-63
Section 13.5 Notice of a Meeting......................................... A-63
Section 13.6 Record Date................................................. A-63
Section 13.7 Adjournment................................................. A-63
Section 13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes.. A-64
Section 13.9 Quorum...................................................... A-64
Section 13.10 Conduct of a Meeting........................................ A-64
Section 13.11 Action Without a Meeting.................................... A-64
Section 13.12 Voting and Other Rights..................................... A-65
ARTICLE XIV
MERGER
Section 14.1 Authority................................................... A-65
Section 14.2 Procedure for Merger or Consolidation....................... A-66
Section 14.3 Approval by Limited Partners of Merger or Consolidation..... A-66
Section 14.4 Certificate of Merger....................................... A-67
Section 14.5 Effect of Merger............................................ A-67
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
Section 15.1 Right to Acquire Limited Partner Interests.................. A-68
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ARTICLE XVI
GENERAL PROVISIONS
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Section 16.1 Addresses and Notices....................................... A-69
Section 16.2 Further Action.............................................. A-69
Section 16.3 Binding Effect.............................................. A-70
Section 16.4 Integration................................................. A-70
Section 16.5 Creditors................................................... A-70
Section 16.6 Waiver...................................................... A-70
Section 16.7 Counterparts................................................ A-70
Section 16.8 Applicable Law.............................................. A-70
Section 16.9 Invalidity of Provisions.................................... A-70
Section 16.10 Consent of Partners......................................... A-71
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AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
PLAINS ALL AMERICAN PIPELINE, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF PLAINS ALL
AMERICAN PIPELINE, L.P. dated as of , 1998, is entered into by and among
Plains All American Inc., a Delaware corporation, as the General Partner, and
Plains Resources Inc., as the Organizational Limited Partner, together with
any other Persons who become Partners in the Partnership or parties hereto as
provided herein. In consideration of the covenants, conditions and agreements
contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Acquisition" means any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or
business of another Person for the purpose of increasing the operating
capacity or revenues of the Partnership Group from the operating capacity
or revenues of the Partnership Group existing immediately prior to such
transaction.
"Additional Book Basis" means the portion of any remaining Carrying Value
of an Adjusted Property that is attributable to positive adjustments made
to such Carrying Value as a result of Book-Up Events. For purposes of
determining the extent that Carrying Value constitutes Additional Book
Basis:
(i) Any negative adjustment made to the Carrying Value of an Adjusted
Property as a result of either a Book-Down Event or a Book-Up Event
shall first be deemed to offset or decrease that portion of the
Carrying Value of such Adjusted Property that is attributable to any
prior positive adjustments made thereto pursuant to a Book-Up Event or
Book-Down Event.
(ii) If Carrying Value that constitutes Additional Book Basis is
reduced as a result of a Book-Down Event and the Carrying Value of
other property is increased as a result of such Book-Down Event, an
allocable portion of any such increase in Carrying Value shall be
treated as Additional Book Basis; provided that the amount treated as
Additional Book Basis pursuant hereto as a result of such Book-Down
Event shall not exceed the amount by which the Aggregate Remaining Net
Positive Adjustments after such Book-Down Event exceeds the remaining
Additional Book Basis attributable to all of the Partnership's Adjusted
Property after such Book-Down Event (determined without regard to the
application of this clause (ii) to such Book-Down Event).
"Additional Book Basis Derivative Items" means any Book Basis Derivative
Items that are computed with reference to Additional Book Basis. To the
extent that the Additional Book Basis attributable to all of the
Partnership's Adjusted Property as of the beginning of any taxable period
exceeds the Aggregate Remaining Net Positive Adjustments as of the
beginning of such period (the "Excess Additional Book Basis"), the
Additional Book Basis Derivative Items for such period shall be reduced by
the amount that bears the same ratio to the amount of Additional Book Basis
Derivative Items determined without regard to this sentence as the Excess
Additional Book Basis bears to the Additional Book Basis as of the
beginning of such period.
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 10.4 and who is shown as such on
the books and records of the Partnership.
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"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each fiscal year of the Partnership, (a) increased
by any amounts that such Partner is obligated to restore under the
standards set by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is
deemed obligated to restore under Treasury Regulation Sections 1.704-2(g)
and 1.704-2(i)(5)) and (b) decreased by (i) the amount of all losses and
deductions that, as of the end of such fiscal year, are reasonably expected
to be allocated to such Partner in subsequent years under Sections
704(e)(2) and 706(d) of the Code and Treasury Regulation Section 1.751-
1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end
of such fiscal year, are reasonably expected to be made to such Partner in
subsequent years in accordance with the terms of this Agreement or
otherwise to the extent they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during (or prior to)
the year in which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback pursuant to
Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing definition of Adjusted
Capital Account is intended to comply with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith. The "Adjusted Capital Account" of a Partner in
respect of a General Partner Interest, a Common Unit, a Subordinated Unit
or an Incentive Distribution Right or any other specified interest in the
Partnership shall be the amount which such Adjusted Capital Account would
be if such General Partner Interest, Common Unit, Subordinated Unit,
Incentive Distribution Right or other interest in the Partnership were the
only interest in the Partnership held by a Partner from and after the date
on which such General Partner Interest, Common Unit, Subordinated Unit,
Incentive Distribution Right or other interest was first issued.
"Adjusted Operating Surplus" means, with respect to any period, Operating
Surplus generated during such period (a) less (i) any net increase in
Working Capital Borrowings during such period and (ii) any net reduction in
cash reserves for Operating Expenditures during such period not relating to
an Operating Expenditure made during such period, and (b) plus (i) any net
decrease in Working Capital Borrowings during such period and (ii) any net
increase in cash reserves for Operating Expenditures during such period
required by any debt instrument for the repayment of principal, interest or
premium. Adjusted Operating Surplus does not include that portion of
Operating Surplus included in clause (a)(i) of the definition of Operating
Surplus.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii). Once an Adjusted
Property is deemed contributed to a new partnership in exchange for an
interest in the new partnership, followed by a deemed liquidation of the
Partnership for federal income tax purposes upon a termination of the
Partnership pursuant to Treasury Regulation Section 1.708-(b)(1)(iv), such
property shall thereafter constitute a Contributed Property until the
Carrying Value of such property is subsequently adjusted pursuant to
Section 5.5(d)(i) or 5.5(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As
used herein, the term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.
"Aggregate Remaining Net Positive Adjustments" means, as of the end of
any taxable period, the sum of the Remaining Net Positive Adjustments of
all the Partners.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 6.1, including, without limitation, a Curative
Allocation (if appropriate to the context in which the term "Agreed
Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation
as it may adopt. The General Partner shall, in its discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate
Agreed Value of Contributed Properties contributed to the Partnership in a
single or integrated transaction among each separate property on a basis
proportional to the fair market value of each Contributed Property.
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"Agreement" means this Amended and Restated Agreement of Limited
Partnership of Plains All American Pipeline, L.P., as it may be amended,
supplemented or restated from time to time.
"Assignee" means a Non-citizen Assignee or a Person to whom one or more
Limited Partner Interests have been transferred in a manner permitted under
this Agreement and who has executed and delivered a Transfer Application as
required by this Agreement, but who has not been admitted as a Substituted
Limited Partner.
"Associate" means, when used to indicate a relationship with any Person,
(a) any corporation or organization of which such Person is a director,
officer or partner or is, directly or indirectly, the owner of 20% or more
of any class of voting stock or other voting interest; (b) any trust or
other estate in which such Person has at least a 20% beneficial interest or
as to which such Person serves as trustee or in a similar fiduciary
capacity; and (c) any relative or spouse of such Person, or any relative of
such spouse, who has the same principal residence as such Person.
"Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the Partnership
Group on hand at the end of such Quarter, and (ii) all additional cash
and cash equivalents of the Partnership Group on hand on the date of
determination of Available Cash with respect to such Quarter resulting
from Working Capital Borrowings made subsequent to the end of such
Quarter, less
(b) the amount of any cash reserves that is necessary or appropriate
in the reasonable discretion of the General Partner to (i) provide for
the proper conduct of the business of the Partnership Group (including
reserves for future capital expenditures and for anticipated future
credit needs of the Partnership Group) subsequent to such Quarter, (ii)
comply with applicable law or any loan agreement, security agreement,
mortgage, debt instrument or other agreement or obligation to which any
Group Member is a party or by which it is bound or its assets are
subject or (iii) provide funds for distributions under Section 6.4 or
6.5 in respect of any one or more of the next four Quarters; provided,
however, that the General Partner may not establish cash reserves
pursuant to (iii) above if the effect of such reserves would be that
the Partnership is unable to distribute the Minimum Quarterly
Distribution on all Common Units, plus any Cumulative Common Unit
Arrearage on all Common Units, with respect to such Quarter; and,
provided further, that disbursements made by a Group Member or cash
reserves established, increased or reduced after the end of such
Quarter but on or before the date of determination of Available Cash
with respect to such Quarter shall be deemed to have been made,
established, increased or reduced, for purposes of determining
Available Cash, within such Quarter if the General Partner so
determines.
Notwithstanding the foregoing, "Available Cash" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter
shall equal zero.
"Book Basis Derivative Items" means any item of income, deduction, gain
or loss included in the determination of Net Income or Net Loss that is
computed with reference to the Carrying Value of an Adjusted Property
(e.g., depreciation, depletion, or gain or loss with respect to an Adjusted
Property).
"Book-Down Event" means an event which triggers a negative adjustment to
the Capital Accounts of the Partners pursuant to Section 5.5(d).
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax
purposes as of such date. A Partner's share of the Partnership's Book-Tax
Disparities in all of its Contributed Property and Adjusted Property will
be reflected by the difference between such Partner's Capital Account
balance as maintained pursuant to Section 5.5 and the hypothetical balance
of such Partner's Capital Account computed as if it had been maintained
strictly in accordance with federal income tax accounting principles.
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"Book-Up Event" means an event which triggers a positive adjustment to
the Capital Accounts of the Partners pursuant to Section 5.5(d).
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York or Texas shall not be regarded as a
Business Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.5. The "Capital Account" of a Partner in respect of a
General Partner Interest, a Common Unit, a Subordinated Unit, an Incentive
Distribution Right or any other Partnership Interest shall be the amount
which such Capital Account would be if such General Partner Interest,
Common Unit, Subordinated Unit, Incentive Distribution Right or other
Partnership Interest were the only interest in the Partnership held by a
Partner from and after the date on which such General Partner Interest,
Common Unit, Subordinated Unit, Incentive Distribution Right or other
Partnership Interest was first issued.
"Capital Contribution" means any cash, cash equivalents or the Net Agreed
Value of Contributed Property that a Partner contributes to the Partnership
pursuant to this Agreement or the Contribution and Conveyance Agreement.
"Capital Improvement" means any (a) addition or improvement to the
capital assets owned by any Group Member or (b) acquisition of existing, or
the construction of new, capital assets (including, without limitation,
pipeline systems, terminalling and storage facilities and related assets),
in each case made to increase the operating capacity or revenues of the
Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such addition, improvement,
acquisition or construction.
"Capital Surplus" has the meaning assigned to such term in Section
6.3(a).
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all
depreciation, amortization and cost recovery deductions charged to the
Partner's and Assignee's Capital Accounts in respect of such Contributed
Property, and (b) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes, all as of
the time of determination. The Carrying Value of any property shall be
adjusted from time to time in accordance with Sections 5.5(d)(i) and
5.5(d)(ii) and to reflect changes, additions or other adjustments to the
Carrying Value for dispositions and acquisitions of Partnership properties,
as deemed appropriate by the General Partner.
"Cause" means a court of competent jurisdiction has entered a final, non-
appealable judgment finding the General Partner liable for actual fraud,
gross negligence or willful or wanton misconduct in its capacity as general
partner of the Partnership.
"Certificate" means a certificate, substantially in the form of Exhibit A
to this Agreement or in such other form as may be adopted by the General
Partner in its discretion, issued by the Partnership evidencing ownership
of one or more Common Units or a certificate, in such form as may be
adopted by the General Partner in its discretion, issued by the Partnership
evidencing ownership of one or more other Partnership Securities.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership of the Partnership filed with the Secretary of State of the
State of Delaware as referenced in Section 2.1, as such Certificate of
Limited Partnership may be amended, supplemented or restated from time to
time.
"Citizenship Certification" means a properly completed certificate in
such form as may be specified by the General Partner by which an Assignee
or a Limited Partner certifies that he (and if he is a nominee holding for
the account of another Person, that to the best of his knowledge such other
Person) is an Eligible Citizen.
"Claim" has the meaning assigned to such term in Section 7.12(c).
"Closing Date" means the first date on which Common Units are sold by the
Partnership to the Underwriters pursuant to the provisions of the
Underwriting Agreement.
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"Closing Price" has the meaning assigned to such term in Section 15.1(a).
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. Any reference herein to a specific section or sections
of the Code shall be deemed to include a reference to any corresponding
provision of successor law.
"Combined Interest" has the meaning assigned to such term in Section
11.3(a).
"Commission" means the United States Securities and Exchange Commission.
"Common Unit" means a Partnership Security representing a fractional part
of the Partnership Interests of all Limited Partners and Assignees and of
the General Partner (exclusive of its interest as a holder of the General
Partner Interest and Incentive Distribution Rights) and having the rights
and obligations specified with respect to Common Units in this Agreement.
The term "Common Unit" does not refer to a Subordinated Unit prior to its
conversion into a Common Unit pursuant to the terms hereof.
"Common Unit Arrearage" means, with respect to any Common Unit, whenever
issued, as to any Quarter within the Subordination Period, the excess, if
any, of (a) the Minimum Quarterly Distribution with respect to a Common
Unit in respect of such Quarter over (b) the sum of all Available Cash
distributed with respect to a Common Unit in respect of such Quarter
pursuant to Section 6.4(a)(i).
"Conflicts Committee" means a committee of the Board of Directors of the
General Partner composed entirely of two or more directors who are neither
securityholders, officers nor employees of the General Partner nor
officers, directors or employees of any Affiliate of the General Partner.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Delaware Act, but excluding cash, contributed to
the Partnership (or deemed contributed to a new partnership on termination
of the Partnership pursuant to Section 708 of the Code). Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 5.5(d),
such property shall no longer constitute a Contributed Property, but shall
be deemed an Adjusted Property.
"Contribution and Conveyance Agreement" means that certain Contribution,
Conveyance and Assumption Agreement, dated as of the Closing Date, among
the General Partner, the Plains Midstream Subsidiaries, the Partnership,
the Operating Partnership and certain other parties, together with the
additional conveyance documents and instruments contemplated or referenced
thereunder.
"Cumulative Common Unit Arrearage" means, with respect to any Common
Unit, whenever issued, and as of the end of any Quarter, the excess, if
any, of (a) the sum resulting from adding together the Common Unit
Arrearage as to an Initial Common Unit for each of the Quarters within the
Subordination Period ending on or before the last day of such Quarter over
(b) the sum of any distributions theretofore made pursuant to Section
6.4(a)(ii) and the second sentence of Section 6.5 with respect to an
Initial Common Unit (including any distributions to be made in respect of
the last of such Quarters).
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(xi).
"Current Market Price" has the meaning assigned to such term in Section
15.1(a).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del C. (S) 17-101, et seq., as amended, supplemented or restated
from time to time, and any successor to such statute.
"Departing Partner" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1 or 11.2.
"Economic Risk of Loss" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which any Group Member does business or
proposes to do business from time to time, and whose status as a
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Limited Partner or Assignee does not or would not subject such Group Member
to a significant risk of cancellation or forfeiture of any of its
properties or any interest therein.
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"Final Subordinated Units" has the meaning assigned to such term in
Section 6.1(d)(x).
"First Liquidation Target Amount" has the meaning assigned to such term
in Section 6.1(c)(i)(D).
"First Target Distribution" means $.495 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on December
31, 1998, it means the product of $.495 multiplied by a fraction of which
the numerator is the number of days in such period, and of which the
denominator is 91), subject to adjustment in accordance with Sections 6.6
and 6.9.
"General Partner" means Plains All American Inc. and its successors and
permitted assigns as general partner of the Partnership.
"General Partner Interest" means the ownership interest of the General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it) which may be
evidenced by Partnership Securities or a combination thereof or interest
therein, and includes any and all benefits to which the General Partner is
entitled as provided in this Agreement, together with all obligations of
the General Partner to comply with the terms and provisions of this
Agreement.
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (except voting pursuant to a revocable proxy
or consent given to such Person in response to a proxy or consent
solicitation made to 10 or more Persons) or disposing of any Partnership
Securities with any other Person that beneficially owns, or whose
Affiliates or Associates beneficially own, directly or indirectly,
Partnership Securities.
"Group Member" means a member of the Partnership Group.
"Holder" as used in Section 7.12, has the meaning assigned to such term
in Section 7.12(a).
"Incentive Distribution Right" means a non-voting Limited Partner
Interest issued to the General Partner in connection with the transfer of
substantially all of its general partner interest in the Operating
Partnership to the Partnership pursuant to Section 5.2, which Partnership
Interest will confer upon the holder thereof only the rights and
obligations specifically provided in this Agreement with respect to
Incentive Distribution Rights (and no other rights otherwise available to
or other obligations of a holder of a Partnership Interest).
Notwithstanding anything in this Agreement to the contrary, the holder of
an Incentive Distribution Right shall not be entitled to vote such
Incentive Distribution Right on any Partnership matter except as may
otherwise be required by law.
"Incentive Distributions" means any amount of cash distributed to the
holders of the Incentive Distribution Rights pursuant to Sections
6.4(a)(iv), (v) and (vi) and 6.4(b)(ii), (iii) and (iv).
"Indemnified Persons" has the meaning assigned to such term in Section
7.12(c).
"Indemnitee" means (a) the General Partner, (b) any Departing Partner,
(c) any Person who is or was an Affiliate of the General Partner or any
Departing Partner, (d) any Person who is or was a member, partner, officer,
director, employee, agent or trustee of any Group Member, the General
Partner or any Departing Partner or any Affiliate of any Group Member, the
General Partner or any Departing Partner and (e) any Person who is or was
serving at the request of the General Partner or any Departing Partner or
any Affiliate of the General Partner or any Departing Partner as an
officer, director, employee, member, partner, agent, fiduciary or trustee
of another Person; provided, that a Person shall not be an Indemnitee by
reason of providing, on a fee-for-services basis, trustee, fiduciary or
custodial services.
"Initial Common Units" means the Common Units sold in the Initial
Offering.
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"Initial Limited Partners" means the General Partner (with respect to the
Common Units, Subordinated Units and the Incentive Distribution Rights
received by it pursuant to Section 5.2) and the Underwriters, in each case
upon being admitted to the Partnership in accordance with Section 10.1.
"Initial Offering" means the initial offering and sale of Common Units to
the public, as described in the Registration Statement.
"Initial Unit Price" means (a) with respect to the Common Units and the
Subordinated Units, the initial public offering price per Common Unit at
which the Underwriters offered the Common Units to the public for sale as
set forth on the cover page of the prospectus included as part of the
Registration Statement and first issued at or after the time the
Registration Statement first became effective or (b) with respect to any
other class or series of Units, the price per Unit at which such class or
series of Units is initially sold by the Partnership, as determined by the
General Partner, in each case adjusted as the General Partner determines to
be appropriate to give effect to any distribution, subdivision or
combination of Units.
"Interim Capital Transactions" means the following transactions if they
occur prior to the Liquidation Date: (a) borrowings, refinancings or
refundings of indebtedness and sales of debt securities (other than Working
Capital Borrowings and other than for items purchased on open account in
the ordinary course of business) by any Group Member; (b) sales of equity
interests by any Group Member (other than the Common Units sold to the
Underwriters pursuant to the exercise of their over-allotment option); and
(c) sales or other voluntary or involuntary dispositions of any assets of
any Group Member (other than (i) sales or other dispositions of inventory,
accounts receivable and other assets in the ordinary course of business and
(ii) sales or other dispositions of assets as part of normal retirements or
replacements).
"Issue Price" means the price at which a Unit is purchased from the
Partnership, after taking into account any sales commission or underwriting
discount charged to the Partnership.
"Limited Partner" means, unless the context otherwise requires, (a) the
Organizational Limited Partner prior to its withdrawal from the
Partnership, each Initial Limited Partner, each Substituted Limited
Partner, each Additional Limited Partner and any Partner upon the change of
its status from General Partner to Limited Partner pursuant to Section 11.3
or (b) solely for purposes of Articles V, VI, VII and IX and Sections 12.3
and 12.4, each Assignee; provided, however, that when the term "Limited
Partner" is used herein in the context of any vote or other approval,
including without limitation Articles XIII and XIV, such term shall not,
solely for such purpose, include any holder of an Incentive Distribution
Right except as may otherwise be required by law.
"Limited Partner Interest" means the ownership interest of a Limited
Partner or Assignee in the Partnership, which may be evidenced by Common
Units, Subordinated Units, Incentive Distribution Rights or other
Partnership Securities or a combination thereof or interest therein, and
includes any and all benefits to which such Limited Partner or Assignee is
entitled as provided in this Agreement, together with all obligations of
such Limited Partner or Assignee to comply with the terms and provisions of
this Agreement; provided, however, that when the term "Limited Partner
Interest" is used herein in the context of any vote or other approval,
including without limitation Articles XIII and XIV, such term shall not,
solely for such purpose, include any holder of an Incentive Distribution
Right except as may otherwise be required by law.
"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b)
of the first sentence of Section 12.2, the date on which the applicable
time period during which the holders of Outstanding Units have the right to
elect to reconstitute the Partnership and continue its business has expired
without such an election being made, and (b) in the case of any other event
giving rise to the dissolution of the Partnership, the date on which such
event occurs.
"Liquidator" means one or more Persons selected by the General Partner to
perform the functions described in Section 12.3 as liquidating trustee of
the Partnership within the meaning of the Delaware Act.
"Merger Agreement" has the meaning assigned to such term in Section 14.1.
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"Minimum Quarterly Distribution" means $0.45 per Unit per Quarter (or
with respect to the period commencing on the Closing Date and ending on
December 31, 1998, it means the product of $0.45 multiplied by a fraction
of which the numerator is the number of days in such period and of which
the denominator is 91), subject to adjustment in accordance with Sections
6.6 and 6.9.
"National Securities Exchange" means an exchange registered with the
Commission under Section 6(a) of the Securities Exchange Act of 1934, as
amended, supplemented or restated from time to time, and any successor to
such statute, or the Nasdaq Stock Market or any successor thereto.
"Net Agreed Value" means, (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed
by the Partnership upon such contribution or to which such property is
subject when contributed, and (b) in the case of any property distributed
to a Partner or Assignee by the Partnership, the Partnership's Carrying
Value of such property (as adjusted pursuant to Section 5.5(d)(ii)) at the
time such property is distributed, reduced by any indebtedness either
assumed by such Partner or Assignee upon such distribution or to which such
property is subject at the time of distribution, in either case, as
determined under Section 752 of the Code.
"Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss)
for such taxable year over the Partnership's items of loss and deduction
(other than those items taken into account in the computation of Net
Termination Gain or Net Termination Loss) for such taxable year. The items
included in the calculation of Net Income shall be determined in accordance
with Section 5.5(b) and shall not include any items specially allocated
under Section 6.1(d); provided that the determination of the items that
have been specially allocated under Section 6.1(d) shall be made as if
Section 6.1(d)(xii) were not in this Agreement.
"Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction (other than those items taken
into account in the computation of Net Termination Gain or Net Termination
Loss) for such taxable year over the Partnership's items of income and gain
(other than those items taken into account in the computation of Net
Termination Gain or Net Termination Loss) for such taxable year. The items
included in the calculation of Net Loss shall be determined in accordance
with Section 5.5(b) and shall not include any items specially allocated
under Section 6.1(d); provided that the determination of the items that
have been specially allocated under Section 6.1(d) shall be made as if
Section 6.1(d)(xii) were not in this Agreement.
"Net Positive Adjustments" means, with respect to any Partner, the
excess, if any, of the total positive adjustments over the total negative
adjustments made to the Capital Account of such Partner pursuant to Book-Up
Events and Book-Down Events.
"Net Termination Gain" means, for any taxable year, the sum, if positive,
of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the
determination of Net Termination Gain shall be determined in accordance
with Section 5.5(b) and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
"Net Termination Loss" means, for any taxable year, the sum, if negative,
of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the
determination of Net Termination Loss shall be determined in accordance
with Section 5.5(b) and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
"Non-citizen Assignee" means a Person whom the General Partner has
determined in its discretion does not constitute an Eligible Citizen and as
to whose Partnership Interest the General Partner has become the
Substituted Limited Partner, pursuant to Section 4.9.
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain
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that would be allocated to the Partners pursuant to Sections 6.2(b)(i)(A),
6.2(b)(ii)(A) and 6.2(b)(iii) if such properties were disposed of in a
taxable transaction in full satisfaction of such liabilities and for no
other consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in
accordance with the principles of Treasury Regulation Section 1.704-2(b),
are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"Notice of Election to Purchase" has the meaning assigned to such term in
Section 15.1(b).
"Omnibus Agreement" means that Omnibus Agreement, dated as of the Closing
Date, among Plains Resources Inc., the General Partner, the Partnership and
each Operating Partnership.
"Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the General
Partner, debt service payments, and capital expenditures, subject to the
following:
(a) Payments (including prepayments) of principal of and premium on
indebtedness shall not be an Operating Expenditure if the payment is
(i) required in connection with the sale or other disposition of assets
or (ii) made in connection with the refinancing or refunding of
indebtedness with the proceeds from new indebtedness or from the sale
of equity interests. For purposes of the foregoing, at the election and
in the reasonable discretion of the General Partner, any payment of
principal or premium shall be deemed to be refunded or refinanced by
any indebtedness incurred or to be incurred by the Partnership Group
within 180 days before or after such payment to the extent of the
principal amount of such indebtedness.
(b) Operating Expenditures shall not include (i) capital expenditures
made for Acquisitions or for Capital Improvements, (ii) payment of
transaction expenses relating to Interim Capital Transactions or (iii)
distributions to Partners. Where capital expenditures are made in part
for Acquisitions or for Capital Improvements and in part for other
purposes, the General Partner's good faith allocation between the
amounts paid for each shall be conclusive.
"Operating Partnerships" means Plains Marketing, L.P., a Delaware limited
partnership, All American, L.P., a Delaware limited partnership, and any
successors thereto.
"Operating Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership of each of the Operating Partnerships, as
they may be amended, supplemented or restated from time to time.
"Operating Surplus" means, with respect to any period ending prior to the
Liquidation Date, on a cumulative basis and without duplication,
(a) the sum of (i) $25 million plus all cash and cash equivalents of
the Partnership Group on hand as of the close of business on the
Closing Date, (ii) all cash receipts of the Partnership Group for the
period beginning on the Closing Date and ending with the last day of
such period, other than cash receipts from Interim Capital Transactions
(except to the extent specified in Section 6.5) and (iii) all cash
receipts of the Partnership Group after the end of such period but on
or before the date of determination of Operating Surplus with respect
to such period resulting from Working Capital Borrowings, less
(b) the sum of (i) Operating Expenditures for the period beginning on
the Closing Date and ending with the last day of such period and (ii)
the amount of cash reserves that is necessary or advisable in the
reasonable discretion of the General Partner to provide funds for
future Operating Expenditures; provided, however, that disbursements
made (including contributions to a Group Member or disbursements on
behalf of a Group Member) or cash reserves established, increased or
reduced after the end of such period but on or before the date of
determination of Available Cash with respect to such period shall be
deemed to have been made, established, increased or reduced, for
purposes of determining Operating Surplus, within such period if the
General Partner so determines.
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Notwithstanding the foregoing, "Operating Surplus" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter
shall equal zero.
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the General Partner or any of its
Affiliates) acceptable to the General Partner in its reasonable discretion.
"Organizational Limited Partner" means Plains Resources Inc. in its
capacity as the organizational limited partner of the Partnership pursuant
to this Agreement.
"Outstanding" means, with respect to Partnership Securities, all
Partnership Securities that are issued by the Partnership and reflected as
outstanding on the Partnership's books and records as of the date of
determination; provided, however, that if at any time any Person or Group
(other than the General Partner or its Affiliates) beneficially owns 20% or
more of any Outstanding Partnership Securities of any class then
Outstanding, all Partnership Securities owned by such Person or Group shall
not be voted on any matter and shall not be considered to be Outstanding
when sending notices of a meeting of Limited Partners to vote on any matter
(unless otherwise required by law), calculating required votes, determining
the presence of a quorum or for other similar purposes under this
Agreement, except that Common Units so owned shall be considered to be
Outstanding for purposes of Section 11.1(b)(iv) (such Common Units shall
not, however, be treated as a separate class of Partnership Securities for
purposes of this Agreement); provided, further, that the foregoing
limitation shall not apply (i) to any Person or Group who acquired 20% or
more of any Partnership Securities of any class then Outstanding directly
from the General Partner or its Affiliates or (ii) to any Person or Group
who acquired 20% or more of any Partnership Securities of any class then
Outstanding directly or indirectly from a Person or Group described in
clause (i) provided that the General Partner shall have notified such
Person or Group in writing that such limitation shall not apply.
"Over-Allotment Option" means the over-allotment option granted to the
Underwriters by the Partnership pursuant to the Underwriting Agreement.
"Parity Units" means Common Units and all other Units having rights to
distributions or in liquidation ranking on a parity with the Common Units.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with the
principles of Treasury Regulation Section 1.704-2(i), are attributable to a
Partner Nonrecourse Debt.
"Partners" means the General Partner and the Limited Partners.
"Partnership" means Plains All American Pipeline, L.P., a Delaware
limited partnership, and any successors thereto.
"Partnership Group" means the Partnership, the Operating Partnerships and
any Subsidiary of any such entity, treated as a single consolidated entity.
"Partnership Interest" means an interest in the Partnership, which shall
include the General Partner Interest and Limited Partner Interests.
"Partnership Minimum Gain" means that amount determined in accordance
with the principles of Treasury Regulation Section 1.704-2(d).
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"Partnership Security" means any class or series of equity interest in
the Partnership (but excluding any options, rights, warrants and
appreciation rights relating to an equity interest in the Partnership),
including without limitation, Common Units, Subordinated Units and
Incentive Distribution Rights.
"Percentage Interest" means as of any date of determination (a) as to the
General Partner (with respect to its General Partner Interest), an
aggregate 1.0%, (b) as to any Unitholder or Assignee holding Units, the
product obtained by multiplying (i) 99% less the percentage applicable to
paragraph (c) by (ii) the quotient obtained by dividing (A) the number of
Units held by such Unitholder or Assignee by (B) the total number of all
Outstanding Units, and (c) as to the holders of additional Partnership
Securities issued by the Partnership in accordance with Section 5.6, the
percentage established as a part of such issuance. The Percentage Interest
with respect to an Incentive Distribution Right shall at all times be zero.
"Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization,
association, government agency or political subdivision thereof or other
entity.
"Per Unit Capital Amount" means, as of any date of determination, the
Capital Account, stated on a per Unit basis, underlying any Unit held by a
Person other than the General Partner or any Affiliate of the General
Partner who holds Units.
"Plains Midstream Subsidiaries" means Plains Marketing & Transportation
Inc., a Delaware corporation, Plains Terminal & Transfer Corporation, a
Delaware corporation, PLX Crude Lines Inc., a Delaware corporation, and PLX
Ingleside Inc., a Delaware corporation, each a wholly owned subsidiary of
Plains Resources prior to their merger into Plains Resources.
"Pro Rata" means (a) when modifying Units or any class thereof,
apportioned equally among all designated Units in accordance with their
relative Percentage Interests, (b) when modifying Partners and Assignees,
apportioned among all Partners and Assignees in accordance with their
relative Percentage Interests and (c) when modifying holders of Incentive
Distribution Rights, apportioned equally among all holders of Incentive
Distribution Rights in accordance with the relative number of Incentive
Distribution Rights held by each such holder.
"Purchase Date" means the date determined by the General Partner as the
date for purchase of all Outstanding Units of a certain class (other than
Units owned by the General Partner and its Affiliates) pursuant to Article
XV.
"Quarter" means, unless the context requires otherwise, a fiscal quarter
of the Partnership.
"Recapture Income" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Section 734 or Section 743 of
the Code) upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or
asset.
"Record Date" means the date established by the General Partner for
determining (a) the identity of the Record Holders entitled to notice of,
or to vote at, any meeting of Limited Partners or entitled to vote by
ballot or give approval of Partnership action in writing without a meeting
or entitled to exercise rights in respect of any lawful action of Limited
Partners or (b) the identity of Record Holders entitled to receive any
report or distribution or to participate in any offer.
"Record Holder" means the Person in whose name a Common Unit is
registered on the books of the Transfer Agent as of the opening of business
on a particular Business Day, or with respect to other Partnership
Securities, the Person in whose name any such other Partnership Security is
registered on the books which the General Partner has caused to be kept as
of the opening of business on such Business Day.
"Redeemable Interests" means any Partnership Interests for which a
redemption notice has been given, and has not been withdrawn, pursuant to
Section 4.10.
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"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-64107) as it has been or as it may be amended or
supplemented from time to time, filed by the Partnership with the
Commission under the Securities Act to register the offering and sale of
the Common Units in the Initial Offering.
"Remaining Net Positive Adjustments" means as of the end of any taxable
period, (i) with respect to the Unitholders holding Common Units or
Subordinated Units, the excess of (a) the Net Positive Adjustments of the
Unitholders holding Common Units or Subordinated Units as of the end of
such period over (b) the sum of those Partners' Share of Additional Book
Basis Derivative Items for each prior taxable period, (ii) with respect to
the General Partner (as holder of the General Partner Interest), the excess
of (a) the Net Positive Adjustments of the General Partner as of the end of
such period over (b) the sum of the General Partner's Share of Additional
Book Basis Derivative Items with respect to the General Partner Interest
for each prior taxable period, and (iii) with respect to the holders of
Incentive Distribution Rights, the excess of (a) the Net Positive
Adjustments of the holders of Incentive Distribution Rights as of the end
of such period over (b) the sum of the Share of Additional Book Basis
Derivative Items of the holders of the Incentive Distribution Rights for
each prior taxable period.
"Required Allocations" means (a) any limitation imposed on any allocation
of Net Losses or Net Termination Losses under Section 6.1(b) or 6.1(c)(ii)
and (b) any allocation of an item of income, gain, loss or deduction
pursuant to Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv), 6.1(d)(vii) or
6.1(d)(ix).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed
Property or Adjusted Property, to the extent such item of gain or loss is
not allocated pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A),
respectively, to eliminate Book-Tax Disparities.
"Restricted Business" has the meaning assigned to such term in the
Omnibus Agreement.
"Second Liquidation Target Amount" has the meaning assigned to such term
in Section 6.1(c)(i)(E).
"Second Target Distribution" means $.675 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on December
31, 1998, it means the product of $.675 multiplied by a fraction of which
the numerator is equal to the number of days in such period and of which
the denominator is 91), subject to adjustment in accordance with Sections
6.6 and 6.9.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such
statute.
"Share of Additional Book Basis Derivative Items" means in connection
with any allocation of Additional Book Basis Derivative Items for any
taxable period, (i) with respect to the Unitholders holding Common Units or
Subordinated Units, the amount that bears the same ratio to such Additional
Book Basis Derivative Items as the Unitholders' Remaining Net Positive
Adjustments as of the end of such period bears to the Aggregate Remaining
Net Positive Adjustments as of that time, (ii) with respect to the General
Partner (as holder of the General Partner Interest), the amount that bears
the same ratio to such additional Book Basis Derivative Items as the
General Partner's Remaining Net Positive Adjustments as of the end of such
period bears to the Aggregate Remaining Net Positive Adjustment as of that
time, and (iii) with respect to the Partners holding Incentive Distribution
Rights, the amount that bears the same ratio to such Additional Book Basis
Derivative Items as the Remaining Net Positive Adjustments of the Partners
holding the Incentive Distribution Rights as of the end of such period
bears to the Aggregate Remaining Net Positive Adjustments as of that time.
"Special Approval" means approval by a majority of the members of the
Conflicts Committee.
"Subordinated Unit" means a Unit representing a fractional part of the
Partnership Interests of all Limited Partners and Assignees (other than of
holders of the Incentive Distribution Rights) and having the rights and
obligations specified with respect to Subordinated Units in this Agreement.
The term "Subordinated Unit" as used herein does not include a Common Unit.
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"Subordination Period" means the period commencing on the Closing Date
and ending on the first to occur of the following dates:
(a) the first day of any Quarter beginning after December 31, 2003 in
respect of which (i) (A) distributions of Available Cash from Operating
Surplus on each of the Outstanding Common Units and Subordinated Units
with respect to each of the three consecutive, non-overlapping four-
Quarter periods immediately preceding such date equaled or exceeded the
sum of the Minimum Quarterly Distribution on all Outstanding Common
Units and Subordinated Units during such periods and (B) the Adjusted
Operating Surplus generated during each of the three consecutive, non-
overlapping four-Quarter periods immediately preceding such date
equaled or exceeded the sum of the Minimum Quarterly Distribution on
all of the Common Units and Subordinated Units that were Outstanding
during such periods on a fully diluted basis (i.e., taking into account
for purposes of such determination all Outstanding Common Units, all
Outstanding Subordinated Units, all Common Units and Subordinated Units
issuable upon exercise of employee options that have, as of the date of
determination, already vested or are scheduled to vest prior to the end
of the Quarter immediately following the Quarter with respect to which
such determination is made, and all Common Units and Subordinated Units
that have as of the date of determination, been earned by but not yet
issued to management of the Partnership in respect of incentive
compensation), plus the related distribution on the General Partner
Interest in the Partnership and on the general partner interest in the
Operating Partnership, during such periods and (ii) there are no
Cumulative Common Unit Arrearages; and
(b) the date on which the General Partner is removed as general
partner of the Partnership upon the requisite vote by holders of
Outstanding Units under circumstances where Cause does not exist and
Units held by the General Partner and its Affiliates are not voted in
favor of such removal.
"Subsidiary" means, with respect to any Person, (a) a corporation of
which more than 50% of the voting power of shares entitled (without regard
to the occurrence of any contingency) to vote in the election of directors
or other governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person or a combination thereof, (b) a partnership
(whether general or limited) in which such Person or a Subsidiary of such
Person is, at the date of determination, a general or limited partner of
such partnership, but only if more than 50% of the partnership interests of
such partnership (considering all of the partnership interests of the
partnership as a single class) is owned, directly or indirectly, at the
date of determination, by such Person, by one or more Subsidiaries of such
Person, or a combination thereof, or (c) any other Person (other than a
corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or
indirectly, at the date of determination, has (i) at least a majority
ownership interest or (ii) the power to elect or direct the election of a
majority of the directors or other governing body of such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 10.2 in place of and with
all the rights of a Limited Partner and who is shown as a Limited Partner
on the books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Trading Day" has the meaning assigned to such term in Section 15.1(a).
"Transfer" has the meaning assigned to such term in Section 4.4(a).
"Transfer Agent" means such bank, trust company or other Person
(including the General Partner or one of its Affiliates) as shall be
appointed from time to time by the Partnership to act as registrar and
transfer agent for the Common Units; provided that if no Transfer Agent is
specifically designated for any other Partnership Securities, the General
Partner shall act in such capacity.
"Transfer Application" means an application and agreement for transfer of
Units in the form set forth on the back of a Certificate or in a form
substantially to the same effect in a separate instrument.
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"Underwriter" means each Person named as an underwriter in Schedule I to
the Underwriting Agreement who purchases Common Units pursuant thereto.
"Underwriting Agreement" means the Underwriting Agreement dated
, 1998 among the Underwriters, the Partnership and certain other
parties, providing for the purchase of Common Units by such Underwriters.
"Unit" means a Partnership Security that is designated as a "Unit" and
shall include Common Units and Subordinated Units but shall not include (i)
a General Partner Interest or (ii) Incentive Distribution Rights.
"Unitholders" means the holders of Common Units and Subordinated Units.
"Unit Majority" means, during the Subordination Period, at least a
majority of the Outstanding Common Units (excluding Common Units owned by
the General Partner and its affiliates) voting as a class and at least a
majority of the Outstanding Subordinated Units voting as a class, and
thereafter, at least a majority of the Outstanding Common Units.
"Unpaid MQD" has the meaning assigned to such term in Section
6.1(c)(i)(B).
"Unrealized Gain" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such property as of such date (as determined under Section 5.5(d))
over (b) the Carrying Value of such property as of such date (prior to any
adjustment to be made pursuant to Section 5.5(d) as of such date).
"Unrealized Loss" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 5.5(d) as of such date) over (b) the fair market value
of such property as of such date (as determined under Section 5.5(d)).
"Unrecovered Capital" means at any time, with respect to a Unit, the
Initial Unit Price less the sum of all distributions constituting Capital
Surplus theretofore made in respect of an Initial Common Unit and any
distributions of cash (or the Net Agreed Value of any distributions in
kind) in connection with the dissolution and liquidation of the Partnership
theretofore made in respect of an Initial Common Unit, adjusted as the
General Partner determines to be appropriate to give effect to any
distribution, subdivision or combination of such Units.
"U.S. GAAP" means United States Generally Accepted Accounting Principles
consistently applied.
"Withdrawal Opinion of Counsel" has the meaning assigned to such term in
Section 11.1(b).
"Working Capital Borrowings" means borrowings exclusively for working
capital purposes made pursuant to a credit facility or other arrangement
requiring all such borrowings thereunder to be reduced to a relatively
small amount each year for an economically meaningful period of time.
Section 1.2 Construction.
Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural
and vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) the term "include" or "includes" means
includes, without limitation, and "including" means including, without
limitation.
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ARTICLE II
ORGANIZATION
Section 2.1 Formation.
The General Partner and the Organizational Limited Partner have previously
formed the Partnership as a limited partnership pursuant to the provisions of
the Delaware Act and hereby amend and restate the original Agreement of
Limited Partnership of Plains All American Pipeline, L.P. in its entirety.
This amendment and restatement shall become effective on the date of this
Agreement. Except as expressly provided to the contrary in this Agreement, the
rights, duties (including fiduciary duties), liabilities and obligations of
the Partners and the administration, dissolution and termination of the
Partnership shall be governed by the Delaware Act. All Partnership Interests
shall constitute personal property of the owner thereof for all purposes and a
Partner has no interest in specific Partnership property.
Section 2.2 Name.
The name of the Partnership shall be "Plains All American Pipeline, L.P."
The Partnership's business may be conducted under any other name or names
deemed necessary or appropriate by the General Partner in its sole discretion,
including the name of the General Partner. The words "Limited Partnership",
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purpose of complying with the laws
of any jurisdiction that so requires. The General Partner in its discretion
may change the name of the Partnership at any time and from time to time and
shall notify the Limited Partners of such change in the next regular
communication to the Limited Partners.
Section 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices.
Unless and until changed by the General Partner, the registered office of
the Partnership in the State of Delaware shall be located at 1013 Center Road,
Wilmington, Delaware 19805-1297, and the registered agent for service of
process on the Partnership in the State of Delaware at such registered office
shall be Corporation Service Company. The principal office of the Partnership
shall be located at 500 Dallas, Suite 700, Houston, Texas 77002 or such other
place as the General Partner may from time to time designate by notice to the
Limited Partners. The Partnership may maintain offices at such other place or
places within or outside the State of Delaware as the General Partner deems
necessary or appropriate. The address of the General Partner shall be 500
Dallas, Suite 700, Houston, Texas 77002 or such other place as the General
Partner may from time to time designate by notice to the Limited Partners.
Section 2.4 Purpose and Business.
The purpose and nature of the business to be conducted by the Partnership
shall be to (a) serve as a partner of either or both of the Operating
Partnerships and, in connection therewith, to exercise all the rights and
powers conferred upon the Partnership as a partner of an Operating Partnership
pursuant to the Operating Partnership Agreement for such Operating Partnership
or otherwise, (b) engage directly in, or enter into or form any corporation,
partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that the Operating Partnerships
are permitted to engage in by the Operating Partnership Agreements and, in
connection therewith, to exercise all of the rights and powers conferred upon
the Partnership pursuant to the agreements relating to such business activity,
(c) engage directly in, or enter into or form any corporation, partnership,
joint venture, limited liability company or other arrangement to engage
indirectly in, any business activity that is approved by the General Partner
and which lawfully may be conducted by a limited partnership organized
pursuant to the Delaware Act and, in connection therewith, to exercise all of
the rights and powers conferred upon the Partnership pursuant to the
agreements relating to such business activity; provided, however, that the
General Partner reasonably determines, as of the date of the acquisition or
commencement of such activity, that such activity (i) generates "qualifying
income" (as such term is defined pursuant to Section 7704 of the Code) or (ii)
enhances the operations of an activity of the Operating Partnership or a
Partnership
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activity that generates qualifying income, and (d) do anything necessary or
appropriate to the foregoing, including the making of capital contributions or
loans to a Group Member. The General Partner has no obligation or duty to the
Partnership, the Limited Partners, or the Assignees to propose or approve, and
in its discretion may decline to propose or approve, the conduct by the
Partnership of any business.
Section 2.5 Powers.
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in
Section 2.4 and for the protection and benefit of the Partnership.
Section 2.6 Power of Attorney.
(a) Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner and, if a Liquidator shall have been selected pursuant to
Section 12.3, the Liquidator (and any successor to the Liquidator by merger,
transfer, assignment, election or otherwise) and each of their authorized
officers and attorneys-in-fact, as the case may be, with full power of
substitution, as his true and lawful agent and attorney-in-fact, with full
power and authority in his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including this Agreement and the Certificate of Limited
Partnership and all amendments or restatements hereof or thereof) that the
General Partner or the Liquidator deems necessary or appropriate to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited partners have
limited liability) in the State of Delaware and in all other jurisdictions
in which the Partnership may conduct business or own property; (B) all
certificates, documents and other instruments that the General Partner or
the Liquidator deems necessary or appropriate to reflect, in accordance
with its terms, any amendment, change, modification or restatement of this
Agreement; (C) all certificates, documents and other instruments (including
conveyances and a certificate of cancellation) that the General Partner or
the Liquidator deems necessary or appropriate to reflect the dissolution
and liquidation of the Partnership pursuant to the terms of this Agreement;
(D) all certificates, documents and other instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article IV, X, XI or XII; (E) all
certificates, documents and other instruments relating to the determination
of the rights, preferences and privileges of any class or series of
Partnership Securities issued pursuant to Section 5.6; and (F) all
certificates, documents and other instruments (including agreements and a
certificate of merger) relating to a merger or consolidation of the
Partnership pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the General
Partner or the Liquidator, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made or given by
the Partners hereunder or is consistent with the terms of this Agreement or
is necessary or appropriate, in the discretion of the General Partner or
the Liquidator, to effectuate the terms or intent of this Agreement;
provided, that when required by Section 13.3 or any other provision of this
Agreement that establishes a percentage of the Limited Partners or of the
Limited Partners of any class or series required to take any action, the
General Partner and the Liquidator may exercise the power of attorney made
in this Section 2.6(a)(ii) only after the necessary vote, consent or
approval of the Limited Partners or of the Limited Partners of such class
or series, as applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the General Partner to amend this Agreement except in accordance with Article
XIII or as may be otherwise expressly provided for in this Agreement.
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(b) The foregoing power of attorney is hereby declared to be irrevocable and
a power coupled with an interest, and it shall survive and, to the maximum
extent permitted by law, not be affected by the subsequent death,
incompetency, disability, incapacity, dissolution, bankruptcy or termination
of any Limited Partner or Assignee and the transfer of all or any portion of
such Limited Partner's or Assignee's Partnership Interest and shall extend to
such Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner or Assignee hereby agrees to be
bound by any representation made by the General Partner or the Liquidator
acting in good faith pursuant to such power of attorney; and each such Limited
Partner or Assignee, to the maximum extent permitted by law, hereby waives any
and all defenses that may be available to contest, negate or disaffirm the
action of the General Partner or the Liquidator taken in good faith under such
power of attorney. Each Limited Partner or Assignee shall execute and deliver
to the General Partner or the Liquidator, within 15 days after receipt of the
request therefor, such further designation, powers of attorney and other
instruments as the General Partner or the Liquidator deems necessary to
effectuate this Agreement and the purposes of the Partnership.
Section 2.7 Term.
The term of the Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the close of Partnership business on December 31, 2088 or
until the earlier dissolution of the Partnership in accordance with the
provisions of Article XII. The existence of the Partnership as a separate
legal entity shall continue until the cancellation of the Certificate of
Limited Partnership as provided in the Delaware Act.
Section 2.8 Title to Partnership Assets.
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner or Assignee, individually or collectively, shall have
any ownership interest in such Partnership assets or any portion thereof.
Title to any or all of the Partnership assets may be held in the name of the
Partnership, the General Partner, one or more of its Affiliates or one or more
nominees, as the General Partner may determine. The General Partner hereby
declares and warrants that any Partnership assets for which record title is
held in the name of the General Partner or one or more of its Affiliates or
one or more nominees shall be held by the General Partner or such Affiliate or
nominee for the use and benefit of the Partnership in accordance with the
provisions of this Agreement; provided, however, that the General Partner
shall use reasonable efforts to cause record title to such assets (other than
those assets in respect of which the General Partner determines that the
expense and difficulty of conveyancing makes transfer of record title to the
Partnership impracticable) to be vested in the Partnership as soon as
reasonably practicable; provided, further, that, prior to the withdrawal or
removal of the General Partner or as soon thereafter as practicable, the
General Partner shall use reasonable efforts to effect the transfer of record
title to the Partnership and, prior to any such transfer, will provide for the
use of such assets in a manner satisfactory to the General Partner. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which record title to such
Partnership assets is held.
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ARTICLE III
RIGHTS OF LIMITED PARTNERS
Section 3.1 Limitation of Liability.
The Limited Partners and the Assignees shall have no liability under this
Agreement except as expressly provided in this Agreement or the Delaware Act.
Section 3.2 Management of Business.
No Limited Partner or Assignee, in its capacity as such, shall participate
in the operation, management or control (within the meaning of the Delaware
Act) of the Partnership's business, transact any business in the Partnership's
name or have the power to sign documents for or otherwise bind the
Partnership. Any action taken by any Affiliate of the General Partner or any
officer, director, employee, member, general partner, agent or trustee of the
General Partner or any of its Affiliates, or any officer, director, employee,
member, general partner, agent or trustee of a Group Member, in its capacity
as such, shall not be deemed to be participation in the control of the
business of the Partnership by a limited partner of the Partnership (within
the meaning of Section 17-303(a) of the Delaware Act) and shall not affect,
impair or eliminate the limitations on the liability of the Limited Partners
or Assignees under this Agreement.
Section 3.3 Outside Activities of the Limited Partners.
Subject to the provisions of Section 7.5 and the Omnibus Agreement, which
shall continue to be applicable to the Persons referred to therein, regardless
of whether such Persons shall also be Limited Partners or Assignees, any
Limited Partner or Assignee shall be entitled to and may have business
interests and engage in business activities in addition to those relating to
the Partnership, including business interests and activities in direct
competition with the Partnership Group. Neither the Partnership nor any of the
other Partners or Assignees shall have any rights by virtue of this Agreement
in any business ventures of any Limited Partner or Assignee.
Section 3.4 Rights of Limited Partners.
(a) In addition to other rights provided by this Agreement or by applicable
law, and except as limited by Section 3.4(b), each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon reasonable written demand and at
such Limited Partner's own expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local income tax returns for each year;
(iii) to have furnished to him a current list of the name and last known
business, residence or mailing address of each Partner;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto, together
with a copy of the executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash and
a description and statement of the Net Agreed Value of any other Capital
Contribution by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner; and
(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
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(b) The General Partner may keep confidential from the Limited Partners and
Assignees, for such period of time as the General Partner deems reasonable,
(i) any information that the General Partner reasonably believes to be in the
nature of trade secrets or (ii) other information the disclosure of which the
General Partner in good faith believes (A) is not in the best interests of the
Partnership Group, (B) could damage the Partnership Group or (C) that any
Group Member is required by law or by agreement with any third party to keep
confidential (other than agreements with Affiliates of the Partnership the
primary purpose of which is to circumvent the obligations set forth in this
Section 3.4).
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS; REDEMPTION OF
PARTNERSHIP INTERESTS
Section 4.1 Certificates.
Upon the Partnership's issuance of Common Units or Subordinated Units to any
Person, the Partnership shall issue one or more Certificates in the name of
such Person evidencing the number of such Units being so issued. In addition,
(a) upon the General Partner's request, the Partnership shall issue to it one
or more Certificates in the name of the General Partner evidencing its
interests in the Partnership and (b) upon the request of any Person owning
Incentive Distribution Rights or any other Partnership Securities other than
Common Units or Subordinated Units, the Partnership shall issue to such Person
one or more certificates evidencing such Incentive Distribution Rights or
other Partnership Securities other than Common Units or Subordinated Units.
Certificates shall be executed on behalf of the Partnership by the Chairman of
the Board, President or any Executive Vice President or Vice President and the
Secretary or any Assistant Secretary of the General Partner. No Common Unit
Certificate shall be valid for any purpose until it has been countersigned by
the Transfer Agent. Subject to the requirements of Section 6.7(b), the
Partners holding Certificates evidencing Subordinated Units may exchange such
Certificates for Certificates evidencing Common Units on or after the date on
which such Subordinated Units are converted into Common Units pursuant to the
terms of Section 5.8.
Section 4.2 Mutilated, Destroyed, Lost or Stolen Certificates.
(a) If any mutilated Certificate is surrendered to the Transfer Agent, the
appropriate officers of the General Partner on behalf of the Partnership shall
execute, and the Transfer Agent shall countersign and deliver in exchange
therefor, a new Certificate evidencing the same number and type of Partnership
Securities as the Certificate so surrendered.
(b) The appropriate officers of the General Partner on behalf of the
Partnership shall execute and deliver, and the Transfer Agent shall
countersign a new Certificate in place of any Certificate previously issued if
the Record Holder of the Certificate:
(i) makes proof by affidavit, in form and substance satisfactory to the
Partnership, that a previously issued Certificate has been lost, destroyed
or stolen;
(ii) requests the issuance of a new Certificate before the Partnership
has notice that the Certificate has been acquired by a purchaser for value
in good faith and without notice of an adverse claim;
(iii) if requested by the Partnership, delivers to the Partnership a
bond, in form and substance satisfactory to the Partnership, with surety or
sureties and with fixed or open penalty as the Partnership may reasonably
direct, in its sole discretion, to indemnify the Partnership, the Partners,
the General Partner and the Transfer Agent against any claim that may be
made on account of the alleged loss, destruction or theft of the
Certificate; and
(iv) satisfies any other reasonable requirements imposed by the
Partnership.
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If a Limited Partner or Assignee fails to notify the Partnership within a
reasonable time after he has notice of the loss, destruction or theft of a
Certificate, and a transfer of the Limited Partner Interests represented by
the Certificate is registered before the Partnership, the General Partner or the
Transfer Agent receives such notification, the Limited Partner or Assignee shall
be precluded from making any claim against the Partnership, the General Partner
or the Transfer Agent for such transfer or for a new Certificate.
(c) As a condition to the issuance of any new Certificate under this Section
4.2, the Partnership may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Transfer Agent)
reasonably connected therewith.
Section 4.3 Record Holders.
The Partnership shall be entitled to recognize the Record Holder as the
Partner or Assignee with respect to any Partnership Interest and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Partnership Interest on the part of any other Person, regardless of
whether the Partnership shall have actual or other notice thereof, except as
otherwise provided by law or any applicable rule, regulation, guideline or
requirement of any National Securities Exchange on which such Partnership
Interests are listed for trading. Without limiting the foregoing, when a
Person (such as a broker, dealer, bank, trust company or clearing corporation
or an agent of any of the foregoing) is acting as nominee, agent or in some
other representative capacity for another Person in acquiring and/or holding
Partnership Interests, as between the Partnership on the one hand, and such
other Persons on the other, such representative Person (a) shall be the
Partner or Assignee (as the case may be) of record and beneficially, (b) must
execute and deliver a Transfer Application and (c) shall be bound by this
Agreement and shall have the rights and obligations of a Partner or Assignee
(as the case may be) hereunder and as, and to the extent, provided for herein.
Section 4.4 Transfer Generally.
(a) The term "transfer," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which the
General Partner assigns its General Partner Interest to another Person who
becomes the General Partner, by which the holder of a Limited Partner Interest
assigns such Limited Partner Interest to another Person who is or becomes a
Limited Partner or an Assignee, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article
IV. Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent a
disposition by any stockholder of the General Partner of any or all of the
issued and outstanding stock of the General Partner.
Section 4.5 Registration and Transfer of Limited Partner Interests.
(a) The Partnership shall keep or cause to be kept on behalf of the
Partnership a register in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 4.5(b), the Partnership
will provide for the registration and transfer of Limited Partner Interests.
The Transfer Agent is hereby appointed registrar and transfer agent for the
purpose of registering Common Units and transfers of such Common Units as
herein provided. The Partnership shall not recognize transfers of Certificates
evidencing Limited Partner Interests unless such transfers are effected in the
manner described in this Section 4.5. Upon surrender of a Certificate for
registration of transfer of any Limited Partner Interests evidenced by a
Certificate, and subject to the provisions of Section 4.5(b), the appropriate
officers of the General Partner on behalf of the Partnership shall execute and
deliver, and in the case of Common Units, the Transfer Agent shall countersign
and deliver, in the name of the
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holder or the designated transferee or transferees, as required pursuant to
the holder's instructions, one or more new Certificates evidencing the same
aggregate number and type of Limited Partner Interests as was evidenced by the
Certificate so surrendered.
(b) Except as otherwise provided in Section 4.9, the Partnership shall not
recognize any transfer of Limited Partner Interests until the Certificates
evidencing such Limited Partner Interests are surrendered for registration of
transfer and such Certificates are accompanied by a Transfer Application duly
executed by the transferee (or the transferee's attorney-in-fact duly
authorized in writing). No charge shall be imposed by the Partnership for such
transfer; provided, that as a condition to the issuance of any new Certificate
under this Section 4.5, the Partnership may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed
with respect thereto.
(c) Limited Partner Interests may be transferred only in the manner
described in this Section 4.5. The transfer of any Limited Partner Interests
and the admission of any new Limited Partner shall not constitute an amendment
to this Agreement.
(d) Until admitted as a Substituted Limited Partner pursuant to Section
10.2, the Record Holder of a Limited Partner Interest shall be an Assignee in
respect of such Limited Partner Interest. Limited Partners may include
custodians, nominees or any other individual or entity in its own or any
representative capacity.
(e) A transferee of a Limited Partner Interest who has completed and
delivered a Transfer Application shall be deemed to have (i) requested
admission as a Substituted Limited Partner, (ii) agreed to comply with and be
bound by and to have executed this Agreement, (iii) represented and warranted
that such transferee has the right, power and authority and, if an individual,
the capacity to enter into this Agreement, (iv) granted the powers of attorney
set forth in this Agreement and (v) given the consents and approvals and made
the waivers contained in this Agreement.
(f) The General Partner and its Affiliates shall have the right at any time
to transfer their Subordinated Units and Common Units (whether issued upon
conversion of the Subordinated Units or otherwise) to one or more Persons.
Section 4.6 Transfer of the General Partner's General Partner Interest.
(a) Subject to Section 4.6(c) below, prior to December 31, 2008, the General
Partner shall not transfer all or any part of its General Partner Interest to
a Person unless such transfer (i) has been approved by the prior written
consent or vote of the holders of at least a majority of the Outstanding
Common Units (excluding Common Units held by the General Partner and its
Affiliates) or (ii) is of all, but not less than all, of its General Partner
Interest to (A) an Affiliate of the General Partner or (B) another Person in
connection with the merger or consolidation of the General Partner with or
into another Person or the transfer by the General Partner of all or
substantially all of its assets to another Person.
(b) Subject to Section 4.6(c) below, on or after December 31, 2008, the
General Partner may transfer all or any of its General Partner Interest
without Unitholder approval.
(c) Notwithstanding anything herein to the contrary, no transfer by the
General Partner of all or any part of its General Partner Interest to another
Person shall be permitted unless (i) the transferee agrees to assume the
rights and duties of the General Partner under this Agreement and the
Operating Partnership Agreements and to be bound by the provisions of this
Agreement and the Operating Partnership Agreements, (ii) the Partnership
receives an Opinion of Counsel that such transfer would not result in the loss
of limited liability of any Limited Partner or of any limited partner of the
Operating Partnerships or cause the Partnership or the Operating Partnerships
to be treated as an association taxable as a corporation or otherwise to be
taxed as an entity for federal income tax purposes (to the extent not already
so treated or taxed) and (iii) such transferee also agrees to purchase all (or
the appropriate portion thereof, if applicable) of the partnership interest of
the General Partner as the general partner or managing member of each other
Group Member. In the case of a transfer pursuant to
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and in compliance with this Section 4.6, the transferee or successor (as the
case may be) shall, subject to compliance with the terms of Section 10.3, be
admitted to the Partnership as a General Partner immediately prior to the
transfer of the Partnership Interest, and the business of the Partnership
shall continue without dissolution.
Section 4.7 Transfer of Incentive Distribution Rights.
Prior to December 31, 2008, a holder of Incentive Distribution Rights may
transfer any or all of the Incentive Distribution Rights held by such holder
without any consent of the Unitholders (a) to an Affiliate or (b) to another
Person in connection with (i) the merger or consolidation of such holder of
Incentive Distribution Rights with or into such other Person or (ii) the
transfer by such holder of all or substantially all of its assets to such
other Person. Any other transfer of the Incentive Distribution Rights prior to
December 31, 2008, shall require the prior approval of holders of at least a
majority of the Outstanding Common Units (excluding Common Units held by the
General Partner and its Affiliates). On or after December 31, 2008, the
General Partner or any other holder of Incentive Distribution Rights may
transfer any or all of its Incentive Distribution Rights without Unitholder
approval. Notwithstanding anything herein to the contrary, no transfer of
Incentive Distribution Rights to another Person shall be permitted unless the
transferee agrees to be bound by the provisions of this Agreement. The General
Partner shall have the authority (but shall not be required) to adopt such
reasonable restrictions on the transfer of Incentive Distribution Rights and
requirements for registering the transfer of Incentive Distribution Rights as
the General Partner, in its sole discretion, shall determine are necessary or
appropriate.
Section 4.8 Restrictions on Transfers.
(a) Except as provided in Section 4.8(d) below, but notwithstanding the
other provisions of this Article IV, no transfer of any Partnership Interests
shall be made if such transfer would (i) violate the then applicable federal
or state securities laws or rules and regulations of the Commission, any state
securities commission or any other governmental authority with jurisdiction
over such transfer, (ii) terminate the existence or qualification of the
Partnership or either Operating Partnership under the laws of the jurisdiction
of its formation, or (iii) cause the Partnership or either Operating
Partnership to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for federal income tax purposes (to the
extent not already so treated or taxed).
(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid a significant risk of the Partnership or
either Operating Partnership becoming taxable as a corporation or otherwise to
be taxed as an entity for federal income tax purposes. The restrictions may be
imposed by making such amendments to this Agreement as the General Partner may
determine to be necessary or appropriate to impose such restrictions;
provided, however, that any amendment that the General Partner believes, in
the exercise of its reasonable discretion, could result in the delisting or
suspension of trading of any class of Limited Partner Interests on the
principal National Securities Exchange on which such class of Limited Partner
Interests is then traded must be approved, prior to such amendment being
effected, by the holders of at least a majority of the Outstanding Limited
Partner Interests of such class.
(c) The transfer of a Subordinated Unit that has converted into a Common
Unit shall be subject to the restrictions imposed by Section 6.7(b).
(d) Nothing contained in this Article IV, or elsewhere in this Agreement,
shall preclude the settlement of any transactions involving Partnership
Interests entered into through the facilities of any National Securities
Exchange on which such Partnership Interests are listed for trading.
Section 4.9 Citizenship Certificates; Non-citizen Assignees.
(a) If any Group Member is or becomes subject to any federal, state or local
law or regulation that, in the reasonable determination of the General
Partner, creates a substantial risk of cancellation or forfeiture of any
property in which the Group Member has an interest based on the nationality,
citizenship or other related status of a Limited Partner or Assignee, the
General Partner may request any Limited Partner or Assignee to furnish to the
General Partner, within 30 days after receipt of such request, an executed
Citizenship Certification or such other information concerning his
nationality, citizenship or other related status (or, if the Limited Partner
or
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Assignee is a nominee holding for the account of another Person, the
nationality, citizenship or other related status of such Person) as the
General Partner may request. If a Limited Partner or Assignee fails to furnish
to the General Partner within the aforementioned 30-day period such
Citizenship Certification or other requested information or if upon receipt of
such Citizenship Certification or other requested information the General
Partner determines, with the advice of counsel, that a Limited Partner or
Assignee is not an Eligible Citizen, the Partnership Interests owned by such
Limited Partner or Assignee shall be subject to redemption in accordance with
the provisions of Section 4.10. In addition, the General Partner may require
that the status of any such Limited Partner or Assignee be changed to that of
a Non-citizen Assignee and, thereupon, the General Partner shall be
substituted for such Non-citizen Assignee as the Limited Partner in respect of
his Limited Partner Interests.
(b) The General Partner shall, in exercising voting rights in respect of
Limited Partner Interests held by it on behalf of Non-citizen Assignees,
distribute the votes in the same ratios as the votes of Partners (including
without limitation the General Partner) in respect of Limited Partner
Interests other than those of Non-citizen Assignees are cast, either for,
against or abstaining as to the matter.
(c) Upon dissolution of the Partnership, a Non-citizen Assignee shall have
no right to receive a distribution in kind pursuant to Section 12.4 but shall
be entitled to the cash equivalent thereof, and the Partnership shall provide
cash in exchange for an assignment of the Non-citizen Assignee's share of the
distribution in kind. Such payment and assignment shall be treated for
Partnership purposes as a purchase by the Partnership from the Non-citizen
Assignee of his Limited Partner Interest (representing his right to receive
his share of such distribution in kind).
(d) At any time after he can and does certify that he has become an Eligible
Citizen, a Non-citizen Assignee may, upon application to the General Partner,
request admission as a Substituted Limited Partner with respect to any Limited
Partner Interests of such Non-citizen Assignee not redeemed pursuant to
Section 4.10, and upon his admission pursuant to Section 10.2, the General
Partner shall cease to be deemed to be the Limited Partner in respect of the
Non-citizen Assignee's Limited Partner Interests.
Section 4.10 Redemption of Partnership Interests of Non-citizen Assignees.
(a) If at any time a Limited Partner or Assignee fails to furnish a
Citizenship Certification or other information requested within the 30-day
period specified in Section 4.9(a), or if upon receipt of such Citizenship
Certification or other information the General Partner determines, with the
advice of counsel, that a Limited Partner or Assignee is not an Eligible
Citizen, the Partnership may, unless the Limited Partner or Assignee
establishes to the satisfaction of the General Partner that such Limited
Partner or Assignee is an Eligible Citizen or has transferred his Partnership
Interests to a Person who is an Eligible Citizen and who furnishes a
Citizenship Certification to the General Partner prior to the date fixed for
redemption as provided below, redeem the Partnership Interest of such Limited
Partner or Assignee as follows:
(i) The General Partner shall, not later than the 30th day before the
date fixed for redemption, give notice of redemption to the Limited Partner
or Assignee, at his last address designated on the records of the
Partnership or the Transfer Agent, by registered or certified mail, postage
prepaid. The notice shall be deemed to have been given when so mailed. The
notice shall specify the Redeemable Interests, the date fixed for
redemption, the place of payment, that payment of the redemption price will
be made upon surrender of the Certificate evidencing the Redeemable
Interests and that on and after the date fixed for redemption no further
allocations or distributions to which the Limited Partner or Assignee would
otherwise be entitled in respect of the Redeemable Interests will accrue or
be made.
(ii) The aggregate redemption price for Redeemable Interests shall be an
amount equal to the Current Market Price (the date of determination of
which shall be the date fixed for redemption) of Limited Partner Interests
of the class to be so redeemed multiplied by the number of Limited Partner
Interests of each such class included among the Redeemable Interests. The
redemption price shall be paid, in the discretion of the General Partner,
in cash or by delivery of a promissory note of the Partnership in the
principal amount of the redemption price, bearing interest at the rate of
10% annually and payable in three equal annual installments of principal
together with accrued interest, commencing one year after the redemption
date.
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(iii) Upon surrender by or on behalf of the Limited Partner or Assignee,
at the place specified in the notice of redemption, of the Certificate
evidencing the Redeemable Interests, duly endorsed in blank or accompanied
by an assignment duly executed in blank, the Limited Partner or Assignee or
his duly authorized representative shall be entitled to receive the payment
therefor.
(iv) After the redemption date, Redeemable Interests shall no longer
constitute issued and Outstanding Limited Partner Interests.
(b) The provisions of this Section 4.10 shall also be applicable to Limited
Partner Interests held by a Limited Partner or Assignee as nominee of a Person
determined to be other than an Eligible Citizen.
(c) Nothing in this Section 4.10 shall prevent the recipient of a notice of
redemption from transferring his Limited Partner Interest before the
redemption date if such transfer is otherwise permitted under this Agreement.
Upon receipt of notice of such a transfer, the General Partner shall withdraw
the notice of redemption, provided the transferee of such Limited Partner
Interest certifies to the satisfaction of the General Partner in a Citizenship
Certification delivered in connection with the Transfer Application that he is
an Eligible Citizen. If the transferee fails to make such certification, such
redemption shall be effected from the transferee on the original redemption
date.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1 Organizational Contributions.
In connection with the formation of the Partnership under the Delaware Act,
the General Partner made an initial Capital Contribution to the Partnership in
the amount of $1,990.00, for an interest in the Partnership and has been
admitted as the General Partner of the Partnership, and the Organizational
Limited Partner made an initial Capital Contribution to the Partnership in the
amount of $990.00 for an interest in the Partnership and has been admitted as
a Limited Partner of the Partnership. As of the Closing Date, the interest of
the Organizational Limited Partner shall be redeemed as provided in the
Contribution and Conveyance Agreement; the initial Capital Contributions of
each Partner shall thereupon be refunded; and the Organizational Limited
Partner shall cease to be a Limited Partner of the Partnership. Ninety-nine
percent of any interest or other profit that may have resulted from the
investment or other use of such initial Capital Contributions shall be
allocated and distributed to the Organizational Limited Partner, and the
balance thereof shall be allocated and distributed to the General Partner.
Section 5.2 Contributions by the General Partner and its Affiliates.
(a) On the Closing Date and pursuant to the Contribution and Conveyance
Agreement, the General Partner shall contribute to the Partnership, as a
Capital Contribution, all but 1.0101% of its general partner interest in the
Operating Partnership in exchange for (i) the continuation of its General
Partner Interest, subject to all of the rights, privileges and duties of the
General Partner under this Agreement, (ii) 6,817,391 Common Units, (iii)
9,800,000 Subordinated Units and (iv) the Incentive Distribution Rights.
(b) Upon the issuance of any additional Limited Partner Interests by the
Partnership (other than the issuance of the Common Units issued in the Initial
Offering or pursuant to the Over-Allotment Option), the General Partner shall
be required to make additional Capital Contributions equal to 1/99th of any
amount contributed to the Partnership by the Limited Partners in exchange for
such Limited Partner Interests. Except as set forth in the immediately
preceding sentence and Article XII, the General Partner shall not be obligated
to make any additional Capital Contributions to the Partnership.
Section 5.3 Contributions by Initial Limited Partners and Reimbursement of the
General Partner.
(a) On the Closing Date and pursuant to the Underwriting Agreement, each
Underwriter shall contribute to the Partnership cash in an amount equal to the
Issue Price per Initial Common Unit, multiplied by the number of Common Units
specified in the Underwriting Agreement to be purchased by such Underwriter at
the Closing
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Date. In exchange for such Capital Contributions by the Underwriters, the
Partnership shall issue Common Units to each Underwriter on whose behalf such
Capital Contribution is made in an amount equal to the quotient obtained by
dividing (i) the cash contribution to the Partnership by or on behalf of such
Underwriter by (ii) the Issue Price per Initial Common Unit.
(b) Upon the exercise of the Over-Allotment Option, each Underwriter shall
contribute to the Partnership cash in an amount equal to the Issue Price per
Initial Common Unit, multiplied by the number of Common Units specified in the
Underwriting Agreement to be purchased by such Underwriter at the Option
Closing Date. In exchange for such Capital Contributions by the Underwriters,
the Partnership shall issue Common Units to each Underwriter on whose behalf
such Capital Contribution is made in an amount equal to the quotient obtained
by dividing (i) the cash contributions to the Partnership by or on behalf of
such Underwriter by (ii) the Issue Price per Initial Common Unit.
Notwithstanding anything else herein contained, but subject to Section 17-
607 of the Delaware Act, all proceeds, net of underwriting discounts, received
by the Partnership from the issuance of Common Units upon the exercise of the
Over-allotment Option will be distributed to the General Partner in redemption
of Common Units equal in number to the Common Units issued upon the exercise
of the Over-allotment Option.
(c) No Limited Partner Interests will be issued or issuable as of or at the
Closing Date other than (i) the Common Units issuable pursuant to subparagraph
(a) hereof in aggregate number equal to 12,782,609, (ii) the "Additional
Units" as such term is used in the Underwriting Agreement in an aggregate
number up to 1,917,391 issuable upon exercise of the Over-Allotment Option
pursuant to subparagraph (b) hereof, (ii) the 9,800,000 Subordinated Units
issuable to the General Partner pursuant to Section 5.2 hereof, and (iii) the
Incentive Distribution Rights.
Section 5.4 Interest and Withdrawal.
No interest shall be paid by the Partnership on Capital Contributions. No
Partner or Assignee shall be entitled to the withdrawal or return of its
Capital Contribution, except to the extent, if any, that distributions made
pursuant to this Agreement or upon termination of the Partnership may be
considered as such by law and then only to the extent provided for in this
Agreement. Except to the extent expressly provided in this Agreement, no
Partner or Assignee shall have priority over any other Partner or Assignee
either as to the return of Capital Contributions or as to profits, losses or
distributions. Any such return shall be a compromise to which all Partners and
Assignees agree within the meaning of Section 17-502(b) of the Delaware Act.
Section 5.5 Capital Accounts.
(a) The Partnership shall maintain for each Partner (or a beneficial owner
of Partnership Interests held by a nominee in any case in which the nominee
has furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion) owning a Partnership Interest a separate
Capital Account with respect to such Partnership Interest in accordance with
the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital
Account shall be increased by (i) the amount of all Capital Contributions made
to the Partnership with respect to such Partnership Interest pursuant to this
Agreement and (ii) all items of Partnership income and gain (including,
without limitation, income and gain exempt from tax) computed in accordance
with Section 5.5(b) and allocated with respect to such Partnership Interest
pursuant to Section 6.1, and decreased by (x) the amount of cash or Net Agreed
Value of all actual and deemed distributions of cash or property made with
respect to such Partnership Interest pursuant to this Agreement and (y) all
items of Partnership deduction and loss computed in accordance with Section
5.5(b) and allocated with respect to such Partnership Interest pursuant to
Section 6.1.
(b) For purposes of computing the amount of any item of income, gain, loss
or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Partners' Capital Accounts, the determination, recognition
and classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
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(i) Solely for purposes of this Section 5.5, the Partnership shall be
treated as owning directly its proportionate share (as determined by the
General Partner based upon the provisions of the Operating Partnership
Agreements) of all property owned by the Operating Partnerships or any
other Subsidiary that is classified as a partnership for federal income tax
purposes.
(ii) All fees and other expenses incurred by the Partnership to promote
the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred and shall be
allocated among the Partners pursuant to Section 6.1.
(iii) Except as otherwise provided in Treasury Regulation Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of
the Code which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes. To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 734(b) or 743(b) of the Code is
required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to
be taken into account in determining Capital Accounts, the amount of such
adjustment in the Capital Accounts shall be treated as an item of gain or
loss.
(iv) Any income, gain or loss attributable to the taxable disposition of
any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of Section 704(b) of the Code,
any deductions for depreciation, cost recovery or amortization attributable
to any Contributed Property shall be determined as if the adjusted basis of
such property on the date it was acquired by the Partnership were equal to
the Agreed Value of such property. Upon an adjustment pursuant to Section
5.5(d) to the Carrying Value of any Partnership property subject to
depreciation, cost recovery or amortization, any further deductions for
such depreciation, cost recovery or amortization attributable to such
property shall be determined (A) as if the adjusted basis of such property
were equal to the Carrying Value of such property immediately following
such adjustment and (B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or, if
applicable, the remaining useful life) as is applied for federal income tax
purposes; provided, however, that, if the asset has a zero adjusted basis
for federal income tax purposes, depreciation, cost recovery or
amortization deductions shall be determined using any reasonable method
that the General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to
Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction
shall, solely for purposes hereof, be deemed to be an additional
depreciation or cost recovery deduction in the year such property is placed
in service and shall be allocated among the Partners pursuant to Section
6.1. Any restoration of such basis pursuant to Section 48(q)(2) of the Code
shall, to the extent possible, be allocated in the same manner to the
Partners to whom such deemed deduction was allocated.
(c) (i) A transferee of a Partnership Interest shall succeed to a pro
rata portion of the Capital Account of the transferor relating to the
Partnership Interest so transferred.
(ii) Immediately prior to the transfer of a Subordinated Unit or of a
Subordinated Unit that has converted into a Common Unit pursuant to Section
5.8 by a holder thereof (other than a transfer to an Affiliate unless the
General Partner elects to have this subparagraph 5.5(c)(ii) apply), the
Capital Account maintained for such Person with respect to its Subordinated
Units or converted Subordinated Units will (A) first, be allocated to the
Subordinated Units or converted Subordinated Units to be transferred in an
amount equal to the product of (x) the number of such Subordinated Units or
converted Subordinated Units to be transferred and (y) the Per Unit Capital
Amount for a Common Unit, and (B) second, any remaining balance in such
Capital Account will be retained by the transferor, regardless of whether
it has retained any
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Subordinated Units or converted Subordinated Units. Following any such
allocation, the transferor's Capital Account, if any, maintained with
respect to the retained Subordinated Units or converted Subordinated Units,
if any, will have a balance equal to the amount allocated under clause (B)
hereinabove, and the transferee's Capital Account established with respect
to the transferred Subordinated Units or converted Subordinated Units will
have a balance equal to the amount allocated under clause (A) hereinabove.
(d) (i) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), on an issuance of additional Partnership Interests for cash
or Contributed Property or the conversion of the General Partner's Combined
Interest to Common Units pursuant to Section 11.3(b), the Capital Account
of all Partners and the Carrying Value of each Partnership property
immediately prior to such issuance shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as if such Unrealized Gain or Unrealized Loss had
been recognized on an actual sale of each such property immediately prior
to such issuance and had been allocated to the Partners at such time
pursuant to Section 6.1 in the same manner as any item of gain or loss
actually recognized during such period would have been allocated. In
determining such Unrealized Gain or Unrealized Loss, the aggregate cash
amount and fair market value of all Partnership assets (including, without
limitation, cash or cash equivalents) immediately prior to the issuance of
additional Partnership Interests shall be determined by the General Partner
using such reasonable method of valuation as it may adopt; provided,
however, that the General Partner, in arriving at such valuation, must take
fully into account the fair market value of the Partnership Interests of
all Partners at such time. The General Partner shall allocate such
aggregate value among the assets of the Partnership (in such manner as it
determines in its discretion to be reasonable) to arrive at a fair market
value for individual properties.
(ii) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f),
immediately prior to any actual or deemed distribution to a Partner of any
Partnership property (other than a distribution of cash that is not in
redemption or retirement of a Partnership Interest), the Capital Accounts
of all Partners and the Carrying Value of all Partnership property shall be
adjusted upward or downward to reflect any Unrealized Gain or Unrealized
Loss attributable to such Partnership property, as if such Unrealized Gain
or Unrealized Loss had been recognized in a sale of such property
immediately prior to such distribution for an amount equal to its fair
market value, and had been allocated to the Partners, at such time,
pursuant to Section 6.1 in the same manner as any item of gain or loss
actually recognized during such period would have been allocated. In
determining such Unrealized Gain or Unrealized Loss the aggregate cash
amount and fair market value of all Partnership assets (including, without
limitation, cash or cash equivalents) immediately prior to a distribution
shall (A) in the case of an actual distribution which is not made pursuant
to Section 12.4 or in the case of a deemed contribution and/or distribution
occurring as a result of a termination of the Partnership pursuant to
Section 708 of the Code, be determined and allocated in the same manner as
that provided in Section 5.5(d)(i) or (B) in the case of a liquidating
distribution pursuant to Section 12.4, be determined and allocated by the
Liquidator using such reasonable method of valuation as it may adopt.
Section 5.6 Issuances of Additional Partnership Securities.
(a) Subject to Section 5.7, the Partnership may issue additional Partnership
Securities and options, rights, warrants and appreciation rights relating to
the Partnership Securities for any Partnership purpose at any time and from
time to time to such Persons for such consideration and on such terms and
conditions as shall be established by the General Partner in its sole
discretion, all without the approval of any Limited Partners.
(b) Each additional Partnership Security authorized to be issued by the
Partnership pursuant to Section 5.6(a) may be issued in one or more classes,
or one or more series of any such classes, with such designations,
preferences, rights, powers and duties (which may be senior to existing
classes and series of Partnership Securities), as shall be fixed by the
General Partner in the exercise of its sole discretion, including (i) the
right to share Partnership profits and losses or items thereof; (ii) the right
to share in Partnership distributions; (iii) the rights upon dissolution and
liquidation of the Partnership; (iv) whether, and the terms and conditions
upon which, the Partnership may redeem the Partnership Security; (v) whether
such Partnership Security is issued with the
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privilege of conversion or exchange and, if so, the terms and conditions of
such conversion or exchange; (vi) the terms and conditions upon which each
Partnership Security will be issued, evidenced by certificates and assigned or
transferred; and (vii) the right, if any, of each such Partnership Security to
vote on Partnership matters, including matters relating to the relative
rights, preferences and privileges of such Partnership Security.
(c) The General Partner is hereby authorized and directed to take all
actions that it deems necessary or appropriate in connection with (i) each
issuance of Partnership Securities and options, rights, warrants and
appreciation rights relating to Partnership Securities pursuant to this
Section 5.6, (ii) the conversion of the General Partner Interest and Incentive
Distribution Rights into Units pursuant to the terms of this Agreement, (iii)
the admission of Additional Limited Partners and (iv) all additional issuances
of Partnership Securities. The General Partner is further authorized and
directed to specify the relative rights, powers and duties of the holders of
the Units or other Partnership Securities being so issued. The General Partner
shall do all things necessary to comply with the Delaware Act and is
authorized and directed to do all things it deems to be necessary or advisable
in connection with any future issuance of Partnership Securities or in
connection with the conversion of the General Partner Interest and Incentive
Distribution Rights into Units pursuant to the terms of this Agreement,
including compliance with any statute, rule, regulation or guideline of any
federal, state or other governmental agency or any National Securities
Exchange on which the Units or other Partnership Securities are listed for
trading.
Section 5.7 Limitations on Issuance of Additional Partnership Securities.
The issuance of Partnership Securities pursuant to Section 5.6 shall be
subject to the following restrictions and limitations:
(a) During the Subordination Period, the Partnership shall not issue (and
shall not issue any options, rights, warrants or appreciation rights relating
to) an aggregate of more than 9,800,000 additional Parity Units without the
prior approval of the holders of a Unit Majority. In applying this limitation,
there shall be excluded Common Units and other Parity Units issued (A) in
connection with the exercise of the Over-Allotment Option, (B) in accordance
with Sections 5.7(b) and 5.7(c), (C) upon conversion of Subordinated Units
pursuant to Section 5.8, (D) upon conversion of the General Partner Interest
and Incentive Distribution Rights pursuant to Section 11.3(b), (D) pursuant to
the employee benefit plans of the General Partner, the Partnership or any
other Group Member and (E) in the event of a combination or subdivision of
Common Units.
(b) The Partnership may also issue an unlimited number of Parity Units,
prior to the end of the Subordination Period and without the prior approval of
the Unitholders, if such issuance occurs (i) in connection with an Acquisition
or a Capital Improvement or (ii) within 365 days of, and the net proceeds from
such issuance are used to repay debt incurred in connection with, an
Acquisition or a Capital Improvement, in each case where such Acquisition or
Capital Improvement involves assets that, if acquired by the Partnership as of
the date that is one year prior to the first day of the Quarter in which such
Acquisition is to be consummated or such Capital Improvement is to be
completed, would have resulted, on a pro forma basis, in an increase in:
(A) the amount of Adjusted Operating Surplus generated by the Partnership
on a per-Unit basis (for all Outstanding Units) with respect to each of the
four most recently completed Quarters (on a pro forma basis as described
below) as compared to
(B) the actual amount of Adjusted Operating Surplus generated by the
Partnership on a per-Unit basis (for all Outstanding Units) (excluding
Adjusted Operating Surplus attributable to the Acquisition or Capital
Improvement) with respect to each of such four most recently completed
Quarters.
If the issuance of Parity Units with respect to an Acquisition or Capital
Improvement occurs within the first four full Quarters after the Closing Date,
then Adjusted Operating Surplus as used in clauses (A) (subject to the
succeeding sentence) and (B) above shall be calculated (i) for each Quarter,
if any, that commenced after the Closing Date for which actual results of
operations are available, based on the actual Adjusted Operating Surplus of
the Partnership generated with respect to such Quarter, and (ii) for each
other Quarter, on a pro forma basis consistent with the procedures, as
applicable, set forth in Appendix D to the Registration Statement.
Furthermore,
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the amount in clause (A) shall be determined on a pro forma basis assuming
that (1) all of the Parity Units to be issued in connection with or within 365
days of such Acquisition or Capital Improvement had been issued and
outstanding, (2) all indebtedness for borrowed money to be incurred or assumed
in connection with such Acquisition or Capital Improvement (other than any
such indebtedness that is to be repaid with the proceeds of such issuance of
Parity Units) had been incurred or assumed, in each case as of the
commencement of such four-Quarter period, (3) the personnel expenses that
would have been incurred by the Partnership in the operation of the acquired
assets are the personnel expenses for employees to be retained by the
Partnership in the operation of the acquired assets, and (4) the non-personnel
costs and expenses are computed on the same basis as those incurred by the
Partnership in the operation of the Partnership's business at similarly
situated Partnership facilities.
(c) The Partnership may also issue an unlimited number of Parity Units,
prior to the end of the Subordination Period and without the approval of the
Unitholders, if the proceeds from such issuance are used exclusively to repay
up to $40 million of indebtedness of a Group Member where the aggregate amount
of distributions that would have been paid with respect to such newly issued
Units or Partnership Securities, plus the related distributions on the General
Partner Interest in the Partnership and the Operating Partnership in respect
of the four-Quarter period ending prior to the first day of the Quarter in
which the issuance is to be consummated (assuming such additional Units or
Partnership Securities had been Outstanding throughout such period and that
distributions equal to the distributions that were actually paid on the
Outstanding Units during the period were paid on such additional Units or
Partnership Securities) did not exceed the interest costs actually incurred
during such period on the indebtedness that is to be repaid (or, if such
indebtedness was not outstanding throughout the entire period, would have been
incurred had such indebtedness been outstanding for the entire period). In the
event that the Partnership is required to pay a prepayment penalty in
connection with the repayment of such indebtedness, for purposes of the
foregoing test the number of Parity Units issued to repay such indebtedness
shall be deemed increased by the number of Parity Units that would need to be
issued to pay such penalty.
(d) During the Subordination Period, the Partnership shall not issue (and
shall not issue any options, rights, warrants or appreciation rights relating
to) additional Partnership Securities having rights to distributions or in
liquidation ranking prior or senior to the Common Units, without the prior
approval of the holders of a Unit Majority.
(e) No fractional Units shall be issued by the Partnership.
Section 5.8 Conversion of Subordinated Units.
(a) A total of 2,450,000 of the Outstanding Subordinated Units will convert
into Common Units on a one-for-one basis on the first day after the Record
Date for distribution in respect of any Quarter ending on or after December
31, 2001, in respect of which:
(i) distributions under Section 6.4 in respect of all Outstanding Common
Units and Subordinated Units with respect to each of the three consecutive,
non-overlapping four-Quarter periods immediately preceding such date
equaled or exceeded the sum of the Minimum Quarterly Distribution on all of
the Outstanding Common Units and Subordinated Units during such periods;
(ii) the Adjusted Operating Surplus generated during each of the three
consecutive, non-overlapping four-Quarter periods immediately preceding
such date equaled or exceeded the sum of the Minimum Quarterly Distribution
on all of the Common Units and Subordinated Units that were Outstanding
during such periods on a fully-diluted basis (i.e. taking into account for
purposes of such determination all Outstanding Common Units, all
Outstanding Subordinated Units, all Common Units and Subordinated Units
issuable upon exercise of employee options that have, as of the date of
determination, already vested or are scheduled to vest prior to the end of
the Quarter immediately following the Quarter with respect to which such
determination is made, and all Common Units and Subordinated Units that
have, as of the date of determination, been earned by but not yet issued to
management of the Partnership in respect of incentive compensation), plus
the related distribution on the General Partner Interest in the Partnership
and the Operating Partnerships, during such periods; and
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(iii) the Cumulative Common Unit Arrearage on all of the Common Units is
zero.
(b) An additional 2,450,000 of the Outstanding Subordinated Units will
convert into Common Units on a one-for-one basis on the first day after the
Record Date for distribution in respect of any Quarter ending on or after
December 31, 2002, in respect of which:
(i) distributions under Section 6.4 in respect of all Outstanding Common
Units and Subordinated Units with respect to each of the three consecutive,
non-overlapping four-Quarter periods immediately preceding such date
equaled or exceeded the sum of the Minimum Quarterly Distribution on all of
the Outstanding Common Units and Subordinated Units during such periods;
(ii) the Adjusted Operating Surplus generated during each of the three
consecutive, non-overlapping four-Quarter periods immediately preceding
such date equaled or exceeded the sum of the Minimum Quarterly Distribution
on all of the Common Units and Subordinated Units that were Outstanding
during such periods on a fully-diluted basis (i.e. taking into account for
purposes of such determination all Outstanding Common Units, all
Outstanding Subordinated Units, all Common Units and Subordinated Units
issuable upon exercise of employee options that have, as of the date of
determination, already vested or are scheduled to vest prior to the end of
the Quarter immediately following the Quarter with respect to which such
determination is made, and all Common Units and Subordinated Units that
have, as of the date of determination, been earned by but not yet issued to
management of the Partnership in respect of incentive compensation), plus
the related distribution on the General Partner Interest in the Partnership
and the Operating Partnerships, during such periods; and
(iii) the Cumulative Common Unit Arrearage on all of the Common Units is
zero;
provided, however, that the conversion of Subordinated Units pursuant to this
Section 5.8(b) may not occur until at least one year following the conversion
of Subordinated Units pursuant to Section 5.8(a).
(c) In the event that less than all of the Outstanding Subordinated Units
shall convert into Common Units pursuant to Section 5.8(a) or 5.8(b) at a time
when there shall be more than one holder of Subordinated Units, then, unless
all of the holders of Subordinated Units shall agree to a different
allocation, the Subordinated Units that are to be converted into Common Units
shall be allocated among the holders of Subordinated Units pro rata based on
the number of Subordinated Units held by each such holder.
(d) Any Subordinated Units that are not converted into Common Units pursuant
to Sections 5.8(a) and (b) shall convert into Common Units on a one-for-one
basis on the first day following the Record Date for distributions in respect
of the final Quarter of the Subordination Period.
(e) Notwithstanding any other provision of this Agreement, all the then
Outstanding Subordinated Units will automatically convert into Common Units on
a one-for-one basis as set forth in, and pursuant to the terms of, Section
11.4.
(f) A Subordinated Unit that has converted into a Common Unit shall be
subject to the provisions of Section 6.7(b).
Section 5.9 Limited Preemptive Right.
Except as provided in this Section 5.9 and in Section 5.2, no Person shall
have any preemptive, preferential or other similar right with respect to the
issuance of any Partnership Security, whether unissued, held in the treasury
or hereafter created. The General Partner shall have the right, which it may
from time to time assign in whole or in part to any of its Affiliates, to
purchase Partnership Securities from the Partnership whenever, and on the same
terms that, the Partnership issues Partnership Securities to Persons other
than the General Partner and its Affiliates, to the extent necessary to
maintain the Percentage Interests of the General Partner and its Affiliates
equal to that which existed immediately prior to the issuance of such
Partnership Securities.
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Section 5.10 Splits and Combination.
(a) Subject to Sections 5.10(d), 6.6 and 6.9 (dealing with adjustments of
distribution levels), the Partnership may make a Pro Rata distribution of
Partnership Securities to all Record Holders or may effect a subdivision or
combination of Partnership Securities so long as, after any such event, each
Partner shall have the same Percentage Interest in the Partnership as before
such event, and any amounts calculated on a per Unit basis (including any
Common Unit Arrearage or Cumulative Common Unit Arrearage) or stated as a
number of Units (including the number of Subordinated Units that may convert
prior to the end of the Subordination Period and the number of additional
Parity Units that may be issued pursuant to Section 5.7 without a Unitholder
vote) are proportionately adjusted retroactive to the beginning of the
Partnership.
(b) Whenever such a distribution, subdivision or combination of Partnership
Securities is declared, the General Partner shall select a Record Date as of
which the distribution, subdivision or combination shall be effective and
shall send notice thereof at least 20 days prior to such Record Date to each
Record Holder as of a date not less than 10 days prior to the date of such
notice. The General Partner also may cause a firm of independent public
accountants selected by it to calculate the number of Partnership Securities
to be held by each Record Holder after giving effect to such distribution,
subdivision or combination. The General Partner shall be entitled to rely on
any certificate provided by such firm as conclusive evidence of the accuracy
of such calculation.
(c) Promptly following any such distribution, subdivision or combination,
the Partnership may issue Certificates to the Record Holders of Partnership
Securities as of the applicable Record Date representing the new number of
Partnership Securities held by such Record Holders, or the General Partner may
adopt such other procedures as it may deem appropriate to reflect such
changes. If any such combination results in a smaller total number of
Partnership Securities Outstanding, the Partnership shall require, as a
condition to the delivery to a Record Holder of such new Certificate, the
surrender of any Certificate held by such Record Holder immediately prior to
such Record Date.
(d) The Partnership shall not issue fractional Units upon any distribution,
subdivision or combination of Units. If a distribution, subdivision or
combination of Units would result in the issuance of fractional Units but for
the provisions of Section 5.7(e) and this Section 5.10(d), each fractional
Unit shall be rounded to the nearest whole Unit (and a 0.5 Unit shall be
rounded to the next higher Unit).
Section 5.11 Fully Paid and Non-Assessable Nature of Limited Partner
Interests.
All Limited Partner Interests issued pursuant to, and in accordance with the
requirements of, this Article V shall be fully paid and non-assessable Limited
Partner Interests in the Partnership, except as such non-assessability may be
affected by Section 17-607 of the Delaware Act.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes.
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Section 5.5(b)) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations set forth in
Section 6.1(d), Net Income for each taxable year and all items of income,
gain, loss and deduction taken into account in computing Net Income for such
taxable year shall be allocated as follows:
(i) First, 100% to the General Partner in an amount equal to the
aggregate Net Losses allocated to the General Partner pursuant to Section
6.1(b)(iii) for all previous taxable years until the aggregate Net Income
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allocated to the General Partner pursuant to this Section 6.1(a)(i) for the
current taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partner pursuant to Section
6.1(b)(iii) for all previous taxable years;
(ii) Second, 1% to the General Partner in an amount equal to the
aggregate Net Losses allocated to the General Partner pursuant to Section
6.1(b)(ii) for all previous taxable years and 99% to the Unitholders, in
accordance with their respective Percentage Interests, until the aggregate
Net Income allocated to such Partners pursuant to this Section 6.1(a)(ii)
for the current taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to such Partners pursuant to Section
6.1(b)(ii) for all previous taxable years; and
(iii) Third, the balance, if any, 100% to the General Partner and the
Unitholders in accordance with their respective Percentage Interests.
(b) Net Losses. After giving effect to the special allocations set forth in
Section 6.1(d), Net Losses for each taxable period and all items of income,
gain, loss and deduction taken into account in computing Net Losses for such
taxable period shall be allocated as follows:
(i) First, 1% to the General Partner and 99% to the Unitholders, in
accordance with their respective Percentage Interests, until the aggregate
Net Losses allocated pursuant to this Section 6.1(b)(i) for the current
taxable year and all previous taxable years is equal to the aggregate Net
Income allocated to such Partners pursuant to Section 6.1(a)(iii) for all
previous taxable years, provided that the Net Losses shall not be allocated
pursuant to this Section 6.1(b)(i) to the extent that such allocation would
cause any Unitholder to have a deficit balance in its Adjusted Capital
Account at the end of such taxable year (or increase any existing deficit
balance in its Adjusted Capital Account);
(ii) Second, 1% to the General Partner and 99% to the Unitholders in
accordance with their respective Percentage Interests; provided, that Net
Losses shall not be allocated pursuant to this Section 6.1(b)(ii) to the
extent that such allocation would cause any Unitholder to have a deficit
balance in its Adjusted Capital Account at the end of such taxable year (or
increase any existing deficit balance in its Adjusted Capital Account);
(iii) Third, the balance, if any, 100% to the General Partner.
(c) Net Termination Gains and Losses. After giving effect to the special
allocations set forth in Section 6.1(d), all items of income, gain, loss and
deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder.
All allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this
Section 6.1 and after all distributions of Available Cash provided under
Sections 6.4 and 6.5 have been made; provided, however, that solely for
purposes of this Section 6.1(c), Capital Accounts shall not be adjusted for
distributions made pursuant to Section 12.4.
(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 5.5(d)), such Net Termination Gain shall be allocated
among the Partners in the following manner (and the Capital Accounts of the
Partners shall be increased by the amount so allocated in each of the
following subclauses, in the order listed, before an allocation is made
pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance in its Capital
Account, in the proportion that such deficit balance bears to the total
deficit balances in the Capital Accounts of all Partners, until each
such Partner has been allocated Net Termination Gain equal to any such
deficit balance in its Capital Account;
(B) Second, 99% to all Unitholders holding Common Units, Pro Rata,
and 1% to the General Partner until the Capital Account in respect of
each Common Unit then Outstanding is equal to the sum of (1) its
Unrecovered Capital plus (2) the Minimum Quarterly Distribution for the
Quarter during which the Liquidation Date occurs, reduced by any
distribution pursuant to Section 6.4(a)(i) or (b)(i)
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with respect to such Common Unit for such Quarter (the amount
determined pursuant to this clause (2) is hereinafter defined as the
"Unpaid MQD") plus (3) any then existing Cumulative Common Unit
Arrearage;
(C) Third, if such Net Termination Gain is recognized (or is deemed
to be recognized) prior to the expiration of the Subordination Period,
99% to all Unitholders holding Subordinated Units, Pro Rata, and 1% to
the General Partner until the Capital Account in respect of each
Subordinated Unit then Outstanding equals the sum of (1) its
Unrecovered Capital, determined for the taxable year (or portion
thereof) to which this allocation of gain relates, plus (2) the Minimum
Quarterly Distribution for the Quarter during which the Liquidation
Date occurs, reduced by any distribution pursuant to Section
6.4(a)(iii) with respect to such Subordinated Unit for such Quarter;
(D) Fourth, 85.8673% to all Unitholders, Pro Rata, 13.1327% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner until the Capital Account in respect of each Common
Unit then Outstanding is equal to the sum of (1) its Unrecovered
Capital, plus (2) the Unpaid MQD, plus (3) any then existing Cumulative
Common Unit Arrearage, plus (4) the excess of (aa) the First Target
Distribution less the Minimum Quarterly Distribution for each Quarter
of the Partnership's existence over (bb) the cumulative per Unit amount
of any distributions of Operating Surplus that was distributed pursuant
to Sections 6.4(a)(iv) and 6.4(b)(ii) (the sum of (1) plus (2) plus (3)
plus (4) is hereinafter defined as the "First Liquidation Target
Amount");
(E) Fifth, 75.7653% to all Unitholders, Pro Rata, 23.2347% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner until the Capital Account in respect of each Common
Unit then Outstanding is equal to the sum of (1) the First Liquidation
Target Amount, plus (2) the excess of (aa) the Second Target
Distribution less the First Target Distribution for each Quarter of the
Partnership's existence over (bb) the cumulative per Unit amount of any
distributions of Operating Surplus that was distributed pursuant to
Sections 6.4(a)(v) and 6.4(b)(iii) (the sum of (1) plus (2) is
hereinafter defined as the "Second Liquidation Target Amount");
(F) Finally, any remaining amount 50.5102% to all Unitholders, Pro
Rata, 48.4898% to the holders of the Incentive Distribution Rights, Pro
Rata, and 1% to the General Partner.
(ii) If a Net Termination Loss is recognized (or deemed recognized
pursuant to Section 5.5(d)), such Net Termination Loss shall be allocated
among the Partners in the following manner:
(A) First, if such Net Termination Loss is recognized (or is deemed
to be recognized) prior to the conversion of the last Outstanding
Subordinated Unit, 99% to the Unitholders holding Subordinated Units,
Pro Rata, and 1% to the General Partner until the Capital Account in
respect of each Subordinated Unit then Outstanding has been reduced to
zero;
(B) Second, 99% to all Unitholders holding Common Units, Pro Rata,
and 1% to the General Partner until the Capital Account in respect of
each Common Unit then Outstanding has been reduced to zero; and
(C) Third, the balance, if any, 100% to the General Partner.
(d) Special Allocations. Notwithstanding any other provision of this Section
6.1, the following special allocations shall be made for such taxable period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 6.1, if there is a net decrease in Partnership
Minimum Gain during any Partnership taxable period, each Partner shall be
allocated items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-
2(j)(2)(i), or any successor provision. For purposes of this Section
6.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.1(d) with respect to such taxable period (other than an
allocation pursuant to Sections 6.1(d)(vi) and
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6.1(d)(vii)). This Section 6.1(d)(i) is intended to comply with the
Partnership Minimum Gain chargeback requirement in Treasury Regulation
Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain. Notwithstanding
the other provisions of this Section 6.1 (other than Section 6.1(d)(i)),
except as provided in Treasury Regulation Section 1.704-2(i)(4), if there
is a net decrease in Partner Nonrecourse Debt Minimum Gain during any
Partnership taxable period, any Partner with a share of Partner Nonrecourse
Debt Minimum Gain at the beginning of such taxable period shall be
allocated items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any
successor provisions. For purposes of this Section 6.1(d), each Partner's
Adjusted Capital Account balance shall be determined, and the allocation of
income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section 6.1(d), other
than Section 6.1(d)(i) and other than an allocation pursuant to Sections
6.1(d)(vi) and 6.1(d)(vii), with respect to such taxable period. This
Section 6.1(d)(ii) is intended to comply with the chargeback of items of
income and gain requirement in Treasury Regulation Section 1.704-2(i)(4)
and shall be interpreted consistently therewith.
(iii) Priority Allocations.
(A) If the amount of cash or the Net Agreed Value of any property
distributed (except cash or property distributed pursuant to Section
12.4) to any Unitholder with respect to its Units for a taxable year is
greater (on a per Unit basis) than the amount of cash or the Net Agreed
Value of property distributed to the other Unitholders with respect to
their Units (on a per Unit basis), then (1) each Unitholder receiving
such greater cash or property distribution shall be allocated gross
income in an amount equal to the product of (aa) the amount by which
the distribution (on a per Unit basis) to such Unitholder exceeds the
distribution (on a per Unit basis) to the Unitholders receiving the
smallest distribution and (bb) the number of Units owned by the
Unitholder receiving the greater distribution; and (2) the General
Partner shall be allocated gross income in an aggregate amount equal to
1/99th of the sum of the amounts allocated in clause (1) above.
(B) After the application of Section 6.1(d)(iii)(A), all or any
portion of the remaining items of Partnership gross income or gain for
the taxable period, if any, shall be allocated 100% to the holders of
Incentive Distribution Rights, Pro Rata, until the aggregate amount of
such items allocated to the holders of Incentive Distribution Rights
pursuant to this paragraph 6.1(d)(iii)(B) for the current taxable year
and all previous taxable years is equal to the cumulative amount of all
Incentive Distributions made to the holders of Incentive Distribution
Rights from the Closing Date to a date 45 days after the end of the
current taxable year.
(iv) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership income
and gain shall be specially allocated to such Partner in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
Regulations promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 6.1(d)(i)
or (ii).
(v) Gross Income Allocations. In the event any Partner has a deficit
balance in its Capital Account at the end of any Partnership taxable period
in excess of the sum of (A) the amount such Partner is required to restore
pursuant to the provisions of this Agreement and (B) the amount such
Partner is deemed obligated to restore pursuant to Treasury Regulation
Sections 1.704-2(g) and 1.704-2(i)(5), such Partner shall be specially
allocated items of Partnership gross income and gain in the amount of such
excess as quickly as possible; provided, that an allocation pursuant to
this Section 6.1(d)(v) shall be made only if and to the extent that such
Partner would have a deficit balance in its Capital Account as adjusted
after all other allocations provided for in this Section 6.1 have been
tentatively made as if this Section 6.1(d)(v) were not in this Agreement.
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(vi) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of
the Treasury Regulations promulgated under Section 704(b) of the Code, the
General Partner is authorized, upon notice to the other Partners, to revise
the prescribed ratio to the numerically closest ratio that does satisfy
such requirements.
(vii) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for
any taxable period shall be allocated 100% to the Partner that bears the
Economic Risk of Loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Treasury Regulation Section 1.704-2(i). If more than one Partner bears the
Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such
Partner Nonrecourse Deductions attributable thereto shall be allocated
between or among such Partners in accordance with the ratios in which they
share such Economic Risk of Loss.
(viii) Nonrecourse Liabilities. For purposes of Treasury Regulation
Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of
the Partnership in excess of the sum of (A) the amount of Partnership
Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
(ix) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(c) of the Code is required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such item of
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Section of the Treasury Regulations.
(x) Economic Uniformity. At the election of the General Partner with
respect to any taxable period ending upon, or after, the termination of the
Subordination Period, all or a portion of the remaining items of
Partnership gross income or gain for such taxable period, after taking into
account allocations pursuant to Section 6.1(d)(iii), shall be allocated
100% to each Partner holding Subordinated Units that are Outstanding as of
the termination of the Subordination Period ("Final Subordinated Units") in
the proportion of the number of Final Subordinated Units held by such
Partner to the total number of Final Subordinated Units then Outstanding,
until each such Partner has been allocated an amount of gross income or
gain which increases the Capital Account maintained with respect to such
Final Subordinated Units to an amount equal to the product of (A) the
number of Final Subordinated Units held by such Partner and (B) the Per
Unit Capital Amount for a Common Unit. The purpose of this allocation is to
establish uniformity between the Capital Accounts underlying Final
Subordinated Units and the Capital Accounts underlying Common Units held by
Persons other than the General Partner and its Affiliates immediately prior
to the conversion of such Final Subordinated Units into Common Units. This
allocation method for establishing such economic uniformity will only be
available to the General Partner if the method for allocating the Capital
Account maintained with respect to the Subordinated Units between the
transferred and retained Subordinated Units pursuant to Section 5.5(c)(ii)
does not otherwise provide such economic uniformity to the Final
Subordinated Units.
(xi) Curative Allocation.
(A) Notwithstanding any other provision of this Section 6.1, other
than the Required Allocations, the Required Allocations shall be taken
into account in making the Agreed Allocations so that, to the extent
possible, the net amount of items of income, gain, loss and deduction
allocated to each Partner pursuant to the Required Allocations and the
Agreed Allocations, together, shall be equal to the net amount of such
items that would have been allocated to each such Partner under the
Agreed Allocations had the Required Allocations and the related
Curative Allocation not otherwise been
provided in this Section 6.1. Notwithstanding the preceding sentence,
Required Allocations relating to
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(1) Nonrecourse Deductions shall not be taken into account except to
the extent that there has been a decrease in Partnership Minimum Gain
and (2) Partner Nonrecourse Deductions shall not be taken into account
except to the extent that there has been a decrease in Partner
Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section
6.1(d)(xi)(A) shall only be made with respect to Required Allocations
to the extent the General Partner reasonably determines that such
allocations will otherwise be inconsistent with the economic agreement
among the Partners. Further, allocations pursuant to this Section
6.1(d)(xi)(A) shall be deferred with respect to allocations pursuant to
clauses (1) and (2) hereof to the extent the General Partner reasonably
determines that such allocations are likely to be offset by subsequent
Required Allocations.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of Section
6.1(d)(xi)(A) in whatever order is most likely to minimize the economic
distortions that might otherwise result from the Required Allocations,
and (2) divide all allocations pursuant to Section 6.1(d)(xi)(A) among
the Partners in a manner that is likely to minimize such economic
distortions.
(xii) Corrective Allocations. In the event of any allocation of
Additional Book Basis Derivative Items or any Book-Down Event or any
recognition of a Net Termination Loss, the following rules shall apply:
(A) In the case of any allocation of Additional Book Basis Derivative
Items (other than an allocation of Unrealized Gain or Unrealized Loss
under Section 5.5(d) hereof), the General Partner shall allocate
additional items of gross income and gain away from the holders of
Incentive Distribution Rights to the Unitholders and the General
Partner, or additional items of deduction and loss away from the
Unitholders and the General Partner to the holders of Incentive
Distribution Rights, to the extent that the Additional Book Basis
Derivative Items allocated to the Unitholders or the General Partner
exceed their Share of Additional Book Basis Derivative Items. For this
purpose, the Unitholders and the General Partner shall be treated as
being allocated Additional Book Basis Derivative Items to the extent
that such Additional Book Basis Derivative Items have reduced the
amount of income that would otherwise have been allocated to the
Unitholders or the General Partner under the Partnership Agreement
(e.g., Additional Book Basis Derivative Items taken into account in
computing cost of goods sold would reduce the amount of book income
otherwise available for allocation among the Partners). Any allocation
made pursuant to this Section 6.1(d)(xii)(A) shall be made after all of
the other Agreed Allocations have been made as if this Section
6.1(d)(xii) were not in this Agreement and, to the extent necessary,
shall require the reallocation of items that have been allocated
pursuant to such other Agreed Allocations.
(B) In the case of any negative adjustments to the Capital Accounts
of the Partners resulting from a Book-Down Event or from the
recognition of a Net Termination Loss, such negative adjustment (1)
shall first be allocated, to the extent of the Aggregate Remaining Net
Positive Adjustments, in such a manner, as reasonably determined by the
General Partner, that to the extent possible the aggregate Capital
Accounts of the Partners will equal the amount which would have been
the Capital Account balance of the Partners if no prior Book-Up Events
had occurred, and (2) any negative adjustment in excess of the
Aggregate Remaining Net Positive Adjustments shall be allocated
pursuant to Section 6.1(c) hereof.
(C) In making the allocations required under this Section
6.1(d)(xii), the General Partner, in its sole discretion, may apply
whatever conventions or other methodology it deems reasonable to
satisfy the purpose of this Section 6.1(d)(xii).
Section 6.2 Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income tax purposes,
each item of income, gain, loss and deduction shall be allocated among the
Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1.
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(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Partners in the manner provided under
Section 704(c) of the Code that takes into account the variation between
the Agreed Value of such property and its adjusted basis at the time of
contribution; and (B) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of "book" gain or loss
is allocated pursuant to Section 6.1.
(ii) (A) In the case of an Adjusted Property, such items shall (1) first,
be allocated among the Partners in a manner consistent with the principles
of Section 704(c) of the Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the allocations thereof
pursuant to Section 5.5(d)(i) or 5.5(d)(ii), and (2) second, in the event
such property was originally a Contributed Property, be allocated among the
Partners in a manner consistent with Section 6.2(b)(i)(A); and (B) any item
of Residual Gain or Residual Loss attributable to an Adjusted Property
shall be allocated among the Partners in the same manner as its correlative
item of "book" gain or loss is allocated pursuant to Section 6.1.
(iii) The General Partner shall apply the principles of Treasury
Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Limited Partner Interests (or any class or
classes thereof), the General Partner shall have sole discretion to (i) adopt
such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions; and (iii) amend the provisions of
this Agreement as appropriate (x) to reflect the proposal or promulgation of
Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y)
otherwise to preserve or achieve uniformity of the Limited Partner Interests
(or any class or classes thereof). The General Partner may adopt such
conventions, make such allocations and make such amendments to this Agreement
as provided in this Section 6.2(c) only if such conventions, allocations or
amendments would not have a material adverse effect on the Partners, the
holders of any class or classes of Limited Partner Interests issued and
Outstanding or the Partnership, and if such allocations are consistent with
the principles of Section 704 of the Code.
(d) The General Partner in its discretion may determine to depreciate or
amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the
extent of the unamortized Book-Tax Disparity) using a predetermined rate
derived from the depreciation or amortization method and useful life applied
to the Partnership's common basis of such property, despite any inconsistency
of such approach with Proposed Treasury Regulation Section 1.168-2(n),
Treasury Regulation Section 1.167(c)-l(a)(6) or the legislative history of
Section 197 of the Code. If the General Partner determines that such reporting
position cannot reasonably be taken, the General Partner may adopt
depreciation and amortization conventions under which all purchasers acquiring
Limited Partner Interests in the same month would receive depreciation and
amortization deductions, based upon the same applicable rate as if they had
purchased a direct interest in the Partnership's property. If the General
Partner chooses not to utilize such aggregate method, the General Partner may
use any other reasonable depreciation and amortization conventions to preserve
the uniformity of the intrinsic tax characteristics of any Limited Partner
Interests that would not have a material adverse effect on the Limited
Partners or the Record Holders of any class or classes of Limited Partner
Interests.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after
taking into account other required allocations of gain pursuant to this
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Section 6.2, be characterized as Recapture Income in the same proportions and
to the same extent as such Partners (or their predecessors in interest) have
been allocated any deductions directly or indirectly giving rise to the
treatment of such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by the
Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard to
any election under Section 754 of the Code which may be made by the
Partnership; provided, however, that such allocations, once made, shall be
adjusted as necessary or appropriate to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction attributable
to a transferred Partnership Interest, shall for federal income tax purposes,
be determined on an annual basis and prorated on a monthly basis and shall be
allocated to the Partners as of the opening of the New York Stock Exchange on
the first Business Day of each month; provided, however, that (i) such items
for the period beginning on the Closing Date and ending on the last day of the
month in which the Option Closing Date or the expiration of the Over-allotment
Option occurs shall be allocated to the Partners as of the opening of the New
York Stock Exchange on the first Business Day of the next succeeding month;
and provided, further, that gain or loss on a sale or other disposition of any
assets of the Partnership other than in the ordinary course of business shall
be allocated to the Partners as of the opening of the New York Stock Exchange
on the first Business Day of the month in which such gain or loss is
recognized for federal income tax purposes. The General Partner may revise,
alter or otherwise modify such methods of allocation as it determines
necessary, to the extent permitted or required by Section 706 of the Code and
the regulations or rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited Partner under the
provisions of this Article VI shall instead be made to the beneficial owner of
Limited Partner Interests held by a nominee in any case in which the nominee
has furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion.
Section 6.3 Requirement and Characterization of Distributions; Distributions
to Record Holders.
(a) Within 45 days following the end of each Quarter commencing with the
Quarter ending on December 31, 1998, an amount equal to 100% of Available Cash
with respect to such Quarter shall, subject to Section 17-607 of the Delaware
Act, be distributed in accordance with this Article VI by the Partnership to
the Partners as of the Record Date selected by the General Partner in its
reasonable discretion. All amounts of Available Cash distributed by the
Partnership on any date from any source shall be deemed to be Operating
Surplus until the sum of all amounts of Available Cash theretofore distributed
by the Partnership to the Partners pursuant to Section 6.4 equals the
Operating Surplus from the Closing Date through the close of the immediately
preceding Quarter. Any remaining amounts of Available Cash distributed by the
Partnership on such date shall, except as otherwise provided in Section 6.5,
be deemed to be "Capital Surplus." All distributions required to be made under
this Agreement shall be made subject to Section 17-607 of the Delaware Act.
(b) Notwithstanding Section 6.3(a), in the event of the dissolution and
liquidation of the Partnership, all receipts received during or after the
Quarter in which the Liquidation Date occurs, other than from borrowings
described in (a)(ii) of the definition of Available Cash, shall be applied and
distributed solely in accordance with, and subject to the terms and conditions
of, Section 12.4.
(c) The General Partner shall have the discretion to treat taxes paid by the
Partnership on behalf of, or amounts withheld with respect to, all or less
than all of the Partners, as a distribution of Available Cash to such
Partners.
(d) Each distribution in respect of a Partnership Interest shall be paid by
the Partnership, directly or through the Transfer Agent or through any other
Person or agent, only to the Record Holder of such Partnership Interest
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as of the Record Date set for such distribution. Such payment shall constitute
full payment and satisfaction of the Partnership's liability in respect of
such payment, regardless of any claim of any Person who may have an interest
in such payment by reason of an assignment or otherwise.
Section 6.4 Distributions of Available Cash from Operating Surplus.
(a) During Subordination Period. Available Cash with respect to any Quarter
within the Subordination Period that is deemed to be Operating Surplus
pursuant to the provisions of Section 6.3 or 6.5 shall, subject to Section 17-
607 of the Delaware Act, be distributed as follows, except as otherwise
required by Section 5.6(b) in respect of additional Partnership Securities
issued pursuant thereto:
(i) First, 99% to the Unitholders holding Common Units, Pro Rata, and 1%
to the General Partner until there has been distributed in respect of each
Common Unit then Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
(ii) Second, 99% to the Unitholders holding Common Units, Pro Rata, and
1% to the General Partner until there has been distributed in respect of
each Common Unit then Outstanding an amount equal to the Cumulative Common
Unit Arrearage existing with respect to such Quarter;
(iii) Third, 99% to the Unitholders holding Subordinated Units, Pro Rata,
and 1% to the General Partner until there has been distributed in respect
of each Subordinated Unit then Outstanding an amount equal to the Minimum
Quarterly Distribution for such Quarter;
(iv) Fourth, 85.8673% to all Unitholders, Pro Rata, 13.1327% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner until there has been distributed in respect of each Unit
then Outstanding an amount equal to the excess of the First Target
Distribution over the Minimum Quarterly Distribution for such Quarter;
(v) Fifth, 75.7653% to all Unitholders, Pro Rata, 23.2347% to the holders
of the Incentive Distribution Rights, Pro Rata, and 1% to the General
Partner until there has been distributed in respect of each Unit then
Outstanding an amount equal to the excess of the Second Target Distribution
over the First Target Distribution for such Quarter; and
(vi) Thereafter, 50.5102% to all Unitholders, Pro Rata, 48.4898% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution and the Second Target Distribution have been reduced to zero
pursuant to the second sentence of Section 6.6(a), the distribution of
Available Cash that is deemed to be Operating Surplus with respect to any
Quarter will be made solely in accordance with Section 6.4(a)(vi).
(b) After Subordination Period. Available Cash with respect to any Quarter
after the Subordination Period that is deemed to be Operating Surplus pursuant
to the provisions of Section 6.3 or 6.5, subject to Section 17-607 of the
Delaware Act, shall be distributed as follows, except as otherwise required by
Section 5.6(b) in respect of additional Partnership Securities issued pursuant
thereto:
(i) First, 99% to all Unitholders, Pro Rata, and 1% to the General
Partner until there has been distributed in respect of each Unit then
Outstanding an amount equal to the Minimum Quarterly Distribution for such
Quarter;
(ii) Second, 85.8673% to all Unitholders, Pro Rata, and 13.1327% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner until there has been distributed in respect of each Unit
then Outstanding an amount equal to the excess of the First Target
Distribution over the Minimum Quarterly Distribution for such Quarter;
(iii) Third, 75.7653% to all Unitholders, Pro Rata, and 23.2347% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner until there has been distributed in respect of
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each Unit then Outstanding an amount equal to the excess of the Second
Target Distribution over the First Target Distribution for such Quarter;
and
(iv) Thereafter, 50.5102% to all Unitholders, Pro Rata, and 48.4898% to
the holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution and the Second Target Distribution have been reduced to zero
pursuant to the second sentence of Section 6.6(a), the distribution of
Available Cash that is deemed to be Operating Surplus with respect to any
Quarter will be made solely in accordance with Section 6.4(b)(iv).
Section 6.5 Distributions of Available Cash from Capital Surplus.
Available Cash that is deemed to be Capital Surplus pursuant to the
provisions of Section 6.3(a) shall, subject to Section 17-607 of the Delaware
Act, be distributed, unless the provisions of Section 6.3 require otherwise,
99% to all Unitholders, Pro Rata, and 1% to the General Partner until a
hypothetical holder of a Common Unit acquired on the Closing Date has received
with respect to such Common Unit, during the period since the Closing Date
through such date, distributions of Available Cash that are deemed to be
Capital Surplus in an aggregate amount equal to the Initial Unit Price.
Available Cash that is deemed to be Capital Surplus shall then be distributed
99% to all Unitholders holding Common Units, Pro Rata, and 1% to the General
Partner until there has been distributed in respect of each Common Unit then
Outstanding an amount equal to the Cumulative Common Unit Arrearage.
Thereafter, all Available Cash shall be distributed as if it were Operating
Surplus and shall be distributed in accordance with Section 6.4.
Section 6.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels.
(a) The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution, Common Unit Arrearages and Cumulative Common Unit
Arrearages shall be proportionately adjusted in the event of any distribution,
combination or subdivision (whether effected by a distribution payable in
Units or otherwise) of Units or other Partnership Securities in accordance
with Section 5.10. In the event of a distribution of Available Cash that is
deemed to be from Capital Surplus, the then applicable Minimum Quarterly
Distribution, First Target Distribution and Second Target Distribution shall
be adjusted proportionately downward to equal the product obtained by
multiplying the otherwise applicable Minimum Quarterly Distribution, First
Target Distribution and Second Target Distribution, as the case may be, by a
fraction of which the numerator is the Unrecovered Capital of the Common Units
immediately after giving effect to such distribution and of which the
denominator is the Unrecovered Capital of the Common Units immediately prior
to giving effect to such distribution.
(b) The Minimum Quarterly Distribution, First Target Distribution and Second
Target Distribution shall also be subject to adjustment pursuant to Section
6.9.
Section 6.7 Special Provisions Relating to the Holders of Subordinated Units.
(a) Except with respect to the right to vote on or approve matters requiring
the vote or approval of a percentage of the holders of Outstanding Common
Units and the right to participate in allocations of income, gain, loss and
deduction and distributions made with respect to Common Units, the holder of a
Subordinated Unit shall have all of the rights and obligations of a Unitholder
holding Common Units hereunder; provided, however, that immediately upon the
conversion of Subordinated Units into Common Units pursuant to Section 5.8,
the Unitholder holding a Subordinated Unit shall possess all of the rights and
obligations of a Unitholder holding Common Units hereunder, including the
right to vote as a Common Unitholder and the right to participate in
allocations of income, gain, loss and deduction and distributions made with
respect to Common Units; provided, however, that such converted Subordinated
Units shall remain subject to the provisions of Sections 5.5(c)(ii), 6.1(d)(x)
and 6.7(b).
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(b) The Unitholder holding a Subordinated Unit which has converted into a
Common Unit pursuant to Section 5.8 shall not be issued a Common Unit
Certificate pursuant to Section 4.1, and shall not be permitted to transfer
its converted Subordinated Units to a Person which is not an Affiliate of the
holder until such time as the General Partner determines, based on advice of
counsel, that a converted Subordinated Unit should have, as a substantive
matter, like intrinsic economic and federal income tax characteristics, in all
material respects, to the intrinsic economic and federal income tax
characteristics of an Initial Common Unit. In connection with the condition
imposed by this Section 6.7(b), the General Partner may take whatever
reasonable steps are required to provide economic uniformity to the converted
Subordinated Units in preparation for a transfer of such converted
Subordinated Units, including the application of Sections 5.5(c)(ii) and
6.1(d)(x); provided, however, that no such steps may be taken that would have
a material adverse effect on the Unitholders holding Common Units represented
by Common Unit Certificates.
Section 6.8 Special Provisions Relating to the Holders of Incentive
Distribution Rights.
Notwithstanding anything to the contrary set forth in this Agreement, the
holders of the Incentive Distribution Rights (a) shall (i) possess the rights
and obligations provided in this Agreement with respect to a Limited Partner
pursuant to Articles III and VII and (ii) have a Capital Account as a Partner
pursuant to Section 5.5 and all other provisions related thereto and (b) shall
not (i) be entitled to vote on any matters requiring the approval or vote of
the holders of Outstanding Units, (ii) be entitled to any distributions other
than as provided in Sections 6.4(a)(iv), (v) and (vi), 6.4(b)(ii), (iii) and
(iv), and 12.4 or (iii) be allocated items of income, gain, loss or deduction
other than as specified in this Article VI.
Section 6.9 Entity-Level Taxation.
If legislation is enacted or the interpretation of existing language is
modified by the relevant governmental authority which causes the Partnership
or an Operating Partnership to be treated as an association taxable as a
corporation or otherwise subjects the Partnership or an Operating Partnership
to entity-level taxation for federal income tax purposes, the then applicable
Minimum Quarterly Distribution, First Target Distribution and Second Target
Distribution shall be adjusted to equal the product obtained by multiplying
(a) the amount thereof by (b) one minus the sum of (i) the highest marginal
federal corporate (or other entity, as applicable) income tax rate of the
Partnership or such Operating Partnership for the taxable year of the
Partnership or such Operating Partnership in which such Quarter occurs
(expressed as a percentage) plus (ii) the effective overall state and local
income tax rate (expressed as a percentage) applicable to the Partnership or
such Operating Partnership for the calendar year next preceding the calendar
year in which such Quarter occurs (after taking into account the benefit of
any deduction allowable for federal income tax purposes with respect to the
payment of state and local income taxes), but only to the extent of the
increase in such rates resulting from such legislation or interpretation. Such
effective overall state and local income tax rate shall be determined for the
taxable year next preceding the first taxable year during which the
Partnership or such Operating Partnership is taxable for federal income tax
purposes as an association taxable as a corporation or is otherwise subject to
entity-level taxation by determining such rate as if the Partnership or such
Operating Partnership had been subject to such state and local taxes during
such preceding taxable year.
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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management.
(a) The General Partner shall conduct, direct and manage all activities of
the Partnership. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership shall be
exclusively vested in the General Partner, and no Limited Partner or Assignee
shall have any management power over the business and affairs of the
Partnership. In addition to the powers now or hereafter granted a general
partner of a limited partnership under applicable law or which are granted to
the General Partner under any other provision of this Agreement, the General
Partner, subject to Section 7.3, shall have full power and authority to do all
things and on such terms as it, in its sole discretion, may deem necessary or
appropriate to conduct the business of the Partnership, to exercise all powers
set forth in Section 2.5 and to effectuate the purposes set forth in Section
2.4, including the following:
(i) the making of any expenditures, the lending or borrowing of money,
the assumption or guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidences of indebtedness, including
indebtedness that is convertible into Partnership Securities, and the
incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the Partnership or
the merger or other combination of the Partnership with or into another
Person (the matters described in this clause (iii) being subject, however,
to any prior approval that may be required by Section 7.3);
(iv) the use of the assets of the Partnership (including cash on hand)
for any purpose consistent with the terms of this Agreement, including the
financing of the conduct of the operations of the Partnership Group;
subject to Section 7.6(a), the lending of funds to other Persons (including
the Operating Partnerships); the repayment of obligations of the
Partnership Group and the making of capital contributions to any member of
the Partnership Group;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including instruments that limit the
liability of the Partnership under contractual arrangements to all or
particular assets of the Partnership, with the other party to the contract
to have no recourse against the General Partner or its assets other than
its interest in the Partnership, even if same results in the terms of the
transaction being less favorable to the Partnership than would otherwise be
the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including employees
having titles such as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants, consultants and
contractors and the determination of their compensation and other terms of
employment or hiring;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited or
general partnerships, joint ventures, corporations or other relationships
(including the acquisition of interests in, and the contributions of
property to, the Operating Partnerships from time to time) subject to the
restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations of
the Partnership, including the bringing and defending of actions at law or
in equity and otherwise engaging in the conduct of litigation and the
incurring of legal expense and the settlement of claims and litigation;
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(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(xii) the entering into of listing agreements with any National
Securities Exchange and the delisting of some or all of the Limited Partner
Interests from, or requesting that trading be suspended on, any such
exchange (subject to any prior approval that may be required under Section
4.8);
(xiii) unless restricted or prohibited by Section 5.7, the purchase, sale
or other acquisition or disposition of Partnership Securities, or the
issuance of additional options, rights, warrants and appreciation rights
relating to Partnership Securities; and
(xiv) the undertaking of any action in connection with the Partnership's
participation in the Operating Partnership as a partner.
(b) Notwithstanding any other provision of this Agreement, the Operating
Partnership Agreements, the Delaware Act or any applicable law, rule or
regulation, each of the Partners and Assignees and each other Person who may
acquire an interest in Partnership Securities hereby (i) approves, ratifies
and confirms the execution, delivery and performance by the parties thereto of
the Operating Partnership Agreements, the Underwriting Agreement, the Omnibus
Agreement, the Contribution and Conveyance Agreement and the other agreements
and other documents described in or filed as exhibits to the Registration
Statement that are related to the transactions contemplated by the
Registration Statement; (ii) agrees that the General Partner (on its own or
through any officer of the Partnership) is authorized to execute, deliver and
perform the agreements referred to in clause (i) of this sentence and the
other agreements, acts, transactions and matters described in or contemplated
by the Registration Statement on behalf of the Partnership without any further
act, approval or vote of the Partners or the Assignees or the other Persons
who may acquire an interest in Partnership Securities; and (iii) agrees that
the execution, delivery or performance by the General Partner, any Group
Member or any Affiliate of any of them, of this Agreement or any agreement
authorized or permitted under this Agreement (including the exercise by the
General Partner or any Affiliate of the General Partner of the rights accorded
pursuant to Article XV), shall not constitute a breach by the General Partner
of any duty that the General Partner may owe the Partnership or the Limited
Partners or any other Persons under this Agreement (or any other agreements)
or of any duty stated or implied by law or equity.
Section 7.2 Certificate of Limited Partnership.
The General Partner has caused the Certificate of Limited Partnership to be
filed with the Secretary of State of the State of Delaware as required by the
Delaware Act and shall use all reasonable efforts to cause to be filed such
other certificates or documents as may be determined by the General Partner in
its sole discretion to be reasonable and necessary or appropriate for the
formation, continuation, qualification and operation of a limited partnership
(or a partnership in which the limited partners have limited liability) in the
State of Delaware or any other state in which the Partnership may elect to do
business or own property. To the extent that such action is determined by the
General Partner in its sole discretion to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate of Limited Partnership and do all things to maintain the
Partnership as a limited partnership (or a partnership or other entity in
which the limited partners have limited liability) under the laws of the State
of Delaware or of any other state in which the Partnership may elect to do
business or own property. Subject to the terms of Section 3.4(a), the General
Partner shall not be required, before or after filing, to deliver or mail a
copy of the Certificate of Limited Partnership, any qualification document or
any amendment thereto to any Limited Partner.
Section 7.3 Restrictions on General Partner's Authority.
(a) The General Partner may not, without written approval of the specific
act by holders of all of the Outstanding Limited Partner Interests or by other
written instrument executed and delivered by holders of all of the Outstanding
Limited Partner Interests subsequent to the date of this Agreement, take any
action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) committing any act that would make it
impossible to carry on the ordinary business of the Partnership; (ii)
possessing Partnership
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property, or assigning any rights in specific Partnership property, for other
than a Partnership purpose; (iii) admitting a Person as a Partner; (iv)
amending this Agreement in any manner; or (v) transferring its interest as
general partner of the Partnership.
(b) Except as provided in Articles XII and XIV, the General Partner may not
sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related
transactions (including by way of merger, consolidation or other combination)
or approve on behalf of the Partnership the sale, exchange or other
disposition of all or substantially all of the assets of the Operating
Partnerships, taken as a whole, without the approval of holders of a Unit
Majority; provided however that this provision shall not preclude or limit the
General Partner's ability to mortgage, pledge, hypothecate or grant a security
interest in all or substantially all of the assets of the Partnership or
Operating Partnerships and shall not apply to any forced sale of any or all of
the assets of the Partnership or Operating Partnerships pursuant to the
foreclosure of, or other realization upon, any such encumbrance. Without the
approval of holders of a Unit Majority, the General Partner shall not, on
behalf of the Partnership, (i) consent to any amendment to the Operating
Partnership Agreement or, except as expressly permitted by Section 7.9(d),
take any action permitted to be taken by a partner of an Operating
Partnership, in either case, that would have a material adverse effect on the
Partnership as a partner of an Operating Partnership or (ii) except as
permitted under Sections 4.6, 11.1 and 11.2, elect or cause the Partnership to
elect a successor general partner of the Partnership or an Operating
Partnership.
Section 7.4 Reimbursement of the General Partner.
(a) Except as provided in this Section 7.4 and elsewhere in this Agreement
or in the Operating Partnership Agreements, the General Partner shall not be
compensated for its services as general partner of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person including Affiliates of the
General Partner to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the
General Partner in its sole discretion. Reimbursements pursuant to this
Section 7.4 shall be in addition to any reimbursement to the General Partner
as a result of indemnification pursuant to Section 7.7.
(c) Subject to Section 5.7, the General Partner, in its sole discretion and
without the approval of the Limited Partners (who shall have no right to vote
in respect thereof), may propose and adopt on behalf of the Partnership
employee benefit plans, employee programs and employee practices (including
plans, programs and practices involving the issuance of Partnership Securities
or options to purchase Partnership Securities), or cause the Partnership to
issue Partnership Securities in connection with, or pursuant to, any employee
benefit plan, employee program or employee practice maintained or sponsored by
the General Partner or any of its Affiliates, in each case for the benefit of
employees of the General Partner, any Group Member or any Affiliate, or any of
them, in respect of services performed, directly or indirectly, for the
benefit of the Partnership Group. The Partnership agrees to issue and sell to
the General Partner or any of its Affiliates any Partnership Securities that
the General Partner or such Affiliate is obligated to provide to any employees
pursuant to any such employee benefit plans, employee programs or employee
practices. Expenses incurred by the General Partner in connection with any
such plans, programs and practices (including the net cost to the General
Partner or such Affiliate of Partnership Securities purchased by the General
Partner or such Affiliate from the Partnership to fulfill options or awards
under such plans, programs and practices) shall be reimbursed in accordance
with Section 7.4(b). Any and all obligations of the General Partner under any
employee benefit plans, employee programs or employee practices adopted by the
General Partner as permitted by this Section 7.4(c) shall constitute
obligations of the
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General Partner hereunder and shall be assumed by any successor General
Partner approved pursuant to Section 11.1 or 11.2 or the transferee of or
successor to all of the General Partner's General Partner Interest pursuant to
Section 4.6.
Section 7.5 Outside Activities.
(a) After the Closing Date, the General Partner, for so long as it is the
General Partner of the Partnership (i) agrees that its sole business will be
to act as the general partner of the Partnership, each Operating Partnership,
and any other partnership or limited liability company of which the
Partnership or an Operating Partnership is, directly or indirectly, a partner
and to undertake activities that are ancillary or related thereto (including
being a limited partner in the Partnership), (ii) shall not engage in any
business or activity or incur any debts or liabilities except in connection
with or incidental to (A) its performance as general partner of one or more
Group Members or as described in or contemplated by the Registration Statement
or (B) the acquiring, owning or disposing of debt or equity securities in any
Group Member and (iii) except to the extent permitted in the Omnibus
Agreement, shall not, and shall cause its Affiliates not to, engage in any
Restricted Business.
(b) Plains Resources Inc. has entered into the Omnibus Agreement with the
Partnership and the Operating Partnerships, which agreement sets forth certain
restrictions on the ability of Plains Resources Inc. and its Affiliates to
engage in Restricted Businesses.
(c) Except as specifically restricted by Section 7.5(a) and the Omnibus
Agreement, each Indemnitee (other than the General Partner) shall have the
right to engage in businesses of every type and description and other
activities for profit and to engage in and possess an interest in other
business ventures of any and every type or description, whether in businesses
engaged in or anticipated to be engaged in by any Group Member, independently
or with others, including business interests and activities in direct
competition with the business and activities of any Group Member, and none of
the same shall constitute a breach of this Agreement or any duty express or
implied by law to any Group Member or any Partner or Assignee. Neither any
Group Member, any Limited Partner nor any other Person shall have any rights
by virtue of this Agreement, either Operating Partnership Agreement or the
partnership relationship established hereby or thereby in any business
ventures of any Indemnitee.
(d) Subject to the terms of Section 7.5(a), Section 7.5(b), Section 7.5(c)
and the Omnibus Agreement, but otherwise notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive activities by any
Indemnitees (other than the General Partner) in accordance with the provisions
of this Section 7.5 is hereby approved by the Partnership and all Partners,
(ii) it shall be deemed not to be a breach of the General Partner's fiduciary
duty or any other obligation of any type whatsoever of the General Partner for
the Indemnitees (other than the General Partner) to engage in such business
interests and activities in preference to or to the exclusion of the
Partnership and (iii) except as set forth in the Omnibus Agreement, the
General Partner and the Indemnities shall have no obligation to present
business opportunities to the Partnership.
(e) The General Partner and any of its Affiliates may acquire Units or other
Partnership Securities in addition to those acquired on the Closing Date and,
except as otherwise provided in this Agreement, shall be entitled to exercise
all rights of the General Partner or Limited Partner, as applicable, relating
to such Units or Partnership Securities.
(f) The term "Affiliates" when used in Section 7.5(a) and Section 7.5(e)
with respect to the General Partner shall not include any Group Member or any
Subsidiary of the Group Member.
(g) Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of
this Agreement purport or are interpreted to have the effect of restricting
the fiduciary duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the General Partner to the Partnership and its
Limited Partners, or to constitute a waiver or consent by the Limited Partners
to any such restriction, such provisions shall be inapplicable and have no
effect in determining whether the General Partner has complied with its
fiduciary duties in connection with determinations made by it under this
Section 7.5.
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Section 7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the General
Partner.
(a) The General Partner or its Affiliates may lend to any Group Member, and
any Group Member may borrow from the General Partner or any of its Affiliates,
funds needed or desired by the Group Member for such periods of time and in
such amounts as the General Partner may determine; provided, however, that in
any such case the lending party may not charge the borrowing party interest at
a rate greater than the rate that would be charged the borrowing party or
impose terms less favorable to the borrowing party than would be charged or
imposed on the borrowing party by unrelated lenders on comparable loans made
on an arm's-length basis (without reference to the lending party's financial
abilities or guarantees). The borrowing party shall reimburse the lending
party for any costs (other than any additional interest costs) incurred by the
lending party in connection with the borrowing of such funds. For purposes of
this Section 7.6(a) and Section 7.6(b), the term "Group Member" shall include
any Affiliate of a Group Member that is controlled by the Group Member. No
Group Member may lend funds to the General Partner or any of its Affiliates
(other than another Group Member).
(b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders
on comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.
(c) The General Partner may itself, or may enter into an agreement with any
of its Affiliates to, render services to a Group Member or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any services rendered to a Group Member by the General Partner or any of its
Affiliates shall be on terms that are fair and reasonable to the Partnership;
provided, however, that the requirements of this Section 7.6(c) shall be
deemed satisfied as to (i) any transaction approved by Special Approval, (ii)
any transaction, the terms of which are no less favorable to the Partnership
Group than those generally being provided to or available from unrelated third
parties or (iii) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership Group), is
equitable to the Partnership Group. The provisions of Section 7.4 shall apply
to the rendering of services described in this Section 7.6(c).
(d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and
applicable law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the
requirements of this Section 7.6(e) shall be deemed to be satisfied as to (i)
the transactions effected pursuant to Sections 5.2 and 5.3, the Contribution
and Conveyance Agreement and any other transactions described in or
contemplated by the Registration Statement, (ii) any transaction approved by
Special Approval, (iii) any transaction, the terms of which are no less
favorable to the Partnership than those generally being provided to or
available from unrelated third parties, or (iv) any transaction that, taking
into account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or
advantageous to the Partnership), is equitable to the Partnership. With
respect to any contribution of assets to the Partnership in exchange for
Partnership Securities, the Conflicts Committee, in determining whether the
appropriate number of Partnership Securities are being issued, may take into
account, among other things, the fair market value of the assets, the
liquidated and contingent liabilities assumed, the tax basis in the assets,
the extent to which tax-only allocations to the transferor will protect the
existing partners of the Partnership against a low tax basis, and such other
factors as the Conflicts Committee deems relevant under the circumstances.
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(f) The General Partner and its Affiliates will have no obligation to permit
any Group Member to use any facilities or assets of the General Partner and
its Affiliates, except as may be provided in contracts entered into from time
to time specifically dealing with such use, nor shall there be any obligation
on the part of the General Partner or its Affiliates to enter into such
contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of
the conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
Section 7.7 Indemnification.
(a) To the fullest extent permitted by law but subject to the limitations
expressly provided in this Agreement, all Indemnitees shall be indemnified and
held harmless by the Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including legal fees and
expenses), judgments, fines, penalties, interest, settlements or other amounts
arising from any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee; provided, that in each
case the Indemnitee acted in good faith and in a manner that such Indemnitee
reasonably believed to be in, or (in the case of a Person other than the
General Partner) not opposed to, the best interests of the Partnership and,
with respect to any criminal proceeding, had no reasonable cause to believe
its conduct was unlawful; provided, further, no indemnification pursuant to
this Section 7.7 shall be available to the General Partner with respect to its
obligations incurred pursuant to the Underwriting Agreement or the
Contribution and Conveyance Agreement (other than obligations incurred by the
General Partner on behalf of the Partnership or any Operating Partnership).
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that the Indemnitee acted in a manner contrary
to that specified above. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, it being agreed that
the General Partner shall not be personally liable for such indemnification
and shall have no obligation to contribute or loan any monies or property to
the Partnership to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal fees
and expenses) incurred by an Indemnitee who is indemnified pursuant to Section
7.7(a) in defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Partnership prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the Partnership
of any undertaking by or on behalf of the Indemnitee to repay such amount if
it shall be determined that the Indemnitee is not entitled to be indemnified
as authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be in addition to
any other rights to which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the holders of Outstanding Limited Partner Interests,
as a matter of law or otherwise, both as to actions in the Indemnitee's
capacity as an Indemnitee and as to actions in any other capacity (including
any capacity under the Underwriting Agreement), and shall continue as to an
Indemnitee who has ceased to serve in such capacity and shall inure to the
benefit of the heirs, successors, assigns and administrators of the
Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner, its Affiliates and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expense that
may be incurred by such Person in connection with the Partnership's activities
or such Person's activities on behalf of the Partnership, regardless of
whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership
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also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 7.7(a); and action
taken or omitted by it with respect to any employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to
be for a purpose which is in, or not opposed to, the best interests of the
Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership,
nor the obligations of the Partnership to indemnify any such Indemnitee under
and in accordance with the provisions of this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
Section 7.8 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this Agreement, no
Indemnitee shall be liable for monetary damages to the Partnership, the
Limited Partners, the Assignees or any other Persons who have acquired
interests in the Partnership Securities, for losses sustained or liabilities
incurred as a result of any act or omission if such Indemnitee acted in good
faith.
(b) Subject to its obligations and duties as General Partner set forth in
Section 7.1(a), the General Partner may exercise any of the powers granted to
it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents, and the General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
(c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the
Partnership or to the Partners, the General Partner and any other Indemnitee
acting in connection with the Partnership's business or affairs shall not be
liable to the Partnership or to any Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict or otherwise modify the duties and liabilities of an
Indemnitee otherwise existing at law or in equity, are agreed by the Partners
to replace such other duties and liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership, the Limited Partners, the
General Partner, and the Partnership's and General Partner's directors,
officers and employees under this Section 7.8 as in effect immediately prior
to such amendment, modification or repeal with respect to claims arising from
or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.9 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement or an Operating
Partnership Agreement, whenever a potential conflict of interest exists or
arises between the General Partner or any of its Affiliates, on the one hand,
and the Partnership, an Operating Partnership, any Partner or any Assignee, on
the other, any
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resolution or course of action by the General Partner or its Affiliates in
respect of such conflict of interest shall be permitted and deemed approved by
all Partners, and shall not constitute a breach of this Agreement, of any
Operating Partnership Agreement, of any agreement contemplated herein or
therein, or of any duty stated or implied by law or equity, if the resolution
or course of action is, or by operation of this Agreement is deemed to be,
fair and reasonable to the Partnership. The General Partner shall be
authorized but not required in connection with its resolution of such conflict
of interest to seek Special Approval of such resolution. Any conflict of
interest and any resolution of such conflict of interest shall be conclusively
deemed fair and reasonable to the Partnership if such conflict of interest or
resolution is (i) approved by Special Approval (as long as the material facts
known to the General Partner or any of its Affiliates regarding any proposed
transaction were disclosed to the Conflicts Committee at the time it gave its
approval), (ii) on terms no less favorable to the Partnership than those
generally being provided to or available from unrelated third parties or (iii)
fair to the Partnership, taking into account the totality of the relationships
between the parties involved (including other transactions that may be
particularly favorable or advantageous to the Partnership). The General
Partner may also adopt a resolution or course of action that has not received
Special Approval. The General Partner (including the Conflicts Committee in
connection with Special Approval) shall be authorized in connection with its
determination of what is "fair and reasonable" to the Partnership and in
connection with its resolution of any conflict of interest to consider (A) the
relative interests of any party to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interest; (B) any
customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or principles; and (D) such additional factors as the
General Partner (including the Conflicts Committee) determines in its sole
discretion to be relevant, reasonable or appropriate under the circumstances.
Nothing contained in this Agreement, however, is intended to nor shall it be
construed to require the General Partner (including the Conflicts Committee)
to consider the interests of any Person other than the Partnership. In the
absence of bad faith by the General Partner, the resolution, action or terms
so made, taken or provided by the General Partner with respect to such matter
shall not constitute a breach of this Agreement or any other agreement
contemplated herein or a breach of any standard of care or duty imposed herein
or therein or, to the extent permitted by law, under the Delaware Act or any
other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or "necessary or advisable" or under a
grant of similar authority or latitude, except as otherwise provided herein,
the General Partner or such Affiliate shall be entitled to consider only such
interests and factors as it desires and shall have no duty or obligation to
give any consideration to any interest of, or factors affecting, the
Partnership, any Operating Partnership, any Limited Partner or any Assignee,
(ii) it may make such decision in its sole discretion (regardless of whether
there is a reference to "sole discretion" or "discretion") unless another
express standard is provided for, or (iii) in "good faith" or under another
express standard, the General Partner or such Affiliate shall act under such
express standard and shall not be subject to any other or different standards
imposed by this Agreement, any Operating Partnership Agreement, any other
agreement contemplated hereby or under the Delaware Act or any other law, rule
or regulation. In addition, any actions taken by the General Partner or such
Affiliate consistent with the standards of "reasonable discretion" set forth
in the definitions of Available Cash or Operating Surplus shall not constitute
a breach of any duty of the General Partner to the Partnership or the Limited
Partners. The General Partner shall have no duty, express or implied, to sell
or otherwise dispose of any asset of the Partnership Group other than in the
ordinary course of business. No borrowing by any Group Member or the approval
thereof by the General Partner shall be deemed to constitute a breach of any
duty of the General Partner to the Partnership or the Limited Partners by
reason of the fact that the purpose or effect of such borrowing is directly or
indirectly to (A) enable distributions to the General Partner or its
Affiliates (including in their capacities as Limited Partners) to exceed 1% of
the total amount distributed to all partners or (B) hasten the expiration of
the Subordination Period or the conversion of any Subordinated Units into
Common Units.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
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(d) The Unitholders hereby authorize the General Partner, on behalf of the
Partnership as a partner of a Group Member, to approve of actions by the
general partner of such Group Member similar to those actions permitted to be
taken by the General Partner pursuant to this Section 7.9.
Section 7.10 Other Matters Concerning the General Partner.
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture
or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants
and advisers selected by it, and any act taken or omitted to be taken in
reliance upon the opinion (including an Opinion of Counsel) of such Persons as
to matters that the General Partner reasonably believes to be within such
Person's professional or expert competence shall be conclusively presumed to
have been done or omitted in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly
authorized officers of the Partnership.
(d) Any standard of care and duty imposed by this Agreement or under the
Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited, to the extent permitted by law, as required to permit the
General Partner to act under this Agreement or any other agreement
contemplated by this Agreement and to make any decision pursuant to the
authority prescribed in this Agreement, so long as such action is reasonably
believed by the General Partner to be in, or not inconsistent with, the best
interests of the Partnership.
Section 7.11 Purchase or Sale of Partnership Securities.
The General Partner may cause the Partnership to purchase or otherwise
acquire Partnership Securities; provided that, except as permitted pursuant to
Section 4.10, the General Partner may not cause any Group Member to purchase
Subordinated Units during the Subordination Period. As long as Partnership
Securities are held by any Group Member, such Partnership Securities shall not
be considered Outstanding for any purpose, except as otherwise provided
herein. The General Partner or any Affiliate of the General Partner may also
purchase or otherwise acquire and sell or otherwise dispose of Partnership
Securities for its own account, subject to the provisions of Articles IV and
X.
Section 7.12 Registration Rights of the General Partner and its Affiliates.
(a) If (i) the General Partner or any Affiliate of the General Partner
(including for purposes of this Section 7.12, any Person that is an Affiliate
of the General Partner at the date hereof notwithstanding that it may later
cease to be an Affiliate of the General Partner) holds Partnership Securities
that it desires to sell and (ii) Rule 144 of the Securities Act (or any
successor rule or regulation to Rule 144) or another exemption from
registration is not available to enable such holder of Partnership Securities
(the "Holder") to dispose of the number of Partnership Securities it desires
to sell at the time it desires to do so without registration under the
Securities Act, then upon the request of the General Partner or any of its
Affiliates, the Partnership shall file with the Commission as promptly as
practicable after receiving such request, and use all reasonable efforts to
cause to become effective and remain effective for a period of not less than
six months following its effective date or such shorter period as shall
terminate when all Partnership Securities covered by such registration
statement have been sold, a registration statement under the Securities Act
registering the offering and sale of the number of Partnership Securities
specified by the Holder; provided, however, that the Partnership shall not be
required to effect more than three registrations pursuant to this Section
7.12(a); and provided further, however, that if the Conflicts Committee
determines in its good faith judgment that a postponement of the requested
registration for
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up to six months would be in the best interests of the Partnership and its
Partners due to a pending transaction, investigation or other event, the
filing of such registration statement or the effectiveness thereof may be
deferred for up to six months, but not thereafter. In connection with any
registration pursuant to the immediately preceding sentence, the Partnership
shall promptly prepare and file (x) such documents as may be necessary to
register or qualify the securities subject to such registration under the
securities laws of such states as the Holder shall reasonably request;
provided, however, that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Partnership would become subject
to general service of process or to taxation or qualification to do business
as a foreign corporation or partnership doing business in such jurisdiction
solely as a result of such registration, and (y) such documents as may be
necessary to apply for listing or to list the Partnership Securities subject
to such registration on such National Securities Exchange as the Holder shall
reasonably request, and do any and all other acts and things that may
reasonably be necessary or advisable to enable the Holder to consummate a
public sale of such Partnership Securities in such states. Except as set forth
in Section 7.12(c), all costs and expenses of any such registration and
offering (other than the underwriting discounts and commissions) shall be paid
by the Partnership, without reimbursement by the Holder.
(b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of equity securities of the
Partnership for cash (other than an offering relating solely to an employee
benefit plan), the Partnership shall use all reasonable efforts to include
such number or amount of securities held by the Holder in such registration
statement as the Holder shall request. If the proposed offering pursuant to
this Section 7.12(b) shall be an underwritten offering, then, in the event
that the managing underwriter or managing underwriters of such offering advise
the Partnership and the Holder in writing that in their opinion the inclusion
of all or some of the Holder's Partnership Securities would adversely and
materially affect the success of the offering, the Partnership shall include
in such offering only that number or amount, if any, of securities held by the
Holder which, in the opinion of the managing underwriter or managing
underwriters, will not so adversely and materially affect the offering. Except
as set forth in Section 7.12(c), all costs and expenses of any such
registration and offering (other than the underwriting discounts and
commissions) shall be paid by the Partnership, without reimbursement by the
Holder.
(c) If underwriters are engaged in connection with any registration referred
to in this Section 7.12, the Partnership shall provide indemnification,
representations, covenants, opinions and other assurance to the underwriters
in form and substance reasonably satisfactory to such underwriters. Further,
in addition to and not in limitation of the Partnership's obligation under
Section 7.7, the Partnership shall, to the fullest extent permitted by law,
indemnify and hold harmless the Holder, its officers, directors and each
Person who controls the Holder (within the meaning of the Securities Act) and
any agent thereof (collectively, "Indemnified Persons") against any losses,
claims, demands, actions, causes of action, assessments, damages, liabilities
(joint or several), costs and expenses (including interest, penalties and
reasonable attorneys' fees and disbursements), resulting to, imposed upon, or
incurred by the Indemnified Persons, directly or indirectly, under the
Securities Act or otherwise (hereinafter referred to in this Section 7.12(c)
as a "claim" and in the plural as "claims") based upon, arising out of or
resulting from any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which any
Partnership Securities were registered under the Securities Act or any state
securities or Blue Sky laws, in any preliminary prospectus (if used prior to
the effective date of such registration statement), or in any summary or final
prospectus or in any amendment or supplement thereto (if used during the
period the Partnership is required to keep the registration statement
current), or arising out of, based upon or resulting from the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements made therein not misleading;
provided, however, that the Partnership shall not be liable to any Indemnified
Person to the extent that any such claim arises out of, is based upon or
results from an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, such preliminary,
summary or final prospectus or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Partnership by or
on behalf of such Indemnified Person specifically for use in the preparation
thereof.
(d) The provisions of Sections 7.12(a) and 7.12(b) shall continue to be
applicable with respect to the General Partner (and any of the General
Partner's Affiliates) after it ceases to be a Partner of the Partnership,
during a
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period of two years subsequent to the effective date of such cessation and for
so long thereafter as is required for the Holder to sell all of the
Partnership Securities with respect to which it has requested during such two-
year period inclusion in a registration statement otherwise filed or that a
registration statement be filed; provided, however, that the Partnership shall
not be required to file successive registration statements covering the same
Partnership Securities for which registration was demanded during such two-
year period. The provisions of Section 7.12(c) shall continue in effect
thereafter.
(e) Any request to register Partnership Securities pursuant to this Section
7.12 shall (i) specify the Partnership Securities intended to be offered and
sold by the Person making the request, (ii) express such Person's present
intent to offer such shares for distribution, (iii) describe the nature or
method of the proposed offer and sale of Partnership Securities, and (iv)
contain the undertaking of such Person to provide all such information and
materials and take all action as may be required in order to permit the
Partnership to comply with all applicable requirements in connection with the
registration of such Partnership Securities.
Section 7.13 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner and any officer of the General Partner authorized by the General
Partner to act on behalf of and in the name of the Partnership has full power
and authority to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any authorized contracts on behalf
of the Partnership, and such Person shall be entitled to deal with the General
Partner or any such officer as if it were the Partnership's sole party in
interest, both legally and beneficially. Each Limited Partner hereby waives
any and all defenses or other remedies that may be available against such
Person to contest, negate or disaffirm any action of the General Partner or
any such officer in connection with any such dealing. In no event shall any
Person dealing with the General Partner or any such officer or its
representatives be obligated to ascertain that the terms of the Agreement have
been complied with or to inquire into the necessity or expedience of any act
or action of the General Partner or any such officer or its representatives.
Each and every certificate, document or other instrument executed on behalf of
the Partnership by the General Partner or its representatives shall be
conclusive evidence in favor of any and every Person relying thereon or
claiming thereunder that (a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (b) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (c) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement
and is binding upon the Partnership.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting.
The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide
to the Limited Partners any information required to be provided pursuant to
Section 3.4(a). Any books and records maintained by or on behalf of the
Partnership in the regular course of its business, including the record of the
Record Holders and Assignees of Units or other Partnership Securities, books
of account and records of Partnership proceedings, may be kept on, or be in
the form of, computer disks, hard drives, punch cards, magnetic tape,
photographs, micrographics or any other information storage device; provided,
that the books and records so maintained are convertible into clearly legible
written form within a reasonable period of time. The books of the Partnership
shall be maintained, for financial reporting purposes, on an accrual basis in
accordance with U.S. GAAP.
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Section 8.2 Fiscal Year.
The fiscal year of the Partnership shall be a fiscal year ending December
31.
Section 8.3 Reports.
(a) As soon as practicable, but in no event later than 120 days after the
close of each fiscal year of the Partnership, the General Partner shall cause
to be mailed or furnished to each Record Holder of a Unit as of a date
selected by the General Partner in its discretion, an annual report containing
financial statements of the Partnership for such fiscal year of the
Partnership, presented in accordance with U.S. GAAP, including a balance sheet
and statements of operations, Partnership equity and cash flows, such
statements to be audited by a firm of independent public accountants selected
by the General Partner.
(b) As soon as practicable, but in no event later than 90 days after the
close of each Quarter except the last Quarter of each fiscal year, the General
Partner shall cause to be mailed or furnished to each Record Holder of a Unit,
as of a date selected by the General Partner in its discretion, a report
containing unaudited financial statements of the Partnership and such other
information as may be required by applicable law, regulation or rule of any
National Securities Exchange on which the Units are listed for trading, or as
the General Partner determines to be necessary or appropriate.
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information.
The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by Record Holders for federal and state income tax
reporting purposes with respect to a taxable year shall be furnished to them
within 90 days of the close of the calendar year in which the Partnership's
taxable year ends. The classification, realization and recognition of income,
gain, losses and deductions and other items shall be on the accrual method of
accounting for federal income tax purposes.
Section 9.2 Tax Elections.
(a) The Partnership shall make the election under Section 754 of the Code in
accordance with applicable regulations thereunder, subject to the reservation
of the right to seek to revoke any such election upon the General Partner's
determination that such revocation is in the best interests of the Limited
Partners. Notwithstanding any other provision herein contained, for the
purposes of computing the adjustments under Section 743(b) of the Code, the
General Partner shall be authorized (but not required) to adopt a convention
whereby the price paid by a transferee of a Limited Partner Interest will be
deemed to be the lowest quoted closing price of the Limited Partner Interests
on any National Securities Exchange on which such Limited Partner Interests
are traded during the calendar month in which such transfer is deemed to occur
pursuant to Section 6.2(g) without regard to the actual price paid by such
transferee.
(b) The Partnership shall elect to deduct expenses incurred in organizing
the Partnership ratably over a sixty-month period as provided in Section 709
of the Code.
(c) Except as otherwise provided herein, the General Partner shall determine
whether the Partnership should make any other elections permitted by the Code.
Section 9.3 Tax Controversies.
Subject to the provisions hereof, the General Partner is designated as the
Tax Matters Partner (as defined in the Code) and is authorized and required to
represent the Partnership (at the Partnership's expense) in connection with
all examinations of the Partnership's affairs by tax authorities, including
resulting administrative and
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judicial proceedings, and to expend Partnership funds for professional
services and costs associated therewith. Each Partner agrees to cooperate with
the General Partner and to do or refrain from doing any or all things
reasonably required by the General Partner to conduct such proceedings.
Section 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Partnership and each Operating
Partnership to comply with any withholding requirements established under the
Code or any other federal, state or local law including, without limitation,
pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that
the Partnership is required or elects to withhold and pay over to any taxing
authority any amount resulting from the allocation or distribution of income
to any Partner or Assignee (including, without limitation, by reason of
Section 1446 of the Code), the amount withheld may at the discretion of the
General Partner be treated by the Partnership as a distribution of cash
pursuant to Section 6.3 in the amount of such withholding from such Partner.
ARTICLE X
ADMISSION OF PARTNERS
Section 10.1 Admission of Initial Limited Partners.
Upon the issuance by the Partnership of Common Units, Subordinated Units and
Incentive Distribution Rights to the General Partner as described in Section
5.2, the General Partner shall be deemed to have been admitted to the
Partnership as a Limited Partner in respect of the Common Units, Subordinated
Units and Incentive Distribution Rights issued to it. Upon the issuance by the
Partnership of Common Units to the Underwriters as described in Section 5.3 in
connection with the Initial Offering and the execution by each Underwriter of
a Transfer Application, the General Partner shall admit the Underwriters to
the Partnership as Initial Limited Partners in respect of the Common Units
purchased by them.
Section 10.2 Admission of Substituted Limited Partner.
By transfer of a Limited Partner Interest in accordance with Article IV, the
transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Limited Partner subject to the conditions of, and
in the manner permitted under, this Agreement. A transferor of a Certificate
representing a Limited Partner Interest shall, however, only have the
authority to convey to a purchaser or other transferee who does not execute
and deliver a Transfer Application (a) the right to negotiate such Certificate
to a purchaser or other transferee and (b) the right to transfer the right to
request admission as a Substituted Limited Partner to such purchaser or other
transferee in respect of the transferred Limited Partner Interests. Each
transferee of a Limited Partner Interest (including any nominee holder or an
agent acquiring such Limited Partner Interest for the account of another
Person) who executes and delivers a Transfer Application shall, by virtue of
such execution and delivery, be an Assignee and be deemed to have applied to
become a Substituted Limited Partner with respect to the Limited Partner
Interests so transferred to such Person. Such Assignee shall become a
Substituted Limited Partner (x) at such time as the General Partner consents
thereto, which consent may be given or withheld in the General Partner's
discretion, and (y) when any such admission is shown on the books and records
of the Partnership. If such consent is withheld, such transferee shall be an
Assignee. An Assignee shall have an interest in the Partnership equivalent to
that of a Limited Partner with respect to allocations and distributions,
including liquidating distributions, of the Partnership. With respect to
voting rights attributable to Limited Partner Interests that are held by
Assignees, the General Partner shall be deemed to be the Limited Partner with
respect thereto and shall, in exercising the voting rights in respect of such
Limited Partner Interests on any matter, vote such Limited Partner Interests
at the written direction of the Assignee who is the Record Holder of such
Limited Partner Interests. If no such written direction is received, such
Limited Partner Interests will not be voted. An Assignee shall have no other
rights of a Limited Partner.
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Section 10.3 Admission of Successor General Partner.
A successor General Partner approved pursuant to Section 11.1 or 11.2 or the
transferee of or successor to all of the General Partner Interest pursuant to
Section 4.6 who is proposed to be admitted as a successor General Partner
shall be admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the predecessor or
transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer
of the General Partner Interest pursuant to Section 4.6, provided, however,
that no such successor shall be admitted to the Partnership until compliance
with the terms of Section 4.6 has occurred and such successor has executed and
delivered such other documents or instruments as may be required to effect
such admission. Any such successor shall, subject to the terms hereof, carry
on the business of the members of the Partnership Group without dissolution.
Section 10.4 Admission of Additional Limited Partners.
(a) A Person (other than the General Partner, an Initial Limited Partner or
a Substituted Limited Partner) who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the
General Partner (i) evidence of acceptance in form satisfactory to the General
Partner of all of the terms and conditions of this Agreement, including the
power of attorney granted in Section 2.6, and (ii) such other documents or
instruments as may be required in the discretion of the General Partner to
effect such Person's admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 10.4, no Person
shall be admitted as an Additional Limited Partner without the consent of the
General Partner, which consent may be given or withheld in the General
Partner's discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person
is recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
Section 10.5 Amendment of Agreement and Certificate of Limited Partnership.
To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act
to amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement
and, if required by law, the General Partner shall prepare and file an
amendment to the Certificate of Limited Partnership, and the General Partner
may for this purpose, among others, exercise the power of attorney granted
pursuant to Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
Section 11.1 Withdrawal of the General Partner.
(a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal"):
(i) The General Partner voluntarily withdraws from the Partnership by
giving written notice to the other Partners (and it shall be deemed that
the General Partner has withdrawn pursuant to this Section 11.1(a)(i) if
the General Partner voluntarily withdraws as general partner of an
Operating Partnership);
(ii) The General Partner transfers all of its rights as General Partner
pursuant to Section 4.6;
(iii) The General Partner is removed pursuant to Section 11.2;
(iv) The General Partner (A) makes a general assignment for the benefit
of creditors; (B) files a voluntary bankruptcy petition for relief under
Chapter 7 of the United States Bankruptcy Code; (C) files a
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petition or answer seeking for itself a liquidation, dissolution or similar
relief (but not a reorganization) under any law; (D) files an answer or
other pleading admitting or failing to contest the material allegations of
a petition filed against the General Partner in a proceeding of the type
described in clauses (A)-(C) of this Section 11.1(a)(iv); or (E) seeks,
consents to or acquiesces in the appointment of a trustee (but not a
debtor-in-possession), receiver or liquidator of the General Partner or of
all or any substantial part of its properties;
(v) a final and non-appealable order of relief under Chapter 7 of the
United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or against
the General Partner; or
(vi) (A) in the event the General Partner is a corporation, a certificate
of dissolution or its equivalent is filed for the General Partner, or 90
days expire after the date of notice to the General Partner of revocation
of its charter without a reinstatement of its charter, under the laws of
its state of incorporation; (B) in the event the General Partner is a
partnership or a limited liability company, the dissolution and
commencement of winding up of the General Partner; (C) in the event the
General Partner is acting in such capacity by virtue of being a trustee of
a trust, the termination of the trust; (D) in the event the General Partner
is a natural person, his death or adjudication of incompetency; and (E)
otherwise in the event of the termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A),
(B), (C) or (E) occurs, the withdrawing General Partner shall give notice to
the Limited Partners within 30 days after such occurrence. The Partners hereby
agree that only the Events of Withdrawal described in this Section 11.1 shall
result in the withdrawal of the General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on December 31, 2008, the General Partner voluntarily withdraws by
giving at least 90 days' advance notice of its intention to withdraw to the
Limited Partners; provided that prior to the effective date of such
withdrawal, the withdrawal is approved by Unitholders holding at least a
majority of the Outstanding Common Units (excluding Common Units held by the
General Partner and its affiliates) and the General Partner delivers to the
Partnership an Opinion of Counsel ("Withdrawal Opinion of Counsel") that such
withdrawal (following the selection of the successor General Partner) would
not result in the loss of the limited liability of any Limited Partner or of a
limited partner of an Operating Partnership or cause the Partnership or an
Operating Partnership to be treated as an association taxable as a corporation
or otherwise to be taxed as an entity for federal income tax purposes (to the
extent not previously treated as such); (ii) at any time after 12:00 midnight,
Eastern Standard Time, on December 31, 2008, the General Partner voluntarily
withdraws by giving at least 90 days' advance notice to the Unitholders, such
withdrawal to take effect on the date specified in such notice; (iii) at any
time that the General Partner ceases to be the General Partner pursuant to
Section 11.1(a)(ii) or is removed pursuant to Section 11.2; or (iv)
notwithstanding clause (i) of this sentence, at any time that the General
Partner voluntarily withdraws by giving at least 90 days' advance notice of
its intention to withdraw to the Limited Partners, such withdrawal to take
effect on the date specified in the notice, if at the time such notice is
given one Person and its Affiliates (other than the General Partner and its
Affiliates) own beneficially or of record or control at least 50% of the
Outstanding Units. The withdrawal of the General Partner from the Partnership
upon the occurrence of an Event of Withdrawal shall also constitute the
withdrawal of the General Partner as general partner or managing member, as
the case may be, of the other Group Members. If the General Partner gives a
notice of withdrawal pursuant to Section 11.1(a)(i), the holders of a Unit
Majority, may, prior to the effective date of such withdrawal, elect a
successor General Partner. The Person so elected as successor General Partner
shall automatically become the successor general partner or managing member,
as the case may be, of the other Group Members of which the General Partner is
a general partner or a managing member. If, prior to the effective date of the
General Partner's withdrawal, a successor is not selected by the Unitholders
as provided herein or the Partnership does not receive a Withdrawal Opinion of
Counsel, the Partnership shall be dissolved in accordance with Section 12.1.
Any successor General Partner elected in accordance with the terms of this
Section 11.1 shall be subject to the provisions of Section 10.3.
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Section 11.2 Removal of the General Partner.
The General Partner may be removed if such removal is approved by the
Unitholders holding at least 66 2/3% of the Outstanding Units (including Units
held by the General Partner and its Affiliates). Any such action by such
holders for removal of the General Partner must also provide for the election
of a successor General Partner by the Unitholders holding a Unit Majority
(including Units held by the General Partner and its Affiliates). Such removal
shall be effective immediately following the admission of a successor General
Partner pursuant to Section 10.3. The removal of the General Partner shall
also automatically constitute the removal of the General Partner as general
partner or managing member, as the case may be, of the other Group Members of
which the General Partner is a general partner or a managing member. If a
Person is elected as a successor General Partner in accordance with the terms
of this Section 11.2, such Person shall, upon admission pursuant to Section
10.3, automatically become a successor general partner or managing member, as
the case may be, of the other Group Members of which the General Partner is a
general partner or a managing member. The right of the holders of Outstanding
Units to remove the General Partner shall not exist or be exercised unless the
Partnership has received an opinion opining as to the matters covered by a
Withdrawal Opinion of Counsel. Any successor General Partner elected in
accordance with the terms of this Section 11.2 shall be subject to the
provisions of Section 10.3.
Section 11.3 Interest of Departing Partner and Successor General Partner.
(a) In the event of (i) withdrawal of the General Partner under
circumstances where such withdrawal does not violate this Agreement or (ii)
removal of the General Partner by the holders of Outstanding Units under
circumstances where Cause does not exist, if a successor General Partner is
elected in accordance with the terms of Section 11.1 or 11.2, the Departing
Partner shall have the option exercisable prior to the effective date of the
departure of such Departing Partner to require its successor to purchase its
General Partner Interest and its general partner interest (or equivalent
interest) in the other Group Members and all of its Incentive Distribution
Rights (collectively, the "Combined Interest") in exchange for an amount in
cash equal to the fair market value of such Combined Interest, such amount to
be determined and payable as of the effective date of its departure. If the
General Partner is removed by the Unitholders under circumstances where Cause
exists or if the General Partner withdraws under circumstances where such
withdrawal violates this Agreement or an Operating Partnership Agreement, and
if a successor General Partner is elected in accordance with the terms of
Section 11.1 or 11.2, such successor shall have the option, exercisable prior
to the effective date of the departure of such Departing Partner, to purchase
the Combined Interest for such fair market value of such Combined Interest. In
either event, the Departing Partner shall be entitled to receive all
reimbursements due such Departing Partner pursuant to Section 7.4, including
any employee-related liabilities (including severance liabilities), incurred
in connection with the termination of any employees employed by the General
Partner for the benefit of the Partnership or the other Group Members.
For purposes of this Section 11.3(a), the fair market value of the Combined
Interest shall be determined by agreement between the Departing Partner and
its successor or, failing agreement within 30 days after the effective date of
such Departing Partner's departure, by an independent investment banking firm
or other independent expert selected by the Departing Partner and its
successor, which, in turn, may rely on other experts, and the determination of
which shall be conclusive as to such matter. If such parties cannot agree upon
one independent investment banking firm or other independent expert within 45
days after the effective date of such departure, then the Departing Partner
shall designate an independent investment banking firm or other independent
expert, the Departing Partner's successor shall designate an independent
investment banking firm or other independent expert, and such firms or experts
shall mutually select a third independent investment banking firm or
independent expert, which third independent investment banking firm or other
independent expert shall determine the fair market value of the Combined
Interest. In making its determination, such third independent investment
banking firm or other independent expert may consider the then current trading
price of Units on any National Securities Exchange on which Units are then
listed, the value of the Partnership's assets, the rights and obligations of
the Departing Partner and other factors it may deem relevant.
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(b) If the Combined Interest is not purchased in the manner set forth in
Section 11.3(a), the Departing Partner (or its transferee) shall become a
Limited Partner and its Combined Interest shall be converted into Common Units
pursuant to a valuation made by an investment banking firm or other
independent expert selected pursuant to Section 11.3(a), without reduction in
such Partnership Interest (but subject to proportionate dilution by reason of
the admission of its successor). Any successor General Partner shall indemnify
the Departing Partner (or its transferee) as to all debts and liabilities of
the Partnership arising on or after the date on which the Departing Partner
(or its transferee) becomes a Limited Partner. For purposes of this Agreement,
conversion of the Combined Interest to Common Units will be characterized as
if the General Partner (or its transferee) contributed its Combined Interest
to the Partnership in exchange for the newly issued Common Units.
(c) If a successor General Partner is elected in accordance with the terms
of Section 11.1 or 11.2 and the option described in Section 11.3(a) is not
exercised by the party entitled to do so, the successor General Partner shall,
at the effective date of its admission to the Partnership, contribute to the
Partnership cash in the amount equal to 1/99th of the Net Agreed Value of the
Partnership's assets on such date. In such event, such successor General
Partner shall, subject to the following sentence, be entitled to 1% of all
Partnership allocations and distributions. The successor General Partner shall
cause this Agreement to be amended to reflect that, from and after the date of
such successor General Partner's admission, the successor General Partner's
interest in all Partnership distributions and allocations shall be 1%.
Section 11.4 Termination of Subordination Period, Conversion of Subordinated
Units and Extinguishment of Cumulative Common Unit Arrearages.
Notwithstanding any provision of this Agreement, if the General Partner is
removed as general partner of the Partnership under circumstances where Cause
does not exist and Units held by the General Partner and its Affiliates are
not voted in favor of such removal, (i) the Subordination Period will end and
all Outstanding Subordinated Units will immediately and automatically convert
into Common Units on a one-for-one basis and (ii) all Cumulative Common Unit
Arrearages on the Common Units will be extinguished.
Section 11.5 Withdrawal of Limited Partners.
No Limited Partner shall have any right to withdraw from the Partnership;
provided, however, that when a transferee of a Limited Partner's Limited
Partner Interest becomes a Record Holder of the Limited Partner Interest so
transferred, such transferring Limited Partner shall cease to be a Limited
Partner with respect to the Limited Partner Interest so transferred.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution.
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General
Partner is elected pursuant to Section 11.1 or 11.2, the Partnership shall not
be dissolved and such successor General Partner shall continue the business of
the Partnership. The Partnership shall dissolve, and (subject to Section 12.2)
its affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided in Section
11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and
an Opinion of Counsel is received as provided in Section 11.1(b) or 11.2
and such successor is admitted to the Partnership pursuant to Section 10.3;
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(c) an election to dissolve the Partnership by the General Partner that
is approved by the holders of a Unit Majority;
(d) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act; or
(e) the sale of all or substantially all of the assets and properties of
the Partnership Group.
Section 12.2 Continuation of the Business of the Partnership After
Dissolution.
Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or
(vi), then, to the maximum extent permitted by law, within 180 days
thereafter, the holders of a Unit Majority may elect to reconstitute the
Partnership and continue its business on the same terms and conditions set
forth in this Agreement by forming a new limited partnership on terms
identical to those set forth in this Agreement and having as the successor
general partner a Person approved by the holders of a Unit Majority. Unless
such an election is made within the applicable time period as set forth above,
the Partnership shall conduct only activities necessary to wind up its
affairs. If such an election is so made, then:
(i) the reconstituted Partnership shall continue until the end of the
term set forth in Section 2.7 unless earlier dissolved in accordance with
this Article XII;
(ii) if the successor General Partner is not the former General Partner,
then the interest of the former General Partner shall be treated in the
manner provided in Section 11.3; and
(iii) all necessary steps shall be taken to cancel this Agreement and the
Certificate of Limited Partnership and to enter into and, as necessary, to
file a new partnership agreement and certificate of limited partnership,
and the successor general partner may for this purpose exercise the powers
of attorney granted the General Partner pursuant to Section 2.6; provided,
that the right of the holders of a Unit Majority to approve a successor
General Partner and to reconstitute and to continue the business of the
Partnership shall not exist and may not be exercised unless the Partnership
has received an Opinion of Counsel that (x) the exercise of the right would
not result in the loss of limited liability of any Limited Partner and (y)
neither the Partnership, the reconstituted limited partnership nor an
Operating Partnership would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax
purposes upon the exercise of such right to continue.
Section 12.3 Liquidator.
Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner) shall be
entitled to receive such compensation for its services as may be approved by
holders of at least a majority of the Outstanding Common Units and
Subordinated Units voting as a single class. The Liquidator (if other than the
General Partner) shall agree not to resign at any time without 15 days' prior
notice and may be removed at any time, with or without cause, by notice of
removal approved by holders of at least a majority of the Outstanding Common
Units and Subordinated Units voting as a single class. Upon dissolution,
removal or resignation of the Liquidator, a successor and substitute
Liquidator (who shall have and succeed to all rights, powers and duties of the
original Liquidator) shall within 30 days thereafter be approved by holders of
at least a majority of the Outstanding Common Units and Subordinated Units
voting as a single class. The right to approve a successor or substitute
Liquidator in the manner provided herein shall be deemed to refer also to any
such successor or substitute Liquidator approved in the manner herein
provided. Except as expressly provided in this Article XII, the Liquidator
approved in the manner provided herein shall have and may exercise, without
further authorization or consent of any of the parties hereto, all of the
powers conferred upon the General Partner under the terms of this
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Agreement (but subject to all of the applicable limitations, contractual and
otherwise, upon the exercise of such powers, other than the limitation on sale
set forth in Section 7.3(b)) to the extent necessary or desirable in the good
faith judgment of the Liquidator to carry out the duties and functions of the
Liquidator hereunder for and during such period of time as shall be reasonably
required in the good faith judgment of the Liquidator to complete the winding
up and liquidation of the Partnership as provided for herein.
Section 12.4 Liquidation.
The Liquidator shall proceed to dispose of the assets of the Partnership,
discharge its liabilities, and otherwise wind up its affairs in such manner
and over such period as the Liquidator determines to be in the best interest
of the Partners, subject to Section 17-804 of the Delaware Act and the
following:
(a) Disposition of Assets. The assets may be disposed of by public or
private sale or by distribution in kind to one or more Partners on such
terms as the Liquidator and such Partner or Partners may agree. If any
property is distributed in kind, the Partner receiving the property shall
be deemed for purposes of Section 12.4(c) to have received cash equal to
its fair market value; and contemporaneously therewith, appropriate cash
distributions must be made to the other Partners. The Liquidator may, in
its absolute discretion, defer liquidation or distribution of the
Partnership's assets for a reasonable time if it determines that an
immediate sale or distribution of all or some of the Partnership's assets
would be impractical or would cause undue loss to the Partners. The
Liquidator may, in its absolute discretion, distribute the Partnership's
assets, in whole or in part, in kind if it determines that a sale would be
impractical or would cause undue loss to the Partners.
(b) Discharge of Liabilities. Liabilities of the Partnership include
amounts owed to Partners otherwise than in respect of their distribution
rights under Article VI. With respect to any liability that is contingent,
conditional or unmatured or is otherwise not yet due and payable, the
Liquidator shall either settle such claim for such amount as it thinks
appropriate or establish a reserve of cash or other assets to provide for
its payment. When paid, any unused portion of the reserve shall be
distributed as additional liquidation proceeds.
(c) Liquidation Distributions. All property and all cash in excess of
that required to discharge liabilities as provided in Section 12.4(b) shall
be distributed to the Partners in accordance with, and to the extent of,
the positive balances in their respective Capital Accounts, as determined
after taking into account all Capital Account adjustments (other than those
made by reason of distributions pursuant to this Section 12.4(c)) for the
taxable year of the Partnership during which the liquidation of the
Partnership occurs (with such date of occurrence being determined pursuant
to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), and such distribution
shall be made by the end of such taxable year (or, if later, within 90 days
after said date of such occurrence).
Section 12.5 Cancellation of Certificate of Limited Partnership.
Upon the completion of the distribution of Partnership cash and property as
provided in Section 12.4 in connection with the liquidation of the
Partnership, the Partnership shall be terminated and the Certificate of
Limited Partnership and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 12.6 Return of Contributions.
The General Partner shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the
Limited Partners or Unitholders, or any portion thereof, it being expressly
understood that any such return shall be made solely from Partnership assets.
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Section 12.7 Waiver of Partition.
To the maximum extent permitted by law, each Partner hereby waives any right
to partition of the Partnership property.
Section 12.8 Capital Account Restoration.
No Limited Partner shall have any obligation to restore any negative balance
in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
Section 13.1 Amendment to be Adopted Solely by the General Partner.
Each Partner agrees that the General Partner, without the approval of any
Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:
(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability under the laws of any state or to ensure
that the Partnership and the Operating Partnerships will not be treated as
an association taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes;
(d) a change that, in the discretion of the General Partner, (i) does not
adversely affect the Limited Partners in any material respect, (ii) is
necessary or advisable to (A) satisfy any requirements, conditions or
guidelines contained in any opinion, directive, order, ruling or regulation
of any federal or state agency or judicial authority or contained in any
federal or state statute (including the Delaware Act) or (B) facilitate the
trading of the Limited Partner Interests (including the division of any
class or classes of Outstanding Limited Partner Interests into different
classes to facilitate uniformity of tax consequences within such classes of
Limited Partner Interests) or comply with any rule, regulation, guideline
or requirement of any National Securities Exchange on which the Limited
Partner Interests are or will be listed for trading, compliance with any of
which the General Partner determines in its discretion to be in the best
interests of the Partnership and the Limited Partners, (iii) is necessary
or advisable in connection with action taken by the General Partner
pursuant to Section 5.10 or (iv) is required to effect the intent expressed
in the Registration Statement or the intent of the provisions of this
Agreement or is otherwise contemplated by this Agreement;
(e) a change in the fiscal year or taxable year of the Partnership and
any changes that, in the discretion of the General Partner, are necessary
or advisable as a result of a change in the fiscal year or taxable year of
the Partnership including, if the General Partner shall so determine, a
change in the definition of "Quarter" and the dates on which distributions
are to be made by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to prevent
the Partnership, or the General Partner or its directors, officers,
trustees or agents from in any manner being subjected to the provisions of
the Investment Company Act of 1940, as amended, the Investment Advisers Act
of 1940, as amended, or "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974, as amended, regardless of whether
such are substantially similar to plan asset regulations currently applied
or proposed by the United States Department of Labor;
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(g) subject to the terms of Section 5.7, an amendment that, in the
discretion of the General Partner, is necessary or advisable in connection
with the authorization of issuance of any class or series of Partnership
Securities pursuant to Section 5.6;
(h) any amendment expressly permitted in this Agreement to be made by the
General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(j) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately
the formation by the Partnership of, or investment by the Partnership in,
any corporation, partnership, joint venture, limited liability company or
other entity, in connection with the conduct by the Partnership of
activities permitted by the terms of Section 2.4;
(k) a merger or conveyance pursuant to Section 14.3(d); or
(l) any other amendments substantially similar to the foregoing.
Section 13.2 Amendment Procedures.
Except as provided in Sections 13.1 and 13.3, all amendments to this
Agreement shall be made in accordance with the following requirements.
Amendments to this Agreement may be proposed only by or with the consent of
the General Partner which consent may be given or withheld in its sole
discretion. A proposed amendment shall be effective upon its approval by the
holders of a Unit Majority, unless a greater or different percentage is
required under this Agreement or by Delaware law. Each proposed amendment that
requires the approval of the holders of a specified percentage of Outstanding
Units shall be set forth in a writing that contains the text of the proposed
amendment. If such an amendment is proposed, the General Partner shall seek
the written approval of the requisite percentage of Outstanding Units or call
a meeting of the Unitholders to consider and vote on such proposed amendment.
The General Partner shall notify all Record Holders upon final adoption of any
such proposed amendments.
Section 13.3 Amendment Requirements.
(a) Notwithstanding the provisions of Sections 13.1 and 13.2, no provision
of this Agreement that establishes a percentage of Outstanding Units
(including Units deemed owned by the General Partner) required to take any
action shall be amended, altered, changed, repealed or rescinded in any
respect that would have the effect of reducing such voting percentage unless
such amendment is approved by the written consent or the affirmative vote of
holders of Outstanding Units whose aggregate Outstanding Units constitute not
less than the voting requirement sought to be reduced.
(b) Notwithstanding the provisions of Sections 13.1 and 13.2, no amendment
to this Agreement may (i) enlarge the obligations of any Limited Partner
without its consent, unless such shall be deemed to have occurred as a result
of an amendment approved pursuant to Section 13.3(c), (ii) enlarge the
obligations of, restrict in any way any action by or rights of, or reduce in
any way the amounts distributable, reimbursable or otherwise payable to, the
General Partner or any of its Affiliates without its consent, which consent
may be given or withheld in its sole discretion, (iii) change Section 12.1(a)
or 12.1(c), or (iv) change the term of the Partnership or, except as set forth
in Section 12.1(c), give any Person the right to dissolve the Partnership.
(c) Except as provided in Section 14.3, and except as otherwise provided,
and without limitation of the General Partner's authority to adopt amendments
to this Agreement as contemplated in Section 13.1, any amendment that would
have a material adverse effect on the rights or preferences of any class of
Partnership Interests in relation to other classes of Partnership Interests
must be approved by the holders of not less than a majority of the Outstanding
Partnership Interests of the class affected.
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(d) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 13.1 and except as otherwise provided by
Section 14.3(b), no amendments shall become effective without the approval of
the holders of at least 90% of the Outstanding Common Units and Subordinated
Units voting as a single class unless the Partnership obtains an Opinion of
Counsel to the effect that such amendment will not affect the limited
liability of any Limited Partner under applicable law.
(e) Except as provided in Section 13.1, this Section 13.3 shall only be
amended with the approval of the holders of at least 90% of the Outstanding
Units.
Section 13.4 Special Meetings.
All acts of Limited Partners to be taken pursuant to this Agreement shall be
taken in the manner provided in this Article XIII. Special meetings of the
Limited Partners may be called by the General Partner or by Limited Partners
owning 20% or more of the Outstanding Limited Partner Interests of the class
or classes for which a meeting is proposed. Limited Partners shall call a
special meeting by delivering to the General Partner one or more requests in
writing stating that the signing Limited Partners wish to call a special
meeting and indicating the general or specific purposes for which the special
meeting is to be called. Within 60 days after receipt of such a call from
Limited Partners or within such greater time as may be reasonably necessary
for the Partnership to comply with any statutes, rules, regulations, listing
agreements or similar requirements governing the holding of a meeting or the
solicitation of proxies for use at such a meeting, the General Partner shall
send a notice of the meeting to the Limited Partners either directly or
indirectly through the Transfer Agent. A meeting shall be held at a time and
place determined by the General Partner on a date not less than 10 days nor
more than 60 days after the mailing of notice of the meeting. Limited Partners
shall not vote on matters that would cause the Limited Partners to be deemed
to be taking part in the management and control of the business and affairs of
the Partnership so as to jeopardize the Limited Partners' limited liability
under the Delaware Act or the law of any other state in which the Partnership
is qualified to do business.
Section 13.5 Notice of a Meeting.
Notice of a meeting called pursuant to Section 13.4 shall be given to the
Record Holders of the class or classes of Limited Partner Interests for which
a meeting is proposed in writing by mail or other means of written
communication in accordance with Section 16.1. The notice shall be deemed to
have been given at the time when deposited in the mail or sent by other means
of written communication.
Section 13.6 Record Date.
For purposes of determining the Limited Partners entitled to notice of or to
vote at a meeting of the Limited Partners or to give approvals without a
meeting as provided in Section 13.11 the General Partner may set a Record
Date, which shall not be less than 10 nor more than 60 days before (a) the
date of the meeting (unless such requirement conflicts with any rule,
regulation, guideline or requirement of any National Securities Exchange on
which the Limited Partner Interests are listed for trading, in which case the
rule, regulation, guideline or requirement of such exchange shall govern) or
(b) in the event that approvals are sought without a meeting, the date by
which Limited Partners are requested in writing by the General Partner to give
such approvals.
Section 13.7 Adjournment.
When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting and a new Record Date need not be fixed, if the
time and place thereof are announced at the meeting at which the adjournment
is taken, unless such adjournment shall be for more than 45 days. At the
adjourned meeting, the Partnership may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
45 days or if a new Record Date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given in accordance with this Article XIII.
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Section 13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes.
The transactions of any meeting of Limited Partners, however called and
noticed, and whenever held, shall be as valid as if it had occurred at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, Limited
Partners representing such quorum who were present in person or by proxy and
entitled to vote, sign a written waiver of notice or an approval of the
holding of the meeting or an approval of the minutes thereof. All waivers and
approvals shall be filed with the Partnership records or made a part of the
minutes of the meeting. Attendance of a Limited Partner at a meeting shall
constitute a waiver of notice of the meeting, except when the Limited Partner
does not approve, at the beginning of the meeting, of the transaction of any
business because the meeting is not lawfully called or convened; and except
that attendance at a meeting is not a waiver of any right to disapprove the
consideration of matters required to be included in the notice of the meeting,
but not so included, if the disapproval is expressly made at the meeting.
Section 13.9 Quorum.
The holders of a majority of the Outstanding Limited Partner Interests of
the class or classes for which a meeting has been called (including Limited
Partner Interests deemed owned by the General Partner) represented in person
or by proxy shall constitute a quorum at a meeting of Limited Partners of such
class or classes unless any such action by the Limited Partners requires
approval by holders of a greater percentage of such Limited Partner Interests,
in which case the quorum shall be such greater percentage. At any meeting of
the Limited Partners duly called and held in accordance with this Agreement at
which a quorum is present, the act of Limited Partners holding Outstanding
Limited Partner Interests that in the aggregate represent a majority of the
Outstanding Limited Partner Interests entitled to vote and be present in
person or by proxy at such meeting shall be deemed to constitute the act of
all Limited Partners, unless a greater or different percentage is required
with respect to such action under the provisions of this Agreement, in which
case the act of the Limited Partners holding Outstanding Limited Partner
Interests that in the aggregate represent at least such greater or different
percentage shall be required. The Limited Partners present at a duly called or
held meeting at which a quorum is present may continue to transact business
until adjournment, notwithstanding the withdrawal of enough Limited Partners
to leave less than a quorum, if any action taken (other than adjournment) is
approved by the required percentage of Outstanding Limited Partner Interests
specified in this Agreement (including Limited Partner Interests deemed owned
by the General Partner). In the absence of a quorum any meeting of Limited
Partners may be adjourned from time to time by the affirmative vote of holders
of at least a majority of the Outstanding Limited Partner Interests entitled
to vote at such meeting (including Limited Partner Interests deemed owned by
the General Partner) represented either in person or by proxy, but no other
business may be transacted, except as provided in Section 13.7.
Section 13.10 Conduct of a Meeting.
The General Partner shall have full power and authority concerning the
manner of conducting any meeting of the Limited Partners or solicitation of
approvals in writing, including the determination of Persons entitled to vote,
the existence of a quorum, the satisfaction of the requirements of Section
13.4, the conduct of voting, the validity and effect of any proxies and the
determination of any controversies, votes or challenges arising in connection
with or during the meeting or voting. The General Partner shall designate a
Person to serve as chairman of any meeting and shall further designate a
Person to take the minutes of any meeting. All minutes shall be kept with the
records of the Partnership maintained by the General Partner. The General
Partner may make such other regulations consistent with applicable law and
this Agreement as it may deem advisable concerning the conduct of any meeting
of the Limited Partners or solicitation of approvals in writing, including
regulations in regard to the appointment of proxies, the appointment and
duties of inspectors of votes and approvals, the submission and examination of
proxies and other evidence of the right to vote, and the revocation of
approvals in writing.
Section 13.11 Action Without a Meeting.
If authorized by the General Partner, any action that may be taken at a
meeting of the Limited Partners may be taken without a meeting if an approval
in writing setting forth the action so taken is signed by Limited
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Partners owning not less than the minimum percentage of the Outstanding
Limited Partner Interests (including Limited Partner Interests deemed owned by
the General Partner) that would be necessary to authorize or take such action
at a meeting at which all the Limited Partners were present and voted (unless
such provision conflicts with any rule, regulation, guideline or requirement
of any National Securities Exchange on which the Limited Partner Interests are
listed for trading, in which case the rule, regulation, guideline or
requirement of such exchange shall govern). Prompt notice of the taking of
action without a meeting shall be given to the Limited Partners who have not
approved in writing. The General Partner may specify that any written ballot
submitted to Limited Partners for the purpose of taking any action without a
meeting shall be returned to the Partnership within the time period, which
shall be not less than 20 days, specified by the General Partner. If a ballot
returned to the Partnership does not vote all of the Limited Partner Interests
held by the Limited Partners the Partnership shall be deemed to have failed to
receive a ballot for the Limited Partner Interests that were not voted. If
approval of the taking of any action by the Limited Partners is solicited by
any Person other than by or on behalf of the General Partner, the written
approvals shall have no force and effect unless and until (a) they are
deposited with the Partnership in care of the General Partner, (b) approvals
sufficient to take the action proposed are dated as of a date not more than 90
days prior to the date sufficient approvals are deposited with the Partnership
and (c) an Opinion of Counsel is delivered to the General Partner to the
effect that the exercise of such right and the action proposed to be taken
with respect to any particular matter (i) will not cause the Limited Partners
to be deemed to be taking part in the management and control of the business
and affairs of the Partnership so as to jeopardize the Limited Partners'
limited liability, and (ii) is otherwise permissible under the state statutes
then governing the rights, duties and liabilities of the Partnership and the
Partners.
Section 13.12 Voting and Other Rights.
(a) Only those Record Holders of the Limited Partner Interests on the Record
Date set pursuant to Section 13.6 (and also subject to the limitations
contained in the definition of "Outstanding") shall be entitled to notice of,
and to vote at, a meeting of Limited Partners or to act with respect to
matters as to which the holders of the Outstanding Limited Partner Interests
have the right to vote or to act. All references in this Agreement to votes
of, or other acts that may be taken by, the Outstanding Limited Partner
Interests shall be deemed to be references to the votes or acts of the Record
Holders of such Outstanding Limited Partner Interests.
(b) With respect to Limited Partner Interests that are held for a Person's
account by another Person (such as a broker, dealer, bank, trust company or
clearing corporation, or an agent of any of the foregoing), in whose name such
Limited Partner Interests are registered, such other Person shall, in
exercising the voting rights in respect of such Limited Partner Interests on
any matter, and unless the arrangement between such Persons provides
otherwise, vote such Limited Partner Interests in favor of, and at the
direction of, the Person who is the beneficial owner, and the Partnership
shall be entitled to assume it is so acting without further inquiry. The
provisions of this Section 13.12(b) (as well as all other provisions of this
Agreement) are subject to the provisions of Section 4.3.
ARTICLE XIV
MERGER
Section 14.1 Authority.
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in
accordance with this Article XIV.
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Section 14.2 Procedure for Merger or Consolidation.
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner
shall determine, in the exercise of its discretion, to consent to the merger
or consolidation, the General Partner shall approve the Merger Agreement,
which shall set forth:
(a) The names and jurisdictions of formation or organization of each of
the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(the "Surviving Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property
or general or limited partner interests, rights, securities or obligations
of the Surviving Business Entity; and (i) if any general or limited partner
interests, securities or rights of any constituent business entity are not
to be exchanged or converted solely for, or into, cash, property or general
or limited partner interests, rights, securities or obligations of the
Surviving Business Entity, the cash, property or general or limited partner
interests, rights, securities or obligations of any limited partnership,
corporation, trust or other entity (other than the Surviving Business
Entity) which the holders of such general or limited partner interests,
securities or rights are to receive in exchange for, or upon conversion of
their general or limited partner interests, securities or rights, and (ii)
in the case of securities represented by certificates, upon the surrender
of such certificates, which cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other
entity (other than the Surviving Business Entity), or evidences thereof,
are to be delivered;
(e) A statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or
agreement of limited partnership or other similar charter or governing
document) of the Surviving Business Entity to be effected by such merger or
consolidation;
(f) The effective time of the merger, which may be the date of the filing
of the certificate of merger pursuant to Section 14.4 or a later date
specified in or determinable in accordance with the Merger Agreement
(provided, that if the effective time of the merger is to be later than the
date of the filing of the certificate of merger, the effective time shall
be fixed no later than the time of the filing of the certificate of merger
and stated therein); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General
Partner.
Section 14.3 Approval by Limited Partners of Merger or Consolidation.
(a) Except as provided in Section 14.3(d), the General Partner, upon its
approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall be
approved upon receiving the affirmative vote or consent of the holders of a
Unit Majority unless the Merger Agreement contains any provision that, if
contained in an amendment to this Agreement, the provisions of this Agreement
or the Delaware Act would require for its approval the vote or consent of a
greater percentage of the Outstanding Limited Partner Interests or of any
class of Limited Partners, in which case such greater percentage vote or
consent shall be required for approval of the Merger Agreement.
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(c) Except as provided in Section 14.3(d), after such approval by vote or
consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation
may be abandoned pursuant to provisions therefor, if any, set forth in the
Merger Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in this
Agreement, the General Partner is permitted, in its discretion, without
Limited Partner approval, to merge the Partnership or any Group Member into,
or convey all of the Partnership's assets to, another limited liability entity
which shall be newly formed and shall have no assets, liabilities or
operations at the time of such Merger other than those it receives from the
Partnership or other Group Member if (i) the General Partner has received an
Opinion of Counsel that the merger or conveyance, as the case may be, would
not result in the loss of the limited liability of any Limited Partner or any
partner in the Operating Partnership or cause the Partnership or Operating
Partnership to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for federal income tax purposes (to the
extent not previously treated as such), (ii) the sole purpose of such merger
or conveyance is to effect a mere change in the legal form of the Partnership
into another limited liability entity and (iii) the governing instruments of
the new entity provide the Limited Partners and the General Partner with the
same rights and obligations as are herein contained.
Section 14.4 Certificate of Merger.
Upon the required approval by the General Partner and the Unitholders of a
Merger Agreement, a certificate of merger shall be executed and filed with the
Secretary of State of the State of Delaware in conformity with the
requirements of the Delaware Act.
Section 14.5 Effect of Merger.
(a) At the effective time of the certificate of merger:
(i) all of the rights, privileges and powers of each of the business
entities that has merged or consolidated, and all property, real, personal
and mixed, and all debts due to any of those business entities and all
other things and causes of action belonging to each of those business
entities, shall be vested in the Surviving Business Entity and after the
merger or consolidation shall be the property of the Surviving Business
Entity to the extent they were of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any of
those constituent business entities shall not revert and is not in any way
impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests in
property of any of those constituent business entities shall be preserved
unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity and may be enforced
against it to the same extent as if the debts, liabilities and duties had
been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall not be
deemed to result in a transfer or assignment of assets or liabilities from one
entity to another.
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ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
Section 15.1 Right to Acquire Limited Partner Interests.
(a) Notwithstanding any other provision of this Agreement, if at any time
not more than 20% of the total Limited Partner Interests of any class then
Outstanding is held by Persons other than the General Partner and its
Affiliates, the General Partner shall then have the right, which right it may
assign and transfer in whole or in part to the Partnership or any Affiliate of
the General Partner, exercisable in its sole discretion, to purchase all, but
not less than all, of such Limited Partner Interests of such class then
Outstanding held by Persons other than the General Partner and its Affiliates,
at the greater of (x) the Current Market Price as of the date three days prior
to the date that the notice described in Section 15 is mailed and (y) the
highest price paid by the General Partner or any of its Affiliates for any
such Limited Partner Interest of such class purchased during the 90-day period
preceding the date that the notice described in Section 15.1(b) is mailed. As
used in this Agreement, (i) "Current Market Price" as of any date of any class
of Limited Partner Interests listed or admitted to trading on any National
Securities Exchange means the average of the daily Closing Prices (as
hereinafter defined) per limited partner interest of such class for the 20
consecutive Trading Days (as hereinafter defined) immediately prior to such
date; (ii) "Closing Price" for any day means the last sale price on such day,
regular way, or in case no such sale takes place on such day, the average of
the closing bid and asked prices on such day, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted for trading on the principal National
Securities Exchange (other than the Nasdaq Stock Market) on which such Limited
Partner Interests of such class are listed or admitted to trading or, if such
Limited Partner Interests of such class are not listed or admitted to trading
on any National Securities Exchange (other than the Nasdaq Stock Market), the
last quoted price on such day or, if not so quoted, the average of the high
bid and low asked prices on such day in the over-the-counter market, as
reported by the Nasdaq Stock Market or such other system then in use, or, if
on any such day such Limited Partner Interests of such class are not quoted by
any such organization, the average of the closing bid and asked prices on such
day as furnished by a professional market maker making a market in such
Limited Partner Interests of such class selected by the General Partner, or if
on any such day no market maker is making a market in such Limited Partner
Interests of such class, the fair value of such Limited Partner Interests on
such day as determined reasonably and in good faith by the General Partner;
and (iii) "Trading Day" means a day on which the principal National Securities
Exchange on which such Limited Partner Interests of any class are listed or
admitted to trading is open for the transaction of business or, if Limited
Partner Interests of a class are not listed or admitted to trading on any
National Securities Exchange, a day on which banking institutions in New York
City generally are open.
(b) If the General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise the right to purchase Limited Partner Interests
granted pursuant to Section 15.1(a), the General Partner shall deliver to the
Transfer Agent notice of such election to purchase (the "Notice of Election to
Purchase") and shall cause the Transfer Agent to mail a copy of such Notice of
Election to Purchase to the Record Holders of Limited Partner Interests of
such class (as of a Record Date selected by the General Partner) at least 10,
but not more than 60, days prior to the Purchase Date. Such Notice of Election
to Purchase shall also be published for a period of at least three consecutive
days in at least two daily newspapers of general circulation printed in the
English language and published in the Borough of Manhattan, New York. The
Notice of Election to Purchase shall specify the Purchase Date and the price
(determined in accordance with Section 15.1(a)) at which Limited Partner
Interests will be purchased and state that the General Partner, its Affiliate
or the Partnership, as the case may be, elects to purchase such Limited
Partner Interests, upon surrender of Certificates representing such Limited
Partner Interests in exchange for payment, at such office or offices of the
Transfer Agent as the Transfer Agent may specify, or as may be required by any
National Securities Exchange on which such Limited Partner Interests are
listed or admitted to trading. Any such Notice of Election to Purchase mailed
to a Record Holder of Limited Partner Interests at his address as reflected in
the records of the Transfer Agent shall be conclusively presumed to have been
given regardless of whether the owner receives such notice. On or prior to the
Purchase Date, the General Partner, its Affiliate or the Partnership, as the
case may be, shall deposit with the Transfer Agent cash in
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an amount sufficient to pay the aggregate purchase price of all of such
Limited Partner Interests to be purchased in accordance with this Section
15.1. If the Notice of Election to Purchase shall have been duly given as
aforesaid at least 10 days prior to the Purchase Date, and if on or prior to
the Purchase Date the deposit described in the preceding sentence has been
made for the benefit of the holders of Limited Partner Interests subject to
purchase as provided herein, then from and after the Purchase Date,
notwithstanding that any Certificate shall not have been surrendered for
purchase, all rights of the holders of such Limited Partner Interests
(including any rights pursuant to Articles IV, V, VI, and XII) shall thereupon
cease, except the right to receive the purchase price (determined in
accordance with Section 15.1(a)) for Limited Partner Interests therefor,
without interest, upon surrender to the Transfer Agent of the Certificates
representing such Limited Partner Interests, and such Limited Partner
Interests shall thereupon be deemed to be transferred to the General Partner,
its Affiliate or the Partnership, as the case may be, on the record books of
the Transfer Agent and the Partnership, and the General Partner or any
Affiliate of the General Partner, or the Partnership, as the case may be,
shall be deemed to be the owner of all such Limited Partner Interests from and
after the Purchase Date and shall have all rights as the owner of such Limited
Partner Interests (including all rights as owner of such Limited Partner
Interests pursuant to Articles IV, V, VI and XII).
(c) At any time from and after the Purchase Date, a holder of an Outstanding
Limited Partner Interest subject to purchase as provided in this Section 15.1
may surrender his Certificate evidencing such Limited Partner Interest to the
Transfer Agent in exchange for payment of the amount described in Section
15.1(a), therefor, without interest thereon.
ARTICLE XVI
GENERAL PROVISIONS
Section 16.1 Addresses and Notices.
Any notice, demand, request, report or proxy materials required or permitted
to be given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when
sent by first class United States mail or by other means of written
communication to the Partner or Assignee at the address described below. Any
notice, payment or report to be given or made to a Partner or Assignee
hereunder shall be deemed conclusively to have been given or made, and the
obligation to give such notice or report or to make such payment shall be
deemed conclusively to have been fully satisfied, upon sending of such notice,
payment or report to the Record Holder of such Partnership Securities at his
address as shown on the records of the Transfer Agent or as otherwise shown on
the records of the Partnership, regardless of any claim of any Person who may
have an interest in such Partnership Securities by reason of any assignment or
otherwise. An affidavit or certificate of making of any notice, payment or
report in accordance with the provisions of this Section 16.1 executed by the
General Partner, the Transfer Agent or the mailing organization shall be prima
facie evidence of the giving or making of such notice, payment or report. If
any notice, payment or report addressed to a Record Holder at the address of
such Record Holder appearing on the books and records of the Transfer Agent or
the Partnership is returned by the United States Postal Service marked to
indicate that the United States Postal Service is unable to deliver it, such
notice, payment or report and any subsequent notices, payments and reports
shall be deemed to have been duly given or made without further mailing (until
such time as such Record Holder or another Person notifies the Transfer Agent
or the Partnership of a change in his address) if they are available for the
Partner or Assignee at the principal office of the Partnership for a period of
one year from the date of the giving or making of such notice, payment or
report to the other Partners and Assignees. Any notice to the Partnership
shall be deemed given if received by the General Partner at the principal
office of the Partnership designated pursuant to Section 2.3. The General
Partner may rely and shall be protected in relying on any notice or other
document from a Partner, Assignee or other Person if believed by it to be
genuine.
Section 16.2 Further Action.
The parties shall execute and deliver all documents, provide all information
and take or refrain from taking action as may be necessary or appropriate to
achieve the purposes of this Agreement.
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Section 16.3 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 16.4 Integration.
This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements
and understandings pertaining thereto.
Section 16.5 Creditors.
None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.
Section 16.6 Waiver.
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach of any other covenant, duty, agreement or condition.
Section 16.7 Counterparts.
This Agreement may be executed in counterparts, all of which together shall
constitute an agreement binding on all the parties hereto, notwithstanding
that all such parties are not signatories to the original or the same
counterpart. Each party shall become bound by this Agreement immediately upon
affixing its signature hereto or, in the case of a Person acquiring a Unit,
upon accepting the certificate evidencing such Unit or executing and
delivering a Transfer Application as herein described, independently of the
signature of any other party.
Section 16.8 Applicable Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts
of law.
Section 16.9 Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
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Section 16.10 Consent of Partners.
Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative
vote or consent of less than all of the Partners, such action may be so taken
upon the concurrence of less than all of the Partners and each Partner shall
be bound by the results of such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
Plains All American Inc.
By: _________________________________
Name: _______________________________
Title: ______________________________
ORGANIZATIONAL LIMITED PARTNER:
Plains Resources Inc.
By: _________________________________
Name: _______________________________
LIMITED PARTNERS:
All Limited Partners now and
hereafter admitted as Limited
Partners of the Partnership,
pursuant to powers of attorney now
and hereafter executed in favor of,
and granted and delivered to the
General Partner.
By: _________________________________
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<PAGE>
EXHIBIT A TO THE AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
PLAINS ALL AMERICAN PIPELINE, L.P.
CERTIFICATE EVIDENCING COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS IN
PLAINS ALL AMERICAN PIPELINE, L.P.
No. Common Units
In accordance with Section 4.1 of the Amended and Restated Agreement of
Limited Partnership of Plains All American Pipeline, L.P., as amended,
supplemented or restated from time to time (the "Partnership Agreement"),
Plains All American Pipeline, L.P., a Delaware limited partnership (the
"Partnership"), hereby certifies that (the "Holder") is
the registered owner of Common Units representing limited partner
interests in the Partnership (the "Common Units") transferable on the books of
the Partnership, in person or by duly authorized attorney, upon surrender of
this Certificate properly endorsed and accompanied by a properly executed
application for transfer of the Common Units represented by this Certificate.
The rights, preferences and limitations of the Common Units are set forth in,
and this Certificate and the Common Units represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the
Partnership Agreement. Copies of the Partnership Agreement are on file at, and
will be furnished without charge on delivery of written request to the
Partnership at, the principal office of the Partnership located at 500 Dallas,
Suite 700, Houston, Texas 77002. Capitalized terms used herein but not defined
shall have the meanings given them in the Partnership Agreement.
The Holder, by accepting this Certificate, is deemed to have (i) requested
admission as, and agreed to become, a Limited Partner and to have agreed to
comply with and be bound by and to have executed the Partnership Agreement,
(ii) represented and warranted that the Holder has all right, power and
authority and, if an individual, the capacity necessary to enter into the
Partnership Agreement, (iii) granted the powers of attorney provided for in
the Partnership Agreement and (iv) made the waivers and given the consents and
approvals contained in the Partnership Agreement.
This Certificate shall not be valid for any purpose unless it has been
countersigned and registered by the Transfer Agent and Registrar.
Dated: Plains All American Pipeline, L.P.
Countersigned and Registered by:
_____________________________________ By: Plains All American Inc., its
General Partner
as Transfer Agent and Registrar
By: _________________________________
By: _________________________________ Name: ____________________________
Authorized Signature
[Reverse of Certificate] By: _________________________________
Secretary
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<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as follows according to applicable laws
or regulations:
TEN COM -- as tenants in common UNIF GIFT/TRANSFERS MIN ACT
TEN ENT -- as tenants by the entireties ___________ Custodian ___________
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts/Transfers to
in common Minors Act ______________________
(State)
Additional abbreviations, though not in the above list, may also be used.
ASSIGNMENT OF COMMON UNITS
IN
PLAINS ALL AMERICAN PIPELINE, L.P.
IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
DUE TO TAX SHELTER STATUS OF PLAINS ALL AMERICAN PIPELINE, L.P.
You have acquired an interest in Plains All American Pipeline, L.P., 500
Dallas, Suite 700, Houston, Texas 77002, whose taxpayer identification number
is . The Internal Revenue Service has issued Plains All American
Pipeline, L.P. the following tax shelter registration number: .
YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE IF
YOU CLAIM ANY DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT OR REPORT ANY
INCOME BY REASON OF YOUR INVESTMENT IN PLAINS ALL AMERICAN PIPELINE, L.P.
You must report the registration number as well as the name and taxpayer
identification number of Plains All American Pipeline, L.P. on Form 8271. FORM
8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS,
CREDIT OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT
IN PLAINS ALL AMERICAN PIPELINE, L.P.
If you transfer your interest in Plains All American Pipeline, L.P. to
another person, you are required by the Internal Revenue Service to keep a
list containing (a) that person's name, address and taxpayer identification
number, (b) the date on which you transferred the interest and (c) the name,
address and tax shelter registration number of Plains All American Pipeline,
L.P. If you do not want to keep such a list, you must (1) send the information
specified above to the Partnership, which will keep the list for this tax
shelter, and (2) give a copy of this notice to the person to whom you transfer
your interest. Your failure to comply with any of the above-described
responsibilities could result in the imposition of a penalty under Section
6707(b) or 6708(a) of the Internal Revenue Code of 1986, as amended, unless
such failure is shown to be due to reasonable cause.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE
INTERNAL REVENUE SERVICE.
FOR VALUE RECEIVED, HEREBY ASSIGNS, CONVEYS, SELLS AND TRANSFERS UNTO
(Please print or typewrite (Please insert Social Security or
name and address of other identifying number of
Assignee) Assignee)
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<PAGE>
Common Units representing limited partner interests evidenced by this
Certificate, subject to the Partnership Agreement, and does hereby irrevocably
constitute and appoint as its attorney-in-fact with full
power of substitution to transfer the same on the books of Plains All American
Pipeline, L.P.
Date: NOTE: The signature to any
endorsement hereon must
correspond with the name as
written upon the face of this
Certificate in every
particular, without
alteration, enlargement or
change.
SIGNATURE(S) MUST BE GUARANTEED BY A (Signature)
MEMBER FIRM OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS,
INC. OR BY A COMMERCIAL BANK OR (Signature)
TRUST COMPANY
SIGNATURE(S) GUARANTEED
No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units
to be transferred is surrendered for registration or transfer and an
Application for Transfer of Common Units has been executed by a transferee
either (a) on the form set forth below or (b) on a separate application that
the Partnership will furnish on request without charge. A transferor of the
Common Units shall have no duty to the transferee with respect to execution of
the transfer application in order for such transferee to obtain registration
of the transfer of the Common Units.
----------------
APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the Amended and
Restated Agreement of Limited Partnership of Plains All American Pipeline,
L.P. (the "Partnership"), as amended, supplemented or restated to the date
hereof (the "Partnership Agreement"), (b) represents and warrants that the
Assignee has all right, power and authority and, if an individual, the
capacity necessary to enter into the Partnership Agreement, (c) appoints the
General Partner of the Partnership and, if a Liquidator shall be appointed,
the Liquidator of the Partnership as the Assignee's attorney-in-fact to
execute, swear to, acknowledge and file any document, including, without
limitation, the Partnership Agreement and any amendment thereto and the
Certificate of Limited Partnership of the Partnership and any amendment
thereto, necessary or appropriate for the Assignee's admission as a
Substituted Limited Partner and as a party to the Partnership Agreement, (d)
gives the powers of attorney provided for in the Partnership Agreement, and
(e) makes the waivers and gives the consents and approvals contained in the
Partnership Agreement. Capitalized terms not defined herein have the meanings
assigned to such terms in the Partnership Agreement.
Date: ______________________________
Social Security or other identifying Signature of Assignee
number of Assignee
Purchase Price including Name and Address of Assignee
commissions, if any
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<PAGE>
Type of Entity (check one):
<TABLE>
<S> <C> <C>
[_] Individual [_] Partnership [_] Corporation
[_] Trust [_] Other (specify)
Nationality (check one):
[_] U.S. Citizen, Resident or Domestic Entity
[_] Foreign Corporation [_] Non-resident Alien
</TABLE>
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Partnership must withhold tax with respect to certain transfers
of property if a holder of an interest in the Partnership is a foreign person.
To inform the Partnership that no withholding is required with respect to the
undersigned interestholder's interest in it, the undersigned hereby certifies
the following (or, if applicable, certifies the following on behalf of the
interestholder).
Complete Either A or B:
A. Individual Interestholder
1. I am not a non-resident alien for purposes of U.S. income taxation.
2. My U.S. taxpayer identification number (Social Security Number) is
___________________________ .
3. My home address is _________________________ .
B. Partnership, Corporation or Other Interestholder
1. is not a foreign corporation, foreign partnership, foreign
trust or foreign
(Name of Interestholder)
estate (as those terms are defined in the Code and Treasury Regulations).
2. The interestholder's U.S. employer identification number is
___________________________ .
3. The interestholder's office address and place of incorporation (if
applicable) is __________________________ .
The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interestholder becomes a foreign person.
The interestholder understands that this certificate may be disclosed to the
Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct
and complete and, if applicable, I further declare that I have authority to
sign this document on behalf of
Name of Interestholder
Signature and Date
Title (if applicable)
A-75
<PAGE>
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the
above certification as to any person for whom the Assignee will hold the
Common Units shall be made to the best of the Assignee's knowledge.
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<PAGE>
APPENDIX B
No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units to
be transferred is surrendered for registration or transfer and an Application
for Transfer of Common Units has been executed by a transferee either (a) on
the form set forth below or (b) on a separate application that the Partnership
will furnish on request without charge. A transferor of the Common Units shall
have no duty to the transferee with respect to execution of the transfer
application in order for such transferee to obtain registration of the transfer
of the Common Units.
APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as an Additional Limited Partner and
agrees to comply with and be bound by, and hereby executes, the Amended and
Restated Agreement of Limited Partnership of Plains All American Pipeline, L.P.
(the "Partnership"), as amended, supplemented or restated to the date hereof
(the "Partnership Agreement"), (b) represents and warrants that the Assignee
has all right, power and authority and, if an individual, the capacity
necessary to enter into the Partnership Agreement, (c) appoints the General
Partner and, if a Liquidator shall be appointed, the Liquidator of the
Partnership as the Assignee's attorney-in-fact, to execute, swear to,
acknowledge and file any document, including, without limitation, the
Partnership Agreement and any amendment thereto and the Certificate of Limited
Partnership of the Partnership and any amendment thereto, necessary or
appropriate for the Assignee's admission as a Additional Limited Partner and as
a party to the Partnership Agreement, (d) gives the power of attorney provided
for in the Partnership Agreement, and (e) makes the waivers and gives the
consents and approvals contained in the Partnership Agreement. Capitalized
terms not defined herein have the meanings assigned to such terms in the
Partnership Agreement.
Date: ______________________________
____________________________________ By: __________________________________
Social Security or other Signature of Assignee
identifying number of Assignee
____________________________________ ______________________________________
Purchase Price including Name and Address of Assignee
commissions, if any
Type of Entity (check one):
[_] Individual [_] Partnership [_] Corporation
[_] Trust [_] Other (specify)
Nationality (check one)
[_] U.S. Citizen, Resident or Domestic Entity
[_] Foreign Corporation [_] Non-resident Alien
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Partnership must withhold tax with respect to certain transfers of
property if a holder of an interest in the Partnership is a foreign person. To
inform the Partnership that no withholding is required with respect to the
undersigned interestholder's interest in it, the undersigned hereby certifies
the following (or, if applicable, certifies the following on behalf of the
interestholder).
B-1
<PAGE>
Complete Either A or B:
A.Individual Interestholder
1. I am not a non-resident alien for purposes of U.S. income taxation.
2. My U.S. taxpayer identification number (Social Security Number) is
________________________________
3. My home address is _______________________________________________________
B.Partnership, Corporation or Other Interestholder
1. ________________________ is not a foreign corporation, foreign partnership,
(Name of Interestholder)
foreign trust or foreign estate (as those terms are defined in the Code
and Treasury Regulations).
2. The interestholder's U.S. employer identification number is
____________________________ .
3. The interestholder's office address and place of incorporation (if
applicable) is _______________________________ .
The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interestholder becomes a foreign person.
The interestholder understands that this certificate may be disclosed to the
Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct
and complete and, if applicable, I further declare that I have authority to
sign this document on behalf of
_____________________________________
Name of Interestholder
Dated: , 1998
_____________________________________
Signature and Date
_____________________________________
Title (if applicable)
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the
above certification as to any person for whom the signee will hold the Common
Units shall be made to the best of the Assignee's knowledge.
B-2
<PAGE>
APPENDIX C
GLOSSARY OF CERTAIN TERMS
Acquisition: Any transaction in which the Partnership acquires (through an
asset acquisition, merger, stock acquisition or other form of investment)
control over all or a portion of the assets, properties or business of another
person for the purpose of increasing the operating capacity or revenues of the
Partnership from the operating capacity or revenues of the Partnership
existing immediately prior to such transaction.
Adjusted Operating Surplus: With respect to any period, Operating Surplus
generated during such period (a) less (i) any net increase in Working Capital
Borrowings during such period and (ii) any net reduction in cash reserves for
Operating Expenditures during such period not relating to an Operating
Expenditure made during such period, and (b) plus (i) any net decrease in
Working Capital Borrowings during such period and (ii) any net increase in
cash reserves for Operating Expenditures during such period required by any
debt instrument for the repayment of principal, interest or premium. Adjusted
Operating Surplus does not include that portion of Operating Surplus included
in clause (a)(i) of the definition of Operating Surplus.
Available Cash: With respect to any quarter prior to liquidation:
(a) the sum of (i) all cash and cash equivalents of the Partnership on
hand at the end of such quarter and (ii) all additional cash and cash
equivalents of the Partnership on hand on the date of determination of
Available Cash with respect to such quarter resulting from Working Capital
Borrowings for working capital purposes made subsequent to the end of such
quarter, less
(b) the amount of any cash reserves that is necessary or appropriate in
the reasonable discretion of the General Partner to (i) provide for the
proper conduct of the business of the Partnership (including reserves for
future capital expenditures and for anticipated future credit needs of the
Partnership) subsequent to such quarter, (ii) comply with applicable law or
any loan agreement, security agreement, mortgage, debt instrument or other
agreement or obligation to which any member of the Partnership is a party
or by which it is bound or its assets are subject, or (iii) provide funds
for distributions under Section 6.4 or 6.5 of the Partnership Agreement in
respect of any one or more of the next four quarters; provided, however,
that the General Partner may not establish cash reserves pursuant to (iii)
above if the effect of such reserves would be that the Partnership is
unable to distribute the Minimum Quarterly Distribution on all Common
Units, plus any cumulative Common Unit Arrearage on all Common Units with
respect to such quarter; and, provided further, that disbursements made by
the Partnership or cash reserves established, increased or reduced after
the end of such quarter but on or before the date of determination of
Available Cash with respect to such quarter shall be deemed to have been
made, established, increased or reduced for purposes of determining
Available Cash within such quarter if the General Partner so determines.
Notwithstanding the foregoing, "Available Cash" with respect to the quarter
in which the liquidation of the Partnership occurs and any subsequent
quarter shall equal zero.
Bank Credit Agreement: The $175 million Term Loan Facility and the $50
million Revolving Credit Facility entered into by the Operating Partnership.
Barrel: One barrel of crude oil equals 42 U.S. gallons.
Capital Account: The capital account maintained for a Partner pursuant to
the Partnership Agreement. The Capital Account of a Partner in respect of a
general partner interest, a Common Unit, a Subordinated Unit, an Incentive
Distribution Right or any other Partnership Interest shall be the amount which
such Capital Account would be if such general partner interest, Common Unit,
Subordinated Unit, Incentive Distribution Right or other Partnership Interest
were the only interest in the Partnership held by a Partner from and after the
date on which such general partner interest, Common Unit, Subordinated Unit,
Incentive Distribution Right or other Partnership Interest was first issued.
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<PAGE>
Capital Improvements: Additions or improvements to the capital assets owned
by the Partnership or the acquisition of existing, or the construction of new,
capital assets (including pipeline systems, terminalling and storage
facilities and related assets), in each case made to increase the operating
capacity or revenues of the Partnership existing immediately prior to such
addition, improvement, acquisition or construction.
Capital Surplus: All Available Cash distributed by the Partnership from any
source will be treated as distributed from Operating Surplus until the sum of
all Available Cash distributed since the Closing Date equals the Operating
Surplus as of the end of the quarter prior to such distribution. Any excess
Available Cash will be deemed to be Capital Surplus.
Cause: Means a court of competent jurisdiction has entered a final, non-
appealable judgment finding the General Partner liable for actual fraud, gross
negligence or willful or wanton misconduct in its capacity as a general
partner of the Partnership.
Closing Date: The first date on which Common Units are sold by the
Partnership to the Underwriters pursuant to the provisions of the Underwriting
Agreement.
Common Unit Arrearage: The amount by which the Minimum Quarterly
Distribution in respect of a quarter during the Subordination Period exceeds
the distribution of Available Cash from Operating Surplus actually made for
such quarter on a Common Unit, cumulative for such quarter and all prior
quarters during the Subordination Period.
Common Units: A Unit representing a fractional part of the Partnership
Interests of all limited partners and assignees and having the rights and
obligations specified with respect to Common Units in the Partnership
Agreement.
Compensation Committee: A committee of the board of directors of the General
Partner which will include two independent directors, which will determine the
compensation of the officers of the General Partner and administer its
employee benefit plans.
Conflicts Committee: A committee of the board of directors of the General
Partner composed entirely of two or more directors who are neither officers or
employees or security holders of the General Partner nor officers, directors
or employees of any affiliate of the General Partner.
Contribution Agreement: The Contribution, Conveyance and Assumption
Agreement to be dated the Closing Date among the General Partner, the Plains
Midstream Subsidiaries, the Partnership, the Operating Partnership and certain
other parties governing the Transactions pursuant to which, among other
things, the assets, business and operations of the All American Pipeline and
the SJV Gathering System and the Plains Midstream Subsidiaries will be
transferred and the liabilities of the All American Pipeline and the SJV
Gathering System and the Plains Midstream Subsidiaries will be assumed.
Counsel: Andrews & Kurth L.L.P., special counsel to the General Partner and
the Partnership.
Current Market Price: With respect to any class of Units listed or admitted
to trading on any national securities exchange as of any date, the average of
the daily Closing Prices (as hereinafter defined) for the 20 consecutive
Trading Days (as hereinafter defined) immediately prior to such date. "Closing
Price" for any day means the last sale price on such day, regular way, or in
case no such sale takes place on such day, the average of the closing bid and
asked prices on such day, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the principal national securities exchange
(other than the Nasdaq Stock Market) on which the Units of such class are
listed or admitted to trading or, if the Units of such class are not listed or
admitted to trading on any national securities exchange (other than the Nasdaq
Stock Market), the last quoted price on such day, or, if not so quoted, the
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<PAGE>
average of the high bid and low asked prices on such day in the over-the-
counter market, as reported by the Nasdaq Stock Market or such other system
then in use, or if on any such day the Units of such class are not quoted by
any such organization, the average of the closing bid and asked prices on such
day as furnished by a professional market maker making a market in the Units
of such class selected by the General Partner, or if on any such day no market
maker is making a market in the Units of such class, the fair value of such
Units on such day as determined reasonably and in good faith by the General
Partner. "Trading Day" means a day on which the principal national securities
exchange on which Units of any class are listed or admitted to trading is open
for the transaction of business or, if the Units of a class are not listed or
admitted to trading on any national securities exchange, a day on which
banking institutions in New York City generally are open.
Delaware Act: The Delaware Revised Uniform Limited Partnership Act, 6 Del C.
(S)17-101, et seq., as amended, supplemented or restated from time to time,
and any successor to such statute.
Departing Partner: A former General Partner from and after the effective
date of any withdrawal or removal of such former General Partner pursuant to
the Partnership Agreement.
Exchange Act: Securities Exchange Act of 1934, as amended.
General Partner: Plains All American Inc., a Delaware corporation, and its
successors and permitted assigns as general partner of the Partnership.
Incentive Distribution Right: A non-voting limited partner Partnership
Interest issued to the General Partner in connection with the transfer of
substantially all of its general partner interest in the Operating Partnership
to the Partnership pursuant to the Partnership Agreement, which Partnership
Interest will confer upon the holder thereof only the rights and obligations
specifically provided in the Partnership Agreement with respect to Incentive
Distribution Rights (and no other rights otherwise available to or other
obligations of holders of a Partnership Interest).
Incentive Distributions: The distributions of Available Cash from Operating
Surplus initially made to the General Partner that are in excess of the
General Partner's aggregate 2% general partner interest.
Initial Common Units: The Common Units sold in this offering.
Initial Unit Price: An amount per Unit equal to the initial public offering
price of the Common Units as set forth on the outside front cover page of this
Prospectus.
Interim Capital Transactions: The following transactions if they occur prior
to liquidation: (a) borrowings, refinancings and refundings of indebtedness
and sales of debt securities (other than for Working Capital Borrowings and
other than for items purchased on open account in the ordinary course of
business) by the Partnership; (b) sales of equity interests by the Partnership
(other than the Common Units sold to the Underwriters pursuant to the exercise
of their over-allotment option); and (c) sales or other voluntary or
involuntary dispositions of any assets of the Partnership (other than (i)
sales or other dispositions of inventory, accounts receivable and other assets
in the ordinary course of business, and (ii) sales or other dispositions of
assets as a part of normal retirements or replacements).
Letter of Credit Facility: The $175 million, secured letter of credit
facility of the Operating Partnership with BankBoston, N.A, ING (U.S.) Capital
Corporation and certain other lenders.
Long-Term Incentive Plan: The Plains All American Pipeline, L.P. 1998 Long-
Term Incentive Plan.
Management Incentive Plan: The Plains All American Pipeline, L.P. Management
Incentive Plan.
Minimum Quarterly Distribution: $0.45 per Unit with respect to each quarter
or $1.80 per Unit on an annualized basis, subject to adjustment as described
in "Cash Distribution Policy--Distributions from Capital Surplus" and "Cash
Distribution Policy--Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels."
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<PAGE>
Non-citizen Assignee: A Limited Partner or assignee who (i) fails to furnish
information about nationality, citizenship, residency or other related status
within 30 days after a request by the General Partner for such information, or
(ii) the General Partner determines after receipt of such information is not
an eligible citizen.
Operating Expenditures: All Partnership Group expenditures, including, but
not limited to, taxes, reimbursements of the General Partner, debt service
payments and capital expenditures, subject to the following:
(a) Payments (including prepayments) of principal and premium on
indebtedness shall not be an Operating Expenditure if the payment is (i)
required in connection with the sale or other disposition of assets or (ii)
made in connection with the refinancing or refunding of indebtedness with
the proceeds from new indebtedness or from the sale of equity interests.
For purposes of the foregoing, at the election and in the reasonable
discretion of the General Partner, any payment of principal or premium
shall be deemed to be refunded or refinanced by any indebtedness incurred
or to be incurred by the Partnership Group within 180 days before or after
such payment to the extent of the principal amount of such indebtedness.
(b) Operating Expenditures shall not include (i) capital expenditures
made for Acquisitions or for Capital Improvements, (ii) payment of
transaction expenses relating to Interim Capital Transactions or (iii)
distributions to partners. Where capital expenditures are made in part for
Acquisitions or Capital Improvements and in part for other purposes, the
General Partner's good faith allocation between the amounts paid for each
shall be conclusive.
Operating Partnership: Plains Marketing, L.P. and All American, L.P., each a
Delaware limited partnership, and any successors thereto.
Operating Partnership Agreements: The Amended and Restated Operating
Agreements of the Operating Partnerships, as they may be amended, supplemented
or restated from time to time (the forms of which have been filed as an
exhibit to the registration statement of which this Prospectus is a part).
Operating Surplus: As to any period prior to liquidation, on a cumulative
basis and without duplication:
(a) the sum of (i) $25 million plus all cash and cash equivalents of the
Partnership Group on hand as of the close of business on the Closing Date,
(ii) all cash receipts of the Partnership Group for the period beginning on
the Closing Date and ending with the last day of such period, other than
cash receipts from Interim Capital Transactions and (iii) all cash receipts
of the Partnership Group after the end of such period but on or before the
date of determination of Operating Surplus with respect to such period
resulting from Working Capital Borrowings, less
(b) the sum of (i) Operating Expenditures for the period beginning on the
Closing Date and ending with the last day of such period and (ii) the
amount of cash reserves that is necessary or advisable in the reasonable
discretion of the General Partner to provide funds for future Operating
Expenditures; provided however, that disbursements made (including
contributions to a member of the Partnership Group or disbursements on
behalf of a member of the Partnership Group) or cash reserves established,
increased or reduced after the end of such period but on or before the date
of determination of Available Cash with respect to such period shall be
deemed to have been made, established, increased or reduced for purposes of
determining Operating Surplus, within such period if the General Partner so
determines. Notwithstanding the foregoing, "Operating Surplus" with respect
to the quarter in which the liquidation occurs and any subsequent quarter
shall equal zero.
Opinion of Counsel: A written opinion of counsel, acceptable to the General
Partner in its reasonable discretion, to the effect that the taking of a
particular action will not result in the loss of the limited liability of the
limited partners of the Partnership or cause the Partnership to be treated as
an association taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes.
Partnership Agreement: The Amended and Restated Agreement of Limited
Partnership of the Partnership (the form of which is included in this
Prospectus as Appendix A), as it may be amended, restated or
C-4
<PAGE>
supplemented from time to time. Unless the context requires otherwise,
references to the Partnership Agreement constitute references to the
Partnership Agreement of the Partnership and to the Operating Partnership
Agreements, collectively.
Partnership Group: The Partnership, the Operating Partnership and any
subsidiary of either such entity, treated as a single consolidated entity.
Partnership Interest: An ownership interest in the Partnership, which shall
include the general partner interests and limited partner interests.
Partnership Security: Means any class or series of equity interest in the
Partnership (but excluding any options, rights, warrants and appreciation
rights relating to any equity interest in the Partnership), including, without
limitation, Common Units, Subordinated Units and Incentive Distribution
Rights.
Plains Midstream Subsidiaries: Plains Marketing & Transportation Inc., a
Delaware corporation, Plains Terminal & Transfer Corporation, a Delaware
corporation, PLX Crude Lines Inc., a Delaware corporation, and PLX Ingleside
Inc., a Delaware corporation, each a wholly owned subsidiary of Plains
Resources prior to their merger into Plains Resources.
Qualifying Income Exception: An exception to Section 7704 of the Code which
provides that publicly-traded partnerships will be taxed as partnerships and
not corporations if 90% or more of the gross income for every taxable year
consists of "qualifying income."
Registration Statement: The Registration Statement on Form S-1, as amended
(No. 333-64107), filed by the Partnership with the Commission, relating to the
Common Units.
Revolving Credit Facility: The $50 million Revolving Credit Facility,
entered into by the Operating Partnership, which may be used for acquisitions,
capital improvements and working capital purposes.
Securities Act: The Securities Act of 1933, as amended.
Subordinated Unit: A Unit representing a fractional part of the partnership
interests of all limited partners and assignees and having the rights and
obligations specified with respect to Subordinated Units in the Partnership
Agreement.
Subordination Period: The Subordination Period will generally extend from
the closing of this offering until the first to occur of: (a) the first day of
any quarter beginning after December 31, 2003 in respect of which (i)
distributions of Available Cash from Operating Surplus on each of the
outstanding Common Units and the Subordinated Units with respect to each of
the three consecutive, non-overlapping four-quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the outstanding Common Units and Subordinated Units
during such periods, (ii) the Adjusted Operating Surplus generated during each
of the three consecutive, non-overlapping four-quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all of the Common Units and Subordinated Units that were
outstanding during such periods on a fully-diluted basis, plus the related
distribution on the general partner interest in the Partnership and the
general partner interest in the Operating Partnership, and (iii) there are no
outstanding Common Unit Arrearages; and (b) the date on which the General
Partner is removed as general partner of the Partnership upon the requisite
vote by holders of Outstanding Units under circumstances where Cause does not
exist and Units held by the General Partner and its Affiliates are not voted
in favor of such removal.
Target Distribution Levels: The distribution levels at which the General
Partner's Incentive Compensation Payments are determined as described in "Cash
Distribution Policy--Incentive Distributions--Hypothetical Annualized Yield."
Term Loan Facility: The $175 million Term Loan Facility entered into by the
Partnership.
Transactions: The transactions related to the formation of the Partnership,
the entering into of the Term Loan Facility and the Revolving Credit Facility
and the other transactions to occur in connection with this offering.
C-5
<PAGE>
Transfer Agent: American Stock Transfer & Trust Company serving as registrar
and transfer agent for the Common Units.
Transfer Application: An application for transfer of Units in the form set
forth on the back of a certificate, substantially in the form included in this
Prospectus as Appendix B, or in a form substantially to the same effect in a
separate instrument.
Unitholders: Holders of the Common Units and the Subordinated Units,
collectively.
Unit Majority: During the Subordination Period, at least a majority of the
outstanding Common Units (excluding Common Units held by the General Partner
and its affiliates), voting as a class, and at least a majority of the
outstanding Subordinated Units, voting as a class and, thereafter, at least a
majority of the outstanding Common Units.
Units: A Partnership Security that is designated as a "Unit", including the
Common Units and the Subordinated Units, but not including the general partner
interest or the right to receive Incentive Distributions.
Unrecovered Capital: At any time, the Initial Unit Price, less the sum of
all distributions theretofore made in respect of an Initial Common Unit
constituting Capital Surplus and any distributions of cash (or the net agreed
value of any distributions in kind) in connection with the dissolution and
liquidation of the Partnership theretofore made in respect of such Unit,
adjusted as the General Partner determines to be appropriate to give effect to
any distribution, subdivision or combination of such Units.
Working Capital Borrowings: Borrowings exclusively for working capital
purposes made pursuant to a credit facility or other arrangement requiring all
borrowings thereunder to be reduced to a relatively small amount each year for
an economically meaningful period of time.
C-6
<PAGE>
APPENDIX D
PRO FORMA AVAILABLE CASH FROM OPERATING SURPLUS
The following table shows the calculation of Pro Forma Available Cash from
Operating Surplus and should be read in conjunction with "Cash Available for
Distribution," the Plains Midstream Subsidiaries Combined Financial
Statements, the Wingfoot Consolidated Financial Statements and the
Partnership's Unaudited Pro Forma Consolidated Financial Statements.
<TABLE>
<CAPTION>
TWELVE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Pro forma net loss................................. $(10,907) $(18,662)
Add: Pro forma depreciation and amortization...... 10,516 10,696
Pro forma impairment of pipeline assets...... 64,173 64,173
Pro forma interest expense................... 14,383 14,424
-------- --------
Pro forma EBITDA(a).......................... 78,165 70,631
Less: Pro forma interest expense................... 14,383 14,424
Pro forma maintenance capital
expenditures(b)(c).......................... 1,433 2,049
-------- --------
Pro forma Available Cash from Operating
Surplus(d)(e)(f).................................. $ 62,349 $ 54,158
======== ========
</TABLE>
- --------
(a) EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization.
(b) Amounts determined by combining actual amounts for Wingfoot and the
Plains Midstream Subsidiaries maintenance capital expenditures.
(c) The Partnership estimates future maintenance capital expenditures to
average approximately $2.0 million to $4.0 million per year. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(d) The pro forma adjustments in the pro forma consolidated financial
statements are based upon currently available information and certain
estimates and assumptions. The pro forma consolidated financial
statements do not purport to present the financial position or results of
operations of the Partnership had the Transactions to be effected at the
closing of this Offering actually been completed as of the date
indicated. Furthermore, the pro forma consolidated financial statements
are based on accrual accounting concepts whereas Available Cash and
Operating Surplus are defined in the Partnership Agreement on a cash
accounting basis. As a consequence, the amount of Pro Forma Cash
Available from Operating Surplus shown above should only be viewed as a
general indication of the amounts of Available Cash from Operating
Surplus that may in fact have been generated by the Partnership had it
been formed in earlier periods.
(e) The General Partner estimates that it will incur incremental general and
administrative expenses associated with the operation of the Partnership
as a separate public entity not included in the pro forma amounts above
(e.g. costs of tax return preparation, audit fees, annual and quarterly
reports to Unitholders, investor relations, and registrar and transfer
agent fees) of approximately $0.9 million per year.
(f) The amount of Available Cash from Operating Surplus needed to distribute
the Minimum Quarterly Distribution for four quarters on the Common Units
and Subordinated Units to be outstanding immediately after this offering
and on the combined 2% general partner interest is approximately $54.0
million ($35.3 million for the Common Units, $17.6 million for the
Subordinated Units and $1.1 million for the combined general partner
interest). The pro forma amounts reflected above would have been
sufficient to cover the Minimum Quarterly Distribution during 1997 and
the twelve months ended September 30, 1998 on all of the Common Units,
the Subordinated Units and the related distribution on the general
partner interest.
D-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE PARTNERSHIP OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Forward-Looking Statements................................................ 26
Risk Factors.............................................................. 26
The Transactions.......................................................... 40
Use of Proceeds........................................................... 41
Capitalization............................................................ 42
Dilution.................................................................. 43
Cash Distribution Policy.................................................. 44
Cash Available for Distribution........................................... 52
Selected Pro Forma Financial and Operating Data........................... 54
Selected Historical Financial and Operating Data.......................... 56
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 60
Business.................................................................. 74
Management................................................................ 95
Security Ownership of Certain Beneficial Owners and Management............ 100
Certain Relationships and Related Transactions............................ 101
Conflicts of Interest and Fiduciary Responsibilities...................... 102
Description of the Common Units........................................... 108
Description of Subordinated Units......................................... 110
The Partnership Agreement................................................. 112
Units Eligible for Future Sale............................................ 122
Tax Considerations........................................................ 124
Investment in the Partnership by Employee Benefit Plans................... 140
Underwriting.............................................................. 141
Validity of Common Units.................................................. 143
Experts................................................................... 143
Available Information..................................................... 144
Index to Financial Statements............................................. F-1
Appendix A--Form of Amended and Restated Agreement of Limited Partnership. A-1
Appendix B--Form of Application for Transfer of Common Units.............. B-1
Appendix C--Glossary of Certain Terms..................................... C-1
Appendix D--Pro Forma Available Cash from Operating Surplus............... D-1
</TABLE>
UNTIL , 1998 (25 CALENDAR DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN COMMON UNITS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRIT-
ERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12,782,609 COMMON UNITS
PLAINS ALL AMERICAN
PIPELINE, L.P.
[LOGO OF PLAINS ALL AMERICAN APPEARS HERE]
REPRESENTING
LIMITED PARTNER INTERESTS
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
PAINEWEBBER INCORPORATED
A.G. EDWARDS & SONS, INC.
DONALDSON, LUFKIN & JENRETTE
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
ING BARING FURMAN SELZ LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee, the NASD filing fee and
the NYSE filing fee, the amounts set forth below are estimates:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 92,151
NASD filing fee.................................................. 30,500
NYSE listing fee................................................. 200,000
Printing and engraving expenses.................................. 625,000
Legal fees and expenses.......................................... 1,550,000
Accounting fees and expenses..................................... 225,000
Transfer agent and registrar fees................................ 4,000
Miscellaneous.................................................... 273,349
----------
TOTAL.......................................................... $3,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The section of the Prospectus entitled "The Partnership Agreement--
Indemnification" is incorporated herein by this reference. Reference is made
to Section 7 of the Underwriting Agreement filed as Exhibit 1.1 to the
Registration Statement. Subject to any terms, conditions or restrictions set
forth in the Partnership Agreement, Section 17-108 of the Delaware Revised
Uniform Limited Partnership Act empowers a Delaware limited partnership to
indemnify and hold harmless any partner or other person from and against all
claims and demands whatsoever.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Partnership issued to Plains Resources Inc. and Plains All American Inc.
limited partner interests in the Partnership, respectively, in connection with
the formation of the Partnership on September 17, 1998, in offerings exempt
from registration under Section 4(2) of the Securities Act of 1933, as
amended. There have been no other sales of unregistered securities of the
Partnership within the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits:
<TABLE>
<C> <S>
**1.1 --Form of Underwriting Agreement
**3.1 --Form of Amended and Restated Agreement of Limited Partnership of
Plains All American Pipeline, L.P. (included as Appendix A to the
Prospectus)
**3.2 --Form of Amended and Restated Agreement of Limited Partnership of
Plains Marketing, L.P.
**3.3 --Form of Amended and Restated Agreement of Limited Partnership of
All American, L.P.
**3.4 --Certificate of Limited Partnership of Plains All American Pipeline,
L.P.
**3.5 --Form of Certificate of Limited Partnership of Plains Marketing,
L.P.
**3.6 --Form of Certificate of Limited Partnership of All American, L.P.
**5.1 --Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered
**8.1 --Opinion of Andrews & Kurth L.L.P. relating to tax matters
**10.1 --Form of Credit Agreement among All American, L.P., Plains All
American Pipeline, L.P., Plains Marketing, L.P., ING (U.S.) Capital
Corporation and certain other banks
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
**10.2 --Form of Amended and Restated Credit Agreement among Plains
Marketing, L.P., Plains All American Pipeline, L.P., All American,
L.P., BankBoston, N.A. and certain other banks
**10.3 --Form of Contribution, Conveyance and Assumption Agreement among
Plains All American Pipeline, L.P. and certain other parties
**10.4 --Form of Plains All American Inc. 1998 Long-Term Incentive Plan
**10.5 --Form of Plains All American Inc. Management Incentive Plan
**10.6 --Form of Employment Agreement between Plains Resources Inc. and
Harry N. Pefanis
**10.7 --Form of Crude Oil Marketing Agreement between Plains Resources
Inc., Plains Illinois Inc., Stocker Resources, L.P., Calumet
Florida, Inc. and Plains Marketing, L.P.
**10.8 --Form of Omnibus Agreement among Plains Resources Inc., Plains All
American Pipeline, L.P., Plains Marketing, L.P., All American, L.P.
and Plains All American Inc.
*10.9 --Transportation Agreement dated July 30, 1993 between All American
Pipeline Company and Exxon Company, U.S.A.
*10.10 --Transportation Agreement dated August 2, 1993, among All American
Pipeline Company, Texaco Trading and Transportation Inc., Chevron
U.S.A. and Sun Operating Limited Partnership
**10.11 --Form of Transaction Grant Agreement (Deferred Payment)
**10.12 --Form of Transaction Grant Agreement (Payment on Vesting)
**15.1 --Letter re unaudited interim financial information (relating to
financial information of Plains Midstream Subsidiaries and to Pro
Forma Consolidated Financial Statements of Plains All American
Pipeline, L.P.)
**15.2 --Letter re unaudited interim financial information (relating to
financial information of Wingfoot Ventures Seven, Inc.)
**21.1 --List of subsidiaries of the Partnership
**23.1 --Consent of PricewaterhouseCoopers LLP (relating to financial
statements of Plains All American Inc., Plains Midstream
Subsidiaries and Plains All American Pipeline, L.P.)
**23.2 --Consent of PricewaterhouseCoopers LLP (relating to financial
statements of Wingfoot Ventures Seven, Inc.)
**23.3 --Consent of Andrews & Kurth L.L.P. (contained in Exhibits 5.1 and
8.1)
*24.1 --Powers of Attorney (included on the signature page)
**27.1 --Financial Data Schedule
</TABLE>
- --------
* Previously Filed.
** Filed herewith.
(b) Financial Statement Schedules
All financial statement schedules are omitted because the information is not
required, is not material or is otherwise included in the financial statements
or related notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a
II-2
<PAGE>
claim for indemnification against such liabilities (other than the payment by
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Houston, State of Texas, on September 23, 1998.
Plains All American Pipeline, L.P.
By: Plains All American Inc.,
its general partner
By:
----------------------------------
Name: Greg L. Armstrong
Title: Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED BELOW.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
Chairman of the November , 1998
- ----------------------------------- Board, Chief
GREG L. ARMSTRONG Executive Officer
and Director
(Principal
Executive Officer)
President, Chief November , 1998
- ----------------------------------- Operating Officer
HARRY N. PEFANIS and Director
Executive Vice November , 1998
- ----------------------------------- President and Chief
PHILLIP D. KRAMER Financial Officer
(Principal Financial
Officer)
Treasurer (Principal November , 1998
- ----------------------------------- Accounting Officer)
CYNTHIA A. FEEBACK
* Director November , 1998
- -----------------------------------
ROBERT V. SINNOTT
</TABLE>
*
- -----------------------------------
MICHAEL R. PATTERSON, BY POWER OF
ATTORNEY
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibits
<TABLE>
<C> <S>
**1.1 --Form of Underwriting Agreement
**3.1 --Form of Amended and Restated Agreement of Limited Partnership of
Plains All American Pipeline, L.P. (included as Appendix A to the
Prospectus)
**3.2 --Form of Amended and Restated Agreement of Limited Partnership of
Plains Marketing, L.P.
**3.3 --Form of Amended and Restated Agreement of Limited Partnership of All
American, L.P.
**3.4 --Certificate of Limited Partnership of Plains All American Pipeline,
L.P.
**3.5 --Form of Certificate of Limited Partnership of Plains Marketing, L.P.
**3.6 --Form of Certificate of Limited Partnership of All American, L.P.
**5.1 --Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered
**8.1 --Opinion of Andrews & Kurth L.L.P. relating to tax matters
**10.1 --Form of Credit Agreement among All American, L.P., Plains All
American Pipeline, L.P., Plains Marketing, L.P., ING (U.S.) Capital
Corporation and certain other banks
**10.2 --Form of Amended and Restated Credit Agreement among Plains
Marketing, L.P., Plains All American Pipeline, L.P., All American,
L.P., BankBoston, N.A. and certain other banks
**10.3 --Form of Contribution, Conveyance and Assumption Agreement among
Plains All American Pipeline, L.P. and certain other parties
**10.4 --Form of Plains All American Inc. 1998 Long-Term Incentive Plan
**10.5 --Form of Plains All American Inc. Management Incentive Plan
**10.6 --Form of Employment Agreement between Plains Resources Inc. and Harry
N. Pefanis
**10.7 --Form of Crude Oil Marketing Agreement between Plains Resources Inc.,
Plains Illinois Inc., Stocker Resources, L.P., Calumet Florida, Inc.
and Plains Marketing, L.P.
**10.8 --Form of Omnibus Agreement between Plains Resources Inc., Plains All
American Pipeline, L.P., Plains Marketing, L.P., All American, L.P.
and Plains All American Inc.
*10.9 --Transportation Agreement dated July 30, 1993 between All American
Pipeline Company and Exxon Company, U.S.A.
*10.10 --Transportation Agreement dated August 2, 1993, among All American
Pipeline Company, Texaco Trading and Transportation Inc., Chevron
U.S.A. and Sun Operating Limited Partnership
**10.11 --Form of Transaction Grant Agreement (Deferred Payment)
**10.12 --Form of Transaction Grant Agreement (Payment on Vesting)
**15.1 --Letter re unaudited interim financial information (relating to
financial information of Plains Midstream Subsidiaries and to Pro
Forma Consolidated Financial Statements of Plains All American
Pipeline, L.P.)
**15.2 --Letter re unaudited interim financial information (relating to
financial information of Wingfoot Ventures Seven, Inc.)
**21.1 --List of subsidiaries of the Partnership
**23.1 --Consent of PricewaterhouseCoopers LLP (relating to financial
statements of Plains All American Inc., Plains Midstream Subsidiaries
and Plains All American Pipeline, L.P.)
**23.2 --Consent of PricewaterhouseCoopers LLP (relating to financial
statements of Wingfoot Ventures Seven, Inc.)
**23.3 --Consent of Andrews & Kurth L.L.P. (contained in Exhibits 5.1 and
8.1)
*24.1 --Powers of Attorney (included on the signature page)
**27.1 --Financial Data Schedule
</TABLE>
- --------
* Previously Filed.
** Filed herewith.
<PAGE>
EXHIBIT 1.1
PLAINS ALL AMERICAN PIPELINE, L.P.
12,782,609 Common Units
REPRESENTING LIMITED PARTNER INTERESTS
UNDERWRITING AGREEMENT
----------------------
November __, 1998
SALOMON SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
A.G. EDWARDS & SONS, INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS, a division of
Dain Rauscher Incorporated
ING BARING FURMAN SELZ LLC
As Representatives of the Several Underwriters
c/o SALOMON SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Plains All American Pipeline, L.P., a Delaware limited partnership (the
"Partnership"), proposes to issue and sell (the "Offering") an aggregate of
12,782,609 common units (the "Firm Units") representing limited partner
interests in the Partnership (the "Common Units") to the several underwriters
named in Schedule I hereto (the "Underwriters"), upon the terms and conditions
set forth in Section 2 hereof. The Partnership also proposes to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to
an additional 1,917,391 Common Units (the "Additional Units"). The Firm Units
and the Additional Units are hereinafter collectively referred to as the
"Units."
It is understood and agreed to by all parties that the Partnership was
formed to acquire, own and operate the midstream crude oil business and assets
of Plains Resources Inc., a Delaware corporation ("Plains Resources"). Plains
All American Inc., a Delaware corporation, will serve as the general partner
(the "General Partner") of each of the Partnership and Plains Marketing, L.P., a
Delaware limited partnership, and All American, L.P., a Delaware limited
partnership ("All American Delaware") (Plains Marketing, L.P. and All American
Delaware are collectively referred to herein as the "Operating Partnerships").
Plains Resources owns all of the issued and outstanding stock of the General
Partner. Gathering LLC, a Delaware limited liability company ("Gathering LLC"),
is a wholly owned subsidiary of Plains Marketing, L.P. and will own certain
gathering and
<PAGE>
storage assets previously owned by Celeron Gathering Corporation, a Delaware
corporation. The Partnership, the General Partner, the Operating Partnerships
and Gathering LLC are collectively referred to herein as the "Plains Parties."
Pursuant to a Plan of Merger dated _________, 1998 (the "Midstream Merger
Agreement") by and among Plains Marketing & Transportation Inc., Plains Terminal
& Transfer Corporation, PLX Crude Lines Inc. and PLX Ingleside Inc., each a
Delaware corporation (collectively, the "Plains Midstream Subsidiaries"), and
Plains Resources, the Plains Midstream Subsidiaries were merged with and into
Plains Resources, with Plains Resources being the surviving entity.
Pursuant to a Plan of Merger dated _________, 1998 (the "CT&T Merger
Agreement"), by and between the General Partner and Celeron Trading &
Transportation Company, a Delaware corporation, Celeron Trading & Transportation
Company was merged with and into the General Partner, with the General Partner
being the surviving entity.
On the Closing Date (as defined in Section 4), All American Pipeline
Company, a Texas corporation, will convert into All American, L.P., a Texas
limited partnership ("All American Texas"), and All American Texas will convert
into All American Delaware.
Prior to or concurrently with the execution hereof, the Operating
Partnerships will enter into a $225 million bank credit agreement (the "Bank
Credit Agreement") and a $175 million, secured letter of credit facility (the
"Letter of Credit Facility"). The Bank Credit Agreement will include a $175
million term facility (the "Term Loan Facility") and a $50 million revolving
credit facility (the "Revolving Credit Facility"). The Partnership may borrow
up to $50 million under the Revolving Credit Facility for acquisitions, capital
improvements and working capital purposes.
It is further understood and agreed by all parties that the following
transactions will occur on the Closing Date: (i) the Partnership will assume
certain indebtedness (the "Acquisition Indebtedness") of the General Partner
incurred to acquire the All American Pipeline and the SJV Gathering System (as
defined in the Registration Statement); (ii) Plains Resources will convey
certain of the assets acquired by Plains Resources pursuant to the Midstream
Merger Agreement (the "Midstream Assets") to Plains Marketing, L.P. in exchange
for [general partner interests in All American Delaware and] limited partner
interests in Plains Marketing, L.P. and the assumption of certain indebtedness
assumed by Plains Resources pursuant to the Midstream Merger Agreement (the
"Midstream Merger Indebtedness"); (iii) the General Partner will contribute
certain of the assets acquired by the General Partner pursuant to the CT&T
Merger Agreement (the "CT&T Assets") to Plains Marketing, L.P. in exchange for
[general partner interests in All American Delaware and] general partner and
limited partner interests in Plains Marketing, L.P.; (iv) Plains Resources will
contribute its limited partner interest in Plains Marketing, L.P. to the
Partnership in exchange for _____ Common Units and ______ units representing
subordinated limited partner interests (the "Subordinated Units"); (v) the
General Partner will contribute its limited partner interest in Plains
Marketing, L.P. to the Partnership in exchange for a 1% general partner interest
in the Partnership, ______ Common Units, ______ Subordinated Units and the
Incentive Distribution Rights (as
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defined in the Agreement of Limited Partnership of the Partnership (as the same
may be amended or restated at or prior to the Closing Date, the "Partnership
Agreement") between the General Partner and Plains Resources, as organizational
limited partner (in such capacity, the "Organizational Limited Partner")); (vi)
the public offering of the Firm Units contemplated hereby will be consummated;
(vii) the closing under the Bank Credit Agreement will occur; (viii) the
Partnership will distribute $174.9 million to the General Partner which the
General Partner will use to repay certain of the Acquisition Indebtedness and
distribute or loan the balance to Plains Resources; (ix) the Partnership will
contribute $87.1 million to Plains Marketing, L.P. which Plains Operating, L.P.
will use to (A) purchase from Plains Resources the remaining Midstream Merger
Assets, (B) repay the Midstream Merger Indebtedness and (C) pay the expenses of
the Offering; and (x) the repayment by Plains Resources of [certain existing
indebtedness].
The transactions described above in clauses (i) through (x) are
collectively referred to as the "Transactions." In connection with the
consummation of the Transactions, the Partnership, the Operating Partnerships,
the General Partner, Plains Resources and Gathering LLC will enter into various
bills of sale, conveyances, deeds and other assignments (collectively, the
"Conveyance Agreements").
The Partnership, the Operating Partnerships, All American Pipeline Company,
the General Partner and Plains Resources (the "Plains Entities") wish to confirm
as follows their agreement with you (the "Representatives") and the several
other Underwriters on whose behalf you are acting, in connection with the
several purchases of the Units by the Underwriters.
1. Registration Statement and Prospectus. The Partnership has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act (Commission File No.
333-64107) (the "registration statement"), including a prospectus subject to
completion relating to the Units. The term "Registration Statement" as used in
this Agreement means the registration statement (including all financial
schedules and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a post-
effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Units may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If it is contemplated, at
the time this Agreement is executed, that a registration statement or a post-
effective amendment will be filed pursuant to Rule 462(b) or Rule 462(d) under
the Act before the offering of the Units may commence, the term "Registration
Statement" as used in this Agreement includes such registration statement. The
term "Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement
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means the prospectus in the form included in the Registration Statement as
supplemented by the addition of the Rule 430A information contained in the
prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the preliminary
prospectus dated __________, 1998, relating to the Common Units as such
preliminary prospectus shall have been amended from time to time prior to the
date of the Prospectus.
2. Agreements to Sell and Purchase. The Partnership hereby agrees, subject
to all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Plains Entities herein contained and subject to all the terms
and conditions set forth herein, each Underwriter agrees, severally and not
jointly, to purchase from the Partnership, at a purchase price of $_____ per
Unit (the "purchase price per Unit"), the number of Firm Units set forth
opposite the name of such Underwriter in Schedule I hereto (or such number of
Firm Units increased as set forth in Section 10 hereof).
The Partnership also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Plains Entities herein
contained and subject to all the terms and conditions set forth herein, the
Underwriters shall have the right to purchase from the Partnership, at the
purchase price per Unit, pursuant to an option (the "over-allotment option")
which may be exercised at any time and from time to time prior to 7:00 p.m., New
York City time, on the 30th day after the date of the Prospectus (or, if such
30th day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the Nasdaq National Market is open for trading), up to an
aggregate of 1,917,391 Additional Units. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Units. Upon any
exercise of the over-allotment option, each Underwriter, severally and not
jointly, agrees to purchase from the Partnership the number of Additional Units
(subject to such adjustments as you may determine in order to avoid fractional
Units) which bears the same proportion to the number of Additional Units to be
purchased by the Underwriters as the number of Firm Units set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Units
increased as set forth in Section 10 hereof) bears to the aggregate number of
Firm Units.
3. Terms of Public Offering. The Partnership has been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Units as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Units upon the terms set forth in the Prospectus.
4. Delivery of the Units and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Units shall be made at the office of
Salomon Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at
10:00 a.m., New York City time, on ____________, 1998 (the "Closing Date"). The
place of closing for the Firm Units and the Closing Date may be varied by
agreement between you and the Partnership.
Delivery to the Underwriters of and payment for any Additional Units to be
purchased by the Underwriters shall be made at the aforementioned office of
Salomon Smith Barney Inc. at such time
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on such date (the "Option Closing Date"), which may be the same as the Closing
Date but shall in no event be earlier than the Closing Date nor earlier than two
nor later than ten business days after the giving of the notice hereinafter
referred to, as shall be specified in a written notice from you on behalf of the
Underwriters to the Partnership of the Underwriters' determination to purchase a
number, specified in such notice, of Additional Units. The place of closing for
any Additional Units and the Option Closing Date for such Units may be varied by
agreement between you and the Partnership.
Certificates for the Firm Units and for any Additional Units to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 5:00 p.m., New York City time, on the third
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 11:30 a.m., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Units and any Additional
Units to be purchased hereunder shall be delivered to you on the Closing Date or
the Option Closing Date, as the case may be, against payment of the purchase
price therefor in immediately available funds.
5. Agreements of the Plains Entities. Each of the Plains Entities, jointly
and severally, agrees with the several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Units may commence, the
Partnership and the General Partner will endeavor to cause the Registration
Statement or such post-effective amendment to become effective as soon as
possible and will advise you promptly and, if requested by you, will confirm
such advice in writing when the Registration Statement or such post-effective
amendment has become effective.
(b) The Partnership will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Units for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Plains Entities, taken as
a whole, or of the happening of any event which makes any statement of a
material fact made in the Registration Statement or the Prospectus (as then
amended or supplemented) untrue or which requires the making of any additions to
or changes in the Registration Statement or the Prospectus (as then amended or
supplemented) in order to state a material fact required by the Act or the
regulations thereunder to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented) to comply with the Act or any
other applicable law. If at any time the Commission
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shall issue any stop order suspending the effectiveness of the Registration
Statement, the Partnership and the General Partner will make every reasonable
effort to obtain the withdrawal of such order at the earliest possible time.
(c) The Partnership will furnish to you, without charge, (i) two EDGAR
versions of the registration statement as originally filed with the Commission
and of each amendment thereto, including financial statements and all exhibits
to the registration statement, (ii) two manually signed copies of the
registration statement corresponding to the EDGAR version filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the registration statement, and (iii) such number of conformed
copies of the registration statement as originally filed and of each amendment
thereto, but without exhibits, as you or your counsel may reasonably request.
(d) The Partnership will not (i) file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you or your counsel shall
reasonably object in writing after being so advised or (ii) so long as, in the
opinion of counsel for the Underwriters, a Prospectus is required to be
delivered in connection with sales by any Underwriter or dealer, file any
information, documents or reports pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), without delivering a copy of such
information, documents or reports to you, as Representatives of the
Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Partnership has delivered to you, without charge, in such quantities as you have
reasonably requested, copies of each form of the Prepricing Prospectus. The
Partnership consents to the use, in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the Units
are offered by the several Underwriters and by dealers, prior to the date of the
Prospectus, of each Prepricing Prospectus so furnished by the Partnership.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Partnership will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may reasonably request. At any time after nine months after the time of
issuance of the Prospectus, upon request, but at your expense, the Partnership
will deliver as many copies of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act as you may reasonably request, provided that a
prospectus is required by the Act to be delivered in connection with sales of
Units by any Underwriter or dealer. The Partnership consents to the use of the
Prospectus (and of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Units are offered by the several Underwriters and by
all dealers to whom Units may be sold, both in connection with the offering and
sale of the Units and for such period of time thereafter as the Prospectus is
required by the Act to be delivered in connection with sales by any Underwriter
or dealer. If during such period of time any
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event shall occur that in the judgment of the Partnership or in the opinion of
counsel for the Underwriters is required to be set forth in the Prospectus (as
then amended or supplemented) or should be set forth therein in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary to supplement or amend the
Prospectus to comply with the Act or any other law, the Partnership will
forthwith prepare and, subject to the provisions of paragraph (d) above, file
with the Commission an appropriate supplement or amendment thereto, and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof; provided that, if any such event necessitating a supplement or
amendment to the Prospectus occurs at any time after nine months after the time
of issuance of the Prospectus, such supplement or amendment shall be prepared at
your expense. In the event that the Partnership and you, as Representatives of
the several Underwriters, agree that the Prospectus should be amended or
supplemented, the Partnership, if requested by you, will promptly issue a press
release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Partnership and the General Partner will cooperate with you and
with counsel for the Underwriters in connection with the registration or
qualification of the Units for offering and sale by the several Underwriters and
by dealers under the securities or Blue Sky laws of such jurisdictions as you
may designate and will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration or
qualification; provided that in no event shall any Plains Party be obligated to
qualify to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to service of process in suits, other
than those arising out of the offering or sale of the Units, in any jurisdiction
where it is not now so subject.
(h) The Partnership will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of two years hereafter, the Partnership will
furnish to you (i) as soon as publicly available, a copy of each report of the
Partnership mailed to unitholders or filed with the Commission or the principal
national securities exchange or automated quotation system upon which the Units
may be listed, and (ii) from time to time such other information concerning the
Partnership as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you terminating this
Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of any of the Plains Entities to comply with the terms or fulfill any of
the conditions of this Agreement, the Plains Entities, jointly and severally,
agree to reimburse the Representatives for
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all reasonable out-of-pocket expenses (including reasonable fees and expenses of
counsel for the Underwriters) incurred by you in connection herewith.
(k) The Partnership will apply the net proceeds from the sale of the
Units and the Operating Partnerships will apply any amount drawn under the Bank
Credit Agreement and all amounts contributed to it by the Partnership from the
sale of the Units in accordance with the description set forth under the caption
"Use of Proceeds" in the Prospectus.
(l) If Rule 430A of the Act is employed, the Partnership will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(m) Except as provided in this Agreement, the Plains Entities will not
(i) offer, sell, contract to sell or otherwise dispose of any Common Units or
Subordinated Units, any securities that are convertible into, or exercisable or
exchangeable for, or that represent the right to receive, Common Units or
Subordinated Units or any securities that are senior to or pari passu with
Common Units, or (ii) grant any options or warrants to purchase Common Units or
Subordinated Units (other than the grant of options to purchase Common Units
pursuant to the Plains All American Pipeline, L.P. 1998 Long-Term Incentive
Plan), for a period of 180 days after the date of the Prospectus without the
prior written consent of Salomon Smith Barney Inc., except for the issuance and
transfer of Common Units and Subordinated Units to occur upon the closing of the
Offering described in the Prospectus and the issuance of Common Units pursuant
to Section 5.7(b) of the Partnership Agreement.
(n) Except as stated in this Agreement and in the Prepricing Prospectus
and Prospectus, the Plains Entities have not taken, and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Units to facilitate the sale or resale of the Units.
(o) Each of the Plains Parties will take such steps as shall be
necessary to ensure that none of them shall become an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission thereunder.
(p) The Partnership shall timely complete all required filings and
otherwise fully comply in a timely manner with all provisions of the Exchange
Act, including the rules and regulations thereunder, in connection with the
registration of the Units thereunder.
(q) Each of the Plains Parties will cause to be accomplished or obtained
as soon as practicable all consents, recordings and filings necessary to
perfect, preserve and protect the title of the Operating Partnerships and
Gathering LLC to the properties and assets owned by each of them as a result of
the Transactions.
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6. Representations and Warranties of the Plains Entities. The Plains
Entities, jointly and severally, represent and warrant to each Underwriter that:
(a) Any Prepricing Prospectus, at the date of filing thereof with the
Commission, complied in all material respects with the requirements of the Act
and did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Commission has not issued any order preventing or
suspending the use of any Prepricing Prospectus. The Registration Statement in
the form in which it became or becomes effective and also in such form as it may
be when any post-effective amendment thereto shall become effective and the
Prospectus and any supplement or amendment thereto when filed with the
Commission under Rule 424(b) under the Act complied or will comply in all
material respects with the provisions of the Act and did not or will not at any
such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. Each of the statements made by the Partnership in such
documents within the coverage of Rule 175(b) of the rules and regulations under
the Act, including (but not limited to) any statements with respect to future
available cash or future cash distributions of the Partnership or the
anticipated ratio of taxable income to distributions was made or will be made
with a reasonable basis and in good faith. Notwithstanding the foregoing, no
representation or warranty is made as to statements in or omissions from the
Registration Statement, the Prospectus or any Prepricing Prospectus made in
reliance upon and in conformity with information furnished to the Partnership in
writing by or on behalf of any Underwriter through you expressly for use
therein.
(b) The Partnership has been duly formed and is validly existing in good
standing as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act (the "Delaware LP Act") with full partnership power and
authority to own or lease its properties to be owned or leased at the Closing
Date, to assume the liabilities being assumed by it pursuant to the Conveyance
Agreements and to conduct its business to be conducted at the Closing Date, in
each case in all material respects as described in the Registration Statement
and the Prospectus. The Partnership is, or at the Closing Date will be, duly
registered or qualified as a foreign limited partnership for the transaction of
business under the laws of each jurisdiction in which the character of the
business conducted by it or the nature or location of the properties owned or
leased by it makes such registration or qualification necessary, except where
the failure so to register or qualify would not (i) have a material adverse
effect on the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Partnership and the Operating
Partnerships, taken as a whole, or (ii) subject the limited partners of the
Partnership to any material liability or disability.
(c) Each Operating Partnership has been duly formed and is validly
existing in good standing as a limited partnership under the Delaware LP Act
with full partnership power and authority to own or lease its properties to be
owned or leased at the Closing Date, to assume the liabilities being assumed by
it pursuant to the Conveyance Agreements and to conduct its business
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to be conducted at the Closing Date, in each case in all material respects as
described in the Registration Statement and the Prospectus. Each Operating
Partnership is, or at the Closing Date will be, duly registered or qualified as
a foreign limited partnership for the transaction of business under the laws of
each jurisdiction in which the character of the business conducted by it or the
nature or location of the properties owned or leased by it makes such
registration or qualification necessary, except where the failure so to register
or qualify would not (i) have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Partnership and the Operating Partnerships, taken as a whole,
or (ii) subject the limited partners of the Partnership to any material
liability or disability.
(d) The General Partner has been duly formed and is a corporation is
validly existing in good standing under the laws of the State of Delaware with
full corporate power and authority to own or lease its properties to be owned or
leased at the Closing Date, to assume the liabilities being assumed by it
pursuant to the CT&T Merger Agreement and the Conveyance Agreements, to conduct
its business to be conducted at the Closing Date and to act as general partner
of the Partnership and the Operating Partnerships, in each case in all material
respects as described in the Registration Statement and the Prospectus. The
General Partner is duly registered or qualified as a foreign corporation for the
transaction of business under the laws of each jurisdiction in which the
character of the business conducted by it or the nature or location of the
properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would not (i) have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Plains Parties,
taken as a whole, or (ii) subject the limited partners of the Partnership to any
material liability or disability.
(e) Plains Resources has been duly formed and is a corporation validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to own or lease its properties to be owned or
leased at the Closing Date, to conduct its business to be conducted at the
Closing Date, to assume the liabilities being assumed by it pursuant to the
Midstream Merger Agreement and the Conveyance Agreements and to conduct its
business to be conducted at the Closing Date, in each case in all material
respects as described in the Registration Statement and the Prospectus. Plains
Resources is duly registered or qualified as a foreign corporation for the
transaction of business under the laws of each jurisdiction in which the
character of the business conducted by it or the nature or location of the
properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would not (i) have
a material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Partnership or
the Operating Partnerships, taken as a whole, or (ii) subject the limited
partners of the Partnership to any material liability or disability.
(f) Gathering LLC has been duly formed and is validly existing and in
good standing as a limited liability company under the Delaware Limited
Liability Company Act (the "Delaware LLC Act") with full limited liability
company power and authority to own or lease its properties to be owned or leased
at the Closing Date, to assume the liabilities being assumed by it pursuant to
the Conveyance Agreements and to conduct its business to be conducted at the
Closing
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Date, in each case in all material respects as described in the Registration
Statement and the Prospectus. Gathering LLC is, or at the Closing Date will be,
duly registered or qualified as a foreign limited liability company for the
transaction of business under the laws of each jurisdiction in which the
character of the business conducted by it or the nature or location of the
properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would not (i) have
a material adverse effect on the condition (financial or other), business,
prospect, properties, net worth or results of operations of the Partnership and
the Operating Partnerships, taken as a whole or (ii) subject the limited
partners of the Partnership to any material liability or disability.
(f) At the Closing Date and the Option Closing Date, after giving effect
to the Transactions, the General Partner will be the sole general partner of the
Partnership with a 1% general partner interest in the Partnership; such general
partner interest will be duly authorized and validly issued in accordance with
the Partnership Agreement; the General Partner will own all of the Incentive
Distribution Rights; such Incentive Distribution Rights will be duly authorized
and validly issued in accordance with the Partnership Agreement and are fully
paid (to the extent required under the Partnership Agreement) and nonassessable
(except as such nonassessability may be affected by matters described in the
Prospectus under the caption "The Partnership Agreement--Limited Liability");
and the General Partner will own such general partner interest and Incentive
Distribution Rights free and clear of all liens, encumbrances, security
interests, equities, charges or claims.
(g) At the Closing Date, after giving effect to the Transactions, the
General Partner will own limited partner interests in the Partnership
represented by ________ Common Units and ________ Subordinated Units; Plains
Resources will own limited partner interests in the Partnership represented by
________ Common Units and ________ Subordinated Units; all of such Common Units
and such Subordinated Units and the limited partner interests represented
thereby will be duly authorized and validly issued in accordance with the
Partnership Agreement, and will be fully paid (to the extent required under the
Partnership Agreement) and nonassessable (except as such nonassessability may be
affected by matters described in the Prospectus under the caption "The
Partnership Agreement--Limited Liability"); and the General Partner and Plains
Resources will hold their respective limited partner interests represented by
their Common Units and Subordinated Units free and clear of all liens,
encumbrances, security interests, equities, charges or claims.
(h) At the Closing Date, there will be issued to the Underwriters the
Firm Units (assuming no purchase by the Underwriters of Additional Units); at
the Closing Date or the Option Closing Date, as the case may be, the Firm Units
or the Additional Units, as the case may be, and the limited partner interests
represented thereby will be duly authorized by the Partnership Agreement and,
when issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid (to the
extent required under the Partnership Agreement) and nonassessable (except as
such nonassessability may be affected by matters described in the Prospectus
under the caption "The Partnership Agreement--Limited Liability"); and other
than the Common Units and the Subordinated Units owned by the General Partner
and Plains Resources as set forth above and the Incentive Distribution Rights
issued to the
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General Partner, the Units will be the only limited partner interests of the
Partnership issued and outstanding at the Closing Date or the Option Closing
Date.
(i) At the Closing Date and the Option Closing Date, after giving effect
to the Transactions, the General Partner will own a 1.0101% general partner
interest in Plains Marketing, L.P. and the Partnership will own a 98.9899%
limited partner interest in Plains Marketing, L.P.; the General Partner will own
a 1.0101% general partner interest in All American Delaware and Plains
Marketing, L.P. will own a 98.9899% limited partner interest in All American
Delaware; such interests will have been duly authorized and validly issued in
accordance with the Partnership Agreements of each of Plains Marketing, L.P. and
All American Delaware (as the same may be amended and restated at or prior to
the Closing Date, the "Operating Partnership Agreements" and together with the
Partnership Agreement, the "Partnership Agreements") and will be fully paid (to
the extent required under the Operating Partnership Agreements) and
nonassessable (except as such nonassessability may be affected by matters
described in the Prospectus under the caption "The Partnership Agreement--
Limited Liability"); and the General Partner, the Partnership and Plains
Marketing, L.P. will own such interests free and clear of all liens,
encumbrances, security interests, equities, charges or claims except as provided
in the Bank Credit Agreement.
(j) At the Closing Date, Plains Resources will own 100% of the issued
and outstanding capital stock of the General Partner; such capital stock will
have been duly authorized and validly issued and will be fully paid and
nonassessable; and Plains Resources will own such capital stock free and clear
of all liens, encumbrances, security interest, equities, charges or claims.
(k) At the Closing Date, the General Partner will own 100% of the issued
and outstanding capital stock of All American Pipeline Company; such capital
stock will have been duly authorized and validly issued and will be fully paid
and nonassessable; and the General Partner will own such capital stock free and
clear of all liens, encumbrances, security interests, equities, charges or
claims.
(l) At the Closing Date, after give affect to the Transactions, Plains
Marketing, L.P. will own a 100% member interest in Gathering LLC; such member
interest will have been duly authorized and validly issued in accordance with
the [Operating Agreement] of Gathering LLC (as the same may be amended and
restated at or prior to the Closing Date, the "Gathering LLC Agreement" and
together with the Partnership Agreements, the "Organization Agreements") and
will be fully paid (to the extent required under the Gathering LLC Agreement)
and nonassessable (except as such assessability may be affected by Section 18-
607 of the Delaware LLC Act); and Plains Marketing, L.P. will own such member
interest free and clear of all liens, encumbrances, security interest, equities,
charges or claims.
(m) None of the General Partner, the Partnership or the Operating
Partnerships has any subsidiaries (other than the Partnership and the Operating
Partnerships themselves and Gathering LLC) which, individually or considered as
a whole, would be deemed to be a significant subsidiary (as such term is defined
in Section 1-02d of Regulation S-X of the Act).
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(n) Except as described in the Prospectus, there are no preemptive
rights or other rights to subscribe for or to purchase, nor any restriction upon
the voting or transfer of, any limited partner interests in the Partnership or
the Operating Partnerships pursuant to either the Partnership Agreement or the
Operating Partnership Agreements, respectively, or any agreement or other
instrument to which the Partnership or either Operating Partnership is a party
or by which any one of them may be bound. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated by this
Agreement gives rise to any rights for or relating to the registration of any
Units or other securities of the Partnership or the Operating Partnerships.
Except as described in the Prospectus, there are no outstanding options or
warrants to purchase any Common Units or Subordinated Units or other partnership
interests in the Partnership or the Operating Partnerships. The Units, when
issued and delivered against payment therefor as provided herein, the Common
Units and the Subordinated Units to be issued to the General Partner and Plains
Resources (the "Sponsor Units"), when issued and delivered in accordance with
the terms of the Partnership Agreement, and the Incentive Distribution Rights to
be issued to the General Partner, when issued and delivered in accordance with
the terms of the Partnership Agreement, will conform in all material respects to
the description thereof contained in the Prospectus. The Partnership has all
requisite power and authority to issue, sell and deliver (i) the Units, in
accordance with and upon the terms and conditions set forth in this Agreement,
the Partnership Agreement and the Registration Statement and Prospectus and (ii)
the Sponsor Units and Incentive Distribution Rights, in accordance with the
terms and conditions set forth in the Partnership Agreement. At the Closing Date
and the Option Closing Date, all corporate and partnership action, as the case
may be, required to be taken by the Plains Entities or any of their shareholders
or partners for the authorization, issuance, sale and delivery of the Units, the
Sponsor Units and Incentive Distribution Rights, the execution and delivery of
the Operative Agreements (as defined in Section 6(p)) and the consummation of
the transactions (including the Transactions) contemplated by this Agreement and
the Operative Agreements, shall have been validly taken.
(o) The execution and delivery of, and the performance by each of the
Plains Entities of their respective obligations under, this Agreement have been
duly and validly authorized by each of the Plains Entities, and this Agreement
has been duly executed and delivered by each of the Plains Entities, and
constitutes the valid and legally binding agreement of each of the Plains
Entities, enforceable against each of the Plains Entities in accordance with its
terms, provided that the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
relating to or affecting creditors' rights generally and by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and except as rights to indemnity and
contribution hereunder may be limited by federal or state securities laws.
(p) At or before the Closing Date, the Partnership Agreement will have
been duly authorized, executed and delivered by the General Partner and will be
a valid and legally binding agreement of the General Partner and the
Organizational Limited Partner, enforceable against the General Partner and the
Organizational Limited Partner in accordance with its terms; at or before the
Closing Date, each Operating Partnership Agreement will have been duly
authorized, executed and delivered by each of the General Partner and the
Partnership and will be a valid and legally binding agreement of the General
Partner and the Partnership, enforceable against each of them in accordance with
its terms; at or before the Closing Date, a marketing agreement (the "Marketing
Agreement") will have been duly authorized, executed and
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delivered by each of the Partnership and Plains Resources and will be a valid
and legally binding agreement of each of them enforceable against each of them
in accordance with its terms; at or before the Closing Date, each of the
Midstream Merger Agreement, the CT&T Merger Agreement and the Conveyance
Agreements will have been duly authorized, executed and delivered by the parties
thereto and will be a valid and legally binding agreement of the parties thereto
enforceable against such parties in accordance with its terms; at or before the
Closing Date, an omnibus agreement (the "Omnibus Agreement") will have been duly
authorized, executed and delivered by each of the Partnership, the Operating
Partnerships, the General Partner and Plains Resources and will be a valid and
legally binding agreement of each of them enforceable against each of them in
accordance with its terms; at or before the Closing Date, each of the Bank
Credit Agreement and the Letter of Credit Facility will have been duly
authorized, executed and delivered by each Operating Partnership and will be a
valid and legally binding agreement of each Operating Partnership enforceable
against each Operating Partnership in accordance with its terms; provided that,
with respect to each agreement described in this Section 6(p), the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws relating to or affecting
creditors' rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
and provided, further, that the indemnity, contribution and exoneration
provisions contained in any of such agreements may be limited by applicable laws
and public policy. The Organization Agreements, the Marketing Agreement, the
Midstream Merger Agreement, the CT&T Merger Agreement, the Conveyance
Agreements, the Omnibus Agreement and the Bank Credit Agreement are herein
collectively referred to as the "Operative Agreements."
(q) The merger of the Plains Midstream Subsidiaries into Plains
Resources pursuant to the Midstream Merger Agreement became effective under the
Delaware General Corporation Law ("DGCL") on __________ ____, 1998 and had the
effects set forth in Section 259 of the DGCL, including but not limited to,
vesting in Plains Resources the Midstream Assets.
(r) The merger of Celeron Trading and Transportation Company into the
General Partner pursuant to the CT&T Merger Agreement became effective under the
DGCL on _________ __, 1998 and had the effects set forth in Section 259 of the
DGCL, including but not limited to, vesting in the General Partner the CT&T
Assets.
(s) The conversion of Plains All American Pipeline Company into All
American Texas became effective under the Texas Business Corporation Act (the
"TBCA") and the Texas Revised Limited Partnership Act (the "TRLPA") on ______
__, 1998 and is legally sufficient under the TBCA and the TRLPA to vest in All
American Texas all assets of the Plains All American Pipeline Company. The
conversion of All American Texas into All American Delaware became effective
under the TRLPA and the Delaware LP Act on ___________ ___, 1998 and is legally
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sufficient under the TRLPA and the Delaware LP Act to vest in All American
Delaware all assets of All American Texas.
(t) None of the offering, issuance and sale by the Partnership of the
Units, the execution, delivery and performance of this Agreement or the
Operative Agreements by the Plains Entities which are parties thereto, or the
consummation of the transactions contemplated hereby and thereby (including the
Transactions) (i) conflicts or will conflict with or constitutes or will
constitute a violation of the agreement of limited partnership, limited
liability company operating agreement, certificate or articles of incorporation
or bylaws or other organizational documents of any of the Plains Entities, (ii)
conflicts or will conflict with or constitutes or will constitute a breach or
violation of, or a default under (or an event which, with notice or lapse of
time or both, would constitute such an event), any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which any of
the Plains Entities is a party or by which any of them or any of their
respective properties may be bound, (iii) violates or will violate any statute,
law or regulation or any order, judgment, decree or injunction of any court or
governmental agency or body directed to any of the Plains Entities or any of
their properties in a proceeding to which any of them or their property is a
party or (iv) will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of any of the Plains Entities, in the
case of clauses (ii), (iii) or (iv), which conflicts, breaches, violations or
defaults would have a material adverse effect upon the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Plains Parties, taken as a whole.
(u) No permit, consent, approval, certificate, authorization or order of
any court, governmental agency or body is required in connection with the
execution and delivery of, or the consummation by the Plains Entities of the
transactions contemplated by, this Agreement or the Operative Agreements
(including the Transactions), except (i) for such permits, consents, approvals
and similar authorizations required under the Securities Act, the Exchange Act
and state securities or "Blue Sky" laws, (ii) for such permits, consents,
approvals, certificates and similar authorizations which have been, or prior to
the Closing Date will be, obtained and (iii) for such permits, consents,
approvals, certificates and similar authorizations which, if not obtained, would
not, individually or in the aggregate, have a material adverse effect upon the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Plains Parties, taken as a whole.
(v) None of the Plains Entities is in (i) violation of its agreement of
limited partnership, limited liability operating agreement, certificate or
articles of incorporation or bylaws or other organizational documents, or of any
law, statute, ordinance, administrative or governmental rule or regulation
applicable to it or of any decree of any court or governmental agency or body
having jurisdiction over it or (ii) breach, default (or an event which, with
notice or lapse of time or both, would constitute such an event) or violation in
the performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any agreement,
indenture, lease or other instrument to which it is a party or by which it or
any of its properties may be bound, which breach, default or violation would, if
continued, have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or
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results of operations of the Plains Parties, taken as a whole, or could
materially impair the ability of any of the Plains Entities to perform its
obligations under this Agreement or the Operative Agreements. To the knowledge
of the Plains Entities, no third party to any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which any of the
Plains Entities is a party or by which any of them is bound or to which any of
their properties are subject, is in default under any such agreement, which
breach, default or violation would, if continued, have a material adverse effect
on the condition (financial or other), business, prospects, properties, net
worth or results of operations of the Plains Parties, taken as a whole.
(w) The accountants, PricewaterhouseCoopers LLP, who have certified or
shall certify the audited financial statements included in the Registration
Statement, any Prepricing Prospectus and the Prospectus (or any amendment or
supplement thereto), are independent public accountants with respect to the
Plains Entities as required by the Act and the applicable published rules and
regulations thereunder.
(x) At September 30, 1998, the Partnership would have had, on the
consolidated pro forma basis indicated in the Prospectus (and any amendment or
supplement thereto), a capitalization as set forth therein. The financial
statements (including the related notes and supporting schedules) included in
the Registration Statement, the Prepricing Prospectus dated _________, 1998 and
the Prospectus (and any amendment or supplement thereto) present fairly in all
material respects the financial position, results of operations and cash flows
of the entities purported to be shown thereby on the basis stated therein at the
respective dates or for the respective periods which have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except to the extent disclosed therein. The
selected historical and pro forma information set forth in the Registration
Statement, the Prepricing Prospectus dated ___________, 1998 and the Prospectus
(and any amendment or supplement thereto) under the caption "Selected Historical
and Pro Forma Financial and Operating Data" is accurately presented in all
material respects and prepared on a basis consistent with the audited and
unaudited historical consolidated financial statements and pro forma financial
statements from which it has been derived. The pro forma financial statements of
the Partnership included in the Registration Statement, the Prepricing
Prospectus dated ___________, 1998 and the Prospectus (and any amendment or
supplement thereto) have been prepared in all material respects in accordance
with the applicable accounting requirements of Article 11 of Regulation S-X of
the Commission; the assumptions used in the preparation of such pro forma
financial statements are, in the opinion of the management of the Plains
Entities, reasonable; and the pro forma adjustments reflected in such pro forma
financial statements have been properly applied to the historical amounts in
compilation of such pro forma financial statements.
(y) Except as disclosed in the Registration Statement, the Prepricing
Prospectus dated ___________, 1998 and the Prospectus (or any amendment or
supplement thereto), subsequent to the respective dates as of which such
information is given in the Registration Statement, the Prepricing Prospectus
dated October___________, 1998 and the Prospectus (or any amendment or
supplement thereto), (i) none of the Plains Entities has incurred any liability
or obligation, indirect,
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direct or contingent, or entered into any transactions, not in the ordinary
course of business, that, singly or in the aggregate, is material to the Plains
Parties, taken as a whole, (ii) there has not been any change in the
capitalization, or material increase in the short-term debt or long-term debt,
of the Plains Entities and (iii) there has not been any material adverse change,
or any development involving or which may reasonably be expected to involve,
singly or in the aggregate, a prospective material adverse change in the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Plains Parties, taken as a whole.
(z) There are no legal or governmental proceedings pending or, to the
knowledge of the Plains Entities, threatened, against any of the Plains
Entities, or to which any of the Plains Entities is a party, or to which any of
their respective properties is subject, that are required to be described in the
Registration Statement or the Prospectus but are not described as required, and
there are no agreements, contracts, indentures, leases or other instruments that
are required to be described in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement that are not described
or filed as required by the Act.
(aa) Plains Resources, the General Partner, the Operating Partnerships
and Gathering LLC have, and upon consummation of the Transactions on the Closing
Date, the Operating Partnerships and Gathering LLC will have, good and
marketable title in fee simple to all real property and good title to all
personal property described in the Prospectus to be owned by the Operating
Partnerships and Gathering LLC, free and clear of all liens, claims, security
interests or other encumbrances except (i) as described in the Prospectus and
(ii) such as do not materially interfere with the use of such properties taken
as a whole as they have been used in the past and are proposed to be used in the
future as described in the Prospectus; and all real property and buildings held
under lease by Plains Resources, the General Partner, the Operating Partnerships
and Gathering LLC are held by Plains Resources, the General Partner, the
Operating Partnerships and Gathering LLC, and upon consummation of the
Transactions on the Closing Date, will be held by the Operating Partnerships and
Gathering LLC, under valid and subsisting and enforceable leases with such
exceptions as do not materially interfere with the use of such properties taken
as a whole as they have been used in the past and are proposed to be used in the
future as described in the Prospectus. The Conveyance Agreements will be, as of
the Closing Date, legally sufficient to transfer or convey to the Operating
Partnerships and Gathering LLC all properties not already held by them that are,
individually or in the aggregate, required to enable the Operating Partnerships
and Gathering LLC to conduct their operations (in all material respects as
contemplated by the Prospectus), subject to the conditions, reservations and
limitations contained in the Conveyance Agreements and those set forth in the
Prospectus. The Operating Partnerships will, upon execution and delivery of the
Conveyance Agreements, succeed in all material respects to the business, assets,
properties, liabilities and operations reflected by the pro forma financial
statements of the Partnership, except as disclosed in the Prospectus.
(bb) The Partnership has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Units, will not distribute, any prospectus (as defined under the Act) in
connection with the offering and sale of the Units other than the
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Registration Statement, any Prepricing Prospectus, the Prospectus or other
materials, if any, permitted by the Act, including Rule 134 of the general rules
and regulations thereunder.
(cc) Each of the Plains Parties has, or at the Closing Date will have,
such permits, consents, licenses, franchises, certificates and authorizations of
governmental or regulatory authorities ("permits") as are necessary to own its
properties and to conduct its business in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the Prospectus
and except for such permits which, if not obtained, would not have, individually
or in the aggregate, a material adverse effect upon the ability of the Plains
Parties considered as a whole to conduct their businesses in all material
respects as currently conducted and as contemplated by the Prospectus to be
conducted; each of the Plains Parties has, or at the Closing Date will have,
fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any impairment of
the rights of the holder of any such permit, except for such revocations,
terminations and impairments that would not have a material adverse effect upon
the ability of the Plains Parties considered as a whole to conduct their
businesses in all material respects as currently conducted and as contemplated
by the Prospectus to be conducted, subject in each case to such qualification as
may be set forth in the Prospectus; and, except as described in the Prospectus,
none of such permits contains any restriction that is materially burdensome to
the Plains Parties considered as a whole.
(dd) Each of the Plains Parties has, or at the Closing Date will have,
such consents, easements, rights-of-way or licenses from any person ("rights-of-
way") as are necessary to conduct its business in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the Prospectus
and except for such rights-of-way which, if not obtained, would not have,
individually or in the aggregate, a material adverse effect upon the ability of
the Plains Parties considered as a whole to conduct their businesses in all
material respects as currently conducted and as contemplated by the Prospectus
to be conducted; each of the Plains Parties has, or at the Closing Date will
have, fulfilled and performed all its material obligations with respect to such
rights-of-way and no event has occurred which allows, or after notice or lapse
of time would allow, revocation or termination thereof or results in any
impairment of the rights of the holder of any such rights-of-way, except for
such revocations, terminations and impairments that would not have a material
adverse effect upon the ability of the Plains Parties considered as a whole to
conduct their businesses in all material respects as currently conducted and as
contemplated by the Prospectus to be conducted, subject in each case to such
qualification as may be set forth in the Prospectus; and, except as described in
the Prospectus, none of such rights-of-way contains any restriction that is
materially burdensome to the Plains Parties considered as a whole.
(ee) Each of the Plains Parties (i) makes and keeps books, records and
accounts, which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets and (ii) maintains systems of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit preparation
of financial statements
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in conformity with generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in accordance
with management's general or specific authorization; and (D) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(ff) To the knowledge of the Plains Entities, none of the Plains
Entities nor any employee or agent of any of the Plains Entities has made any
payment of funds of a Plains Entity or received or retained any funds in either
case in violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the Prospectus.
(gg) Each of the Plains Entities has filed (or has obtained extensions
with respect to) all material tax returns required to be filed through the date
hereof, which returns are complete and correct in all material respects, and has
timely paid all taxes shown to be due pursuant to such returns, other than those
(i) which, if not paid, would not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Plains Entities, taken as a whole, or (ii) which
are being contested in good faith.
(hh) The Plains Entities own or possess, and at the Closing Date the
Plains Parties will own or possess, all patents, trademarks, trademark
registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights owned by them or
necessary for the conduct of their respective businesses, and the Plains
Entities are not aware of any claim to the contrary or any challenge by any
other person to the rights of the Plains Entities with respect to the foregoing.
(ii) None of the Plains Parties is now, and after sale of the Units to
be sold by the Partnership hereunder and application of the net proceeds from
such sale as described in the Prospectus under the caption "Use of Proceeds"
will be, (i) an "investment company" or a company "controlled by" an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
(ii) a "public utility company," "holding company" or a "subsidiary company" of
a "holding company" or an "affiliate" thereof, under the Public Utility Holding
Company Act of 1935, as amended, (iii) a "gas utility," "public utility" or
"utility" within the meaning of Article 6050 of the Revised Civil Statutes of
Texas or (iv) a "public utility" or "utility" within the meaning of the Public
Utility Regulatory Act of Texas or under the applicable laws of any state in
which any such Plains Party does business.
(jj) None of the Plains Entities has sustained since the date of the
latest audited financial statements included in the Prospectus any material loss
or interference with its business from fire, explosion, flood or other calamity
whether or not covered by insurance, or from any labor dispute or court or
governmental action, investigation, order or decree, otherwise than as set forth
or contemplated in the Prospectus.
(kk) None of the Plains Entities has violated any environmental, safety,
health or similar law or regulation applicable to its business relating to the
protection of human health and
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safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), or lacks any permits, licenses or other
approvals required of them under applicable Environmental Laws to own, lease or
operate their properties and conduct their business as described in the
Prospectus or is violating any terms and conditions of any such permit, license
or approval, which in each case would have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Plains Parties, taken as a whole.
(ll) Except as described in or contemplated by the Prospectus, no
material labor dispute with the employees of any of the Plains Entities exists
or, to the knowledge of any of the Plains Entities, is imminent.
(mm) The Plains Entities maintain insurance covering their properties,
operations, personnel and businesses against such losses and risks as are
reasonably adequate to protect them and their businesses in a manner consistent
with other businesses similarly situated. None of the Plains Entities has
received notice from any insurer or agent of such insurer that substantial
capital improvements or other expenditures will have to be made in order to
continue such insurance, and all such insurance is outstanding and duly in force
on the date hereof and will be outstanding and duly in force on the Closing
Date.
(nn) Except as described in the Prospectus, there is (i) no action, suit
or proceeding before or by any court, arbitrator or governmental agency, body or
official, domestic or foreign, now pending or, to the knowledge of the Plains
Entities, threatened, to which any of the Plains Entities, or any of their
respective subsidiaries, is or may be a party or to which the business or
property of any of the Plains Entities, or any of their respective subsidiaries,
is or may be subject, (ii) no statute, rule, regulation or order that has been
enacted, adopted or issued by any governmental agency or that has been proposed
by any governmental body and (iii) no injunction, restraining order or order of
any nature issued by a federal or state court or foreign court of competent
jurisdiction to which any of the Plains Entities, or any of their respective
subsidiaries, is or may be subject, that, in the case of clauses (i), (ii) and
(iii) above, is reasonably expected to (A) singly or in the aggregate have a
material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Plains Parties,
taken as a whole, (B) prevent or result in the suspension of the offering and
issuance of the Units or the Notes or (C) in any manner draw into question the
validity of this Agreement or any Operative Agreement.
(oo) The sale and issuance of the Sponsor Units to each of the General
Partner and Plains Resources pursuant to the Partnership Agreement and the sale
and issuance of the Incentive Distribution Rights to the General Partner
pursuant to the Partnership Agreement are exempt from the registration
requirements of the Act and the securities laws of any state having jurisdiction
with respect thereto, and none of the Plains Entities has taken or will take any
action that would cause the loss of such exemption.
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(pp) The Units have been approved for listing on the New York Stock
Exchange ("NYSE"), subject only to official notice of issuance.
7. Indemnification and Contribution. (a) Each of the Plains Entities,
jointly and severally, agrees to indemnify and hold harmless each of you and
each other Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
from and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information furnished in writing to the
Partnership or the General Partner by or on behalf of any Underwriter through
you expressly for use in connection therewith; provided, however, that the
indemnification contained in this paragraph (a) with respect to any Prepricing
Prospectus shall not inure to the benefit of any Underwriter (or to the benefit
of any person controlling such Underwriter) on account of any such loss, claim,
damage, liability or expense arising from the sale of the Units by such
Underwriter to any person if a copy of the Prospectus shall not have been
delivered or sent to such person within the time required by the Act and the
regulations thereunder, and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such Prepricing
Prospectus was corrected in the Prospectus, provided that the Partnership has
delivered the Prospectus to the several Underwriters in requisite quantity and
on a timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which any Plains Entity may
otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against a Plains Entity, such Underwriter or such
controlling person shall promptly notify the Plains Entities in writing, and the
Partnership shall assume the defense thereof, including the employment of
counsel and payment of all reasonable fees and expenses. The failure to notify
the indemnifying party shall not relieve it from liability which it may have to
an indemnified party unless the indemnifying party is foreclosed by reason of
such delay from asserting a defense otherwise available to it. Such Underwriter
or any such controlling person shall have the right to employ separate counsel
in any such action, suit or proceeding and to participate in (but not control)
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Underwriter or such controlling person unless (i) a Plains
Entity has agreed in writing to pay such fees and expenses, (ii) the Plains
Entities have failed to assume the defense and employ counsel or (iii) the named
parties to any such action, suit or proceeding (including any impleaded parties)
include both such Underwriter or such controlling person and a Plains Entity,
and such Underwriter or such controlling person shall have been advised by its
counsel that representation of such indemnified party and such Plains Entity by
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the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel has
been proposed) due to actual or potential differing interests between them (in
which case the Plains Entities shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the Plains Entities shall,
in connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Salomon Smith Barney Inc., and that all such fees and expenses shall
be reimbursed as they are incurred. None of the Plains Entities shall be liable
for any settlement of any such action, suit or proceeding effected without its
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
Plains Entities agree, jointly and severally, to indemnify and hold harmless any
Underwriter, to the extent provided in the preceding paragraph, and any such
controlling person from and against any loss, claim, damage, liability or
expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Plains Entities, their respective directors and officers who
sign the Registration Statement, and any person who controls the Plains Entities
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
to the same extent as the foregoing indemnity from the Plains Entities to each
Underwriter, but only with respect to information furnished in writing by or on
behalf of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against a
Plains Entity, any of such directors and officers or any such controlling person
based on the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto, and in respect of which
indemnity may be sought against any Underwriter pursuant to this paragraph (c),
such Underwriter shall have the rights and duties given to the Plains Entities
by paragraph (b) above (except that if a Plains Entity shall have assumed the
defense thereof such Underwriter shall not be required to do so, but may employ
separate counsel therein and participate in (but not control) the defense
thereof, but the fees and expenses of such counsel shall be at such
Underwriter's expense), and the Plains Entities, any of such directors and
officers and any such controlling person shall have the rights and duties given
to the Underwriters by paragraph (b) above. The foregoing indemnity agreement
shall be in addition to any liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is unavailable
to an indemnified party under paragraph (a) or (c) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Plains
Entities on the one hand and the Underwriters
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on the other hand from the offering of the Units, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Plains Entities on the
one hand and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Plains Entities on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Plains Entities
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Plains Entities on the one hand, and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Plains Entities or any other affiliate of the Plains Entities on
the one hand, or by the Underwriters on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The Plains Entities and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
a pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in paragraph (d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
any claim or defending any such action, suit or proceeding. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price of the Units
underwritten by it and distributed to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective numbers of Firm Units set forth opposite their names in Schedule I
hereto (or such numbers of Firm Units increased as set forth in Section 10
hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the
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indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution agreements
contained in this Section 7 and the representations and warranties of the Plains
Entities set forth in this Agreement shall remain operative and in full force
and effect, regardless of (i) any investigation made by or on behalf of any
Underwriter or any person controlling any Underwriter, the Plains Entities or
any of their respective directors or officers or any person controlling the
Plains Entities, (ii) acceptance of any Units and payment therefor in accordance
with the terms of this Agreement, and (iii) any termination of this Agreement. A
successor to any Underwriter or any person controlling any Underwriter, or to
the Plains Entities or any of their respective directors or officers or any
person controlling a Plains Entity shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
7.
8. Conditions of Underwriters' Obligations. The several obligations of the
Underwriters to purchase the Firm Units hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
to be declared effective before the offering of the Units may commence, the
registration statement or such post-effective amendment shall have become
effective not later than 5:30 p.m., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall be or have
been timely made, as the case may be; no stop order suspending the effectiveness
of the registration statement shall have been issued and no proceeding for that
purpose shall have been instituted or, to the knowledge of the Plains Entities
or any Underwriter, threatened by the Commission and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to your
reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective change,
in or affecting the condition (financial or other), business, prospects,
properties, net worth or results of operations of any of the Plains Entities not
contemplated by the Prospectus, which in your opinion, as Representatives of the
several Underwriters, would materially adversely affect the market for the
Units, or (ii) any event or development relating to or involving any of the
Plains Entities or any executive officer or director of any of such entities
which makes any statement made in the Prospectus untrue or which, in the opinion
of the Partnership and its counsel or the Underwriters and their counsel,
requires the making of any addition to or change in the Prospectus in order to
state a material fact required by the Act or any other law to be stated therein
or necessary in order to make the statements therein not misleading, if amending
or supplementing the Prospectus to reflect such event or development would, in
your opinion, as Representatives of the several Underwriters, materially
adversely affect the market for the Units.
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(c) You shall have received on the Closing Date, an opinion of Andrews &
Kurth L.L.P., special counsel for the Plains Entities, dated the Closing Date
and addressed to you, as Representatives of the several Underwriters, to the
effect that:
(i) The Partnership has been duly formed and is validly existing in
good standing as a limited partnership under the Delaware LP Act with all
necessary partnership power and authority to own or lease its properties, assume
the liabilities being assumed by it pursuant to the Conveyance Agreements and
conduct its business, in each case in all material respects as described in the
Registration Statement and the Prospectus.
(ii) The Partnership is duly registered or qualified as a foreign
limited partnership for the transaction of business under the laws of the States
set forth on Exhibit A to this opinion; and, to such counsel's knowledge, such
jurisdictions are the only jurisdictions in which the character of the business
conducted by the Partnership or the nature or location of the properties owned
or leased by it make such registration or qualification necessary (except where
the failure to so register or so qualify would not (A) have a material adverse
effect on the condition (financial or other), business or results of operations
of the Partnership and the Operating Partnerships, taken as a whole, or (B)
subject the limited partners of the Partnership to any material liability or
disability).
(iii) Each Operating Partnership has been duly formed and is validly
existing in good standing as a limited partnership under the Delaware LP Act
with all necessary partnership power and authority to own or lease its
properties, assume the liabilities being assumed by it pursuant to the
Conveyance Agreements and conduct its business, in each case in all material
respects as described in the Registration Statement and the Prospectus.
(iv) Each Operating Partnership is duly registered or qualified as a
foreign partnership for the transaction of business under the laws of the States
set forth on Exhibit A to this opinion; and, to such counsel's knowledge, such
jurisdictions are the only jurisdictions in which the character of the business
conducted by each Operating Partnership or the nature or location of the
properties owned or leased by it make such registration or qualification
necessary (except where the failure to so register or so qualify would not (A)
have a material adverse effect on the condition (financial or other), business
or results of operations of the Partnership and the Operating Partnerships,
taken as a whole, or (B) subject the limited partners of the Partnership to any
material liability or disability).
(v) The General Partner has been duly formed and is a corporation
validly existing in good standing under the laws of the State of Delaware, with
all necessary corporate power and authority to own or lease its properties,
assume the liabilities being assumed by it pursuant to the CT&T Merger Agreement
and the Conveyance Agreements, conduct its business and act as general partner
of the Partnership and the Operating
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Partnerships, in each case in all material respects as described in the
Registration Statement and the Prospectus.
(vi) The General Partner is duly registered or qualified as a foreign
corporation for the transaction of business under the laws of the States set
forth on Exhibit A to this opinion; and to such counsel's knowledge, such
jurisdictions are the only jurisdictions in which the character of the business
conducted by the General Partner or the nature or location of the properties
owned or leased by it make such registration or qualification necessary (except
where the failure to so register or so qualify would not (A) have a material
adverse effect on the condition (financial or other), business or results of
operations of the Plains Parties, taken as a whole, or (B) subject the limited
partners of the Partnership to any material liability or disability).
(vii) Plains Resources has been duly formed and is a corporation validly
existing in good standing under the laws of the State of Delaware, with all
necessary corporate power and authority to own or lease its properties, assume
the liabilities being assumed by it pursuant to the Midstream Merger Agreement,
and conduct its business, in each case and all material respects as described in
the Registration Statement and the Prospectus.
(viii) Plains Resources is duly registered or qualified as a foreign
corporation for the transaction of business under the laws of the States set
forth on Exhibit A to this opinion; and to such counsel's knowledge, such
jurisdictions are the only jurisdictions in which the character of the business
conducted by Plains Resources or the nature or location of the properties owned
or leased by it make such registrational qualification necessary (except for the
failure to so register or so qualify would not (A) have a material adverse
effect on the condition (financial or other), business or results of operations
of the Plains Parties, taken as a whole, or (B) subject the limited partners of
the Partnership to any material liability or disability.
(ix) Gathering LLC has been duly formed and is validly existing in good
standing as a limited liability company under the Delaware LLC Act, with all
necessary limited liability company power and authority to own or lease its
properties, assume the liabilities being assumed by it pursuant to the
Conveyance Agreements and conduct its business, in each case in all material
respect as described in the Registration Statement and the Prospectus.
(x) Gathering LLC is duly registered or qualified as a foreign limited
liability company for the transaction of business under the laws of the States
set forth on Exhibit A to this opinion; and to such counsel's knowledge, such
jurisdictions are the only jurisdictions in which the character of the business
conducted by Gathering LLC or the nature or location of the properties owned or
leased by it makes such registration or qualification necessary (except where
the failure to so register or so qualify would not
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(A) have a material adverse effect on the condition (financial or other),
business or results of operations of the Plains Parties, taken as a whole, or
(B) subject the limited partners of the Partnership to any material liability or
disability).
(xi) The General Partner is the sole general partner of the Partnership,
with a 1% general partner interest in the Partnership; such general partner
interest has been duly authorized and validly issued in accordance with the
Partnership Agreement; the General Partner owns all of the Incentive
Distribution Rights; such Incentive Distribution Rights have been duly
authorized and validly issued in accordance with the Partnership Agreement and
are fully paid (to the extent required under the Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by matters
described in the Prospectus under the caption "The Partnership Agreement--
Limited Liability"); and the General Partner owns such general partner interest
and Incentive Distribution Rights free and clear of all liens, encumbrances,
security interests, charges or claims (A) in respect of which a financing
statement under the Uniform Commercial Code of the State of Delaware naming the
General Partner as debtor is on file in the office of the Secretary of State of
the State of Delaware or (B) otherwise known to such counsel, without
independent investigation, other than those created by or arising under the
DGCL.
(xii) The _______ Common Units and the ________ Subordinated Units
issued to the General Partner and the ________ Common Units and the ________
Subordinated Units issued to Plains Resources pursuant to the Partnership
Agreement and the limited partner interests represented thereby have been duly
authorized and validly issued in accordance with the Partnership Agreement and
are fully paid (to the extent required under the Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by matters
described in the Prospectus under "The Partnership Agreement--Limited
Liability"); after giving effect to the Transactions, the General Partner will
own ________ Common Units and _________ Subordinated Units and Plains Resources
will own ______ Common Units and __________ Subordinated Units and the General
Partner and Plains Resources will own such Common Units and such Subordinated
Units free and clear of all liens, encumbrances, security interests, charges or
claims (A) in respect of which a financing statement under the Uniform
Commercial Code of the State of Delaware, naming any such owner as debtor is on
file in the office of the Secretary of State of the State of Delaware or (B)
otherwise known to such counsel, without independent investigation, other than
those created by or arising under the DGCL.
(xiii) The 12,782,609 Common Units to be issued and sold to the
Underwriters by the Partnership pursuant to this Agreement and the limited
partner interests represented thereby have been duly authorized by the
Partnership Agreement and, when issued and delivered against payment therefor as
provided in this Agreement, will be validly issued, fully paid (to the extent
required under the Partnership Agreement) and nonassessable (except as such
nonassessability may be affected by matters described in the Prospectus under
the caption "The Partnership Agreement--Limited Liability"); other than the
Common
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Units and the Subordinated Units that will be owned by the General Partner and
Plains Resources and the Incentive Distribution Rights that will be owned by the
General Partner, the Units will be the only limited partner interests of the
Partnership issued and outstanding at the Closing Date.
(xiv) The General Partner owns a 1.0101% general partner interest in
Plains Marketing, L.P. and the Partnership owns a 98.9899% limited partner
interest in Plains Marketing, L.P.; the General Partner owns a 1.0101% general
partner interest in All American Delaware and Plains Operating, L.P. owns a
98.9899% limited partner interest in All American Delaware; such interests have
been duly authorized and validly issued in accordance with the Operating
Partnership Agreements and are fully paid (to the extent required under the
Operating Partnership Agreements) and nonassessable (except as such
nonassessability may be affected by matters described in the Prospectus under
the caption "The Partnership Agreement--Limited Liability"); and the General
Partner, the Partnership and Plains Marketing, L.P. own such interests free and
clear of all liens, encumbrances, security interests, charges or claims (A) in
respect of which a financing statement under the Uniform Commercial Code of the
State of Delaware naming any such owner as debtor is on file in the office of
the Secretary of State of the State of Delaware or (B) otherwise known to such
counsel, without independent investigation, other than those created by or
arising under the DGCL or the Delaware LP Act, as applicable.
(xv)Plains Resources owns 100% of the issued and outstanding capital
stock of the General Partner; such capital stock has been duly authorized and
validly issued and is fully paid and nonassessable; and such capital stock is
owned free and clear of all liens, encumbrances, security interests, charges or
claims (A) in respect of which a financing statement under the Uniform
Commercial Code of the State of Delaware, naming Plains Resources as debtor is
on file in the office of the Secretary of State of the State of Delaware or (B)
otherwise known to such counsel, without independent investigation, other than
those created by or arising under the DGCL.
(xvi) The General Partner owns 100% of the issued and outstanding
capital stock of All American Pipeline Company; such capital stock has been duly
authorized and validly issued and is fully paid and nonassessable; and such
capital stock is owned free and clear of all liens, encumbrances, security
interests, charges or claims (A) in respect of which a financing statement under
the Uniform Commercial Code of the State of Delaware, naming the General Partner
as debtor is on file in the office of the Secretary of State of the State of
Delaware or (B) otherwise known to such counsel, without independent
investigation, other than those created by or arising under the DGCL.
(xvii) Plains Marketing, L.P. owns a 100% member interest in Gathering
LLC; such member interest has been duly authorized and validly issued in
accordance with the Gathering LLC Agreement and is fully paid (to the extent
required under the Gathering LLC Agreement) and nonassessable (except as such
nonassessability may be affected by
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Section 18-607 of the Delaware LLC Act); Plains Marketing, L.P. owns such member
interest free and clear of all liens, encumbrances, security interests, charges
or claims (A) in respect of which a financing statement under the Uniform
Commercial Code of the State of Delaware naming Plains Marketing, L.P. as debtor
is on file in the office of the Secretary of State of the State of Delaware or
(B) otherwise known to such counsel, without independent investigation, other
than those created by or arising under the Delaware LLC Act.
(xviii) None of the General Partner, the Partnership or the Operating
Partnerships has any subsidiaries (other than the Partnership and the Operating
Partnerships themselves and Gathering LLC) which, individually or considered as
a whole, would be deemed to be a significant subsidiary (as such term is defined
in Section 1-02d of Regulation S-X of the Act).
(xix) Except as described in the Prospectus, there are no preemptive
rights or other rights to subscribe for or to purchase, nor any restriction upon
the voting or transfer of, any limited partner interests in the Partnership or
the Operating Partnerships pursuant to the Partnership Agreement, the Operating
Partnership Agreements or any other agreement or instrument known to such
counsel to which the Partnership or either Operating Partnership is a party or
by which any one of them may be bound. To such counsel's knowledge, neither the
filing of the Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any rights for or relating to the
registration of any Units or other securities of the Partnership or the
Operating Partnerships. To such counsel's knowledge, except as described in the
Prospectus, there are no outstanding options or warrants to purchase any Common
Units or Subordinated Units or other partnership interests in the Partnership or
the Operating Partnerships. The Partnership has all requisite power and
authority to issue, sell and deliver (A) the Units, in accordance with and upon
the terms and conditions set forth in this Agreement, the Partnership Agreement
and the Registration Statement and Prospectus, and (B) the Common Units, the
Subordinated Units and Incentive Distribution Rights, in accordance with the
terms and conditions set forth in the Partnership Agreement.
(xx) This Agreement has been duly authorized and validly executed and
delivered by each of the Plains Entities.
(xxi) Each of the Operative Agreements to which any of the Plains
Entities is a party have been duly authorized and validly executed and delivered
by each of the Plains Entities parties thereto and constitutes a valid and
binding obligation of each of the Plains Entities parties thereto, enforceable
against each such party in accordance with its respective terms, subject to (A)
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar laws from time to time in effect affecting creditors'
rights and remedies generally and general principles of equity (regardless of
whether such principles are considered in a proceeding at law or in equity) and
(B) public policy,
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applicable law relating to fiduciary duties and an implied covenant of good
faith and fair dealing.
(xxii) None of the offering, issuance and sale by the Partnership of the
Units, the execution, delivery and performance of this Agreement or the
Operative Agreements by the Plains Entities party thereto, or the consummation
of the transactions contemplated hereby and thereby (including the Transactions)
(A) constitutes or will constitute a violation of the Organizational Agreements
or the certificate or articles of incorporation or bylaws or other
organizational documents of any of the Plains Entities, (B) constitutes or will
constitute a breach or violation of, or a default under (or an event which, with
notice or lapse of time or both, would constitute such an event), any Operative
Agreement, any bond, debenture, note or any other evidence of indebtedness, any
indenture or any other material agreement or instrument known to such counsel to
which a Plains Entity is a party or by which any one of them may be bound, (C)
results or will result in any violation of the Delaware LP Act, the Delaware LLC
Act, the DGCL, the laws of the State of Texas or federal law, or (D) results or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of any of the Plains Entities which in the case of
clauses (B), (C) or (D) would reasonably be expected to have a material adverse
effect on the financial condition, business or results of operations of the
Plains Parties, taken as a whole.
(xxiii) No permit, consent, approval, certificate, authorization or
order of any federal, Delaware or Texas court, governmental agency or body is
required in connection with the execution and delivery of, or the consummation
by the Plains Entities of the transactions contemplated by, this Agreement or
the Operative Agreements (including the Transactions), except (A) for such
permits, consents, approvals, certificates and similar authorizations required
under the Securities Act and the Exchange Act, (B) for such permits consents,
approvals, certificates and similar authorizations required under state
securities or "Blue Sky" laws, as to which such counsel need not express any
opinion and (C) as described in the Prospectus.
(xxiv) The merger of the Plains Midstream Subsidiaries into Plains
Resources pursuant to the Midstream Merger Agreement became effective under the
DGCL on __________ ____, 1998 and had the effects set forth in Section 259 of
the DGCL, including but not limited to, vesting in Plains Resources the
Midstream Assets.
(xxv) The merger of Celeron Trading and Transportation Company into the
General Partner pursuant to the CT&T Merger Agreement became effective under the
DGCL on _________ __, 1998 and had the effects set forth in Section 259 of the
DGCL, including but not limited to, vesting in the General Partner the CT&T
Assets.
(xxvi) The conversion of Plains All American Pipeline Company into All
American Texas became effective under the TBCA and the TRLPA on _________ ___,
1998
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and is legally sufficient under the TBCA and the TRLPA to vest in All American
Texas all assets of the Plains All American Pipeline Company. The conversion of
All American Texas into All American Delaware became effective under the TRLPA
and the Delaware LP Act on ___________ ___, 1998 and is legally sufficient under
the TRLPA and the Delaware LP Act to vest in All American Delaware all assets of
All American Texas.
(xxvii) The execution, delivery and performance of the Conveyance
Agreements relating to the transfer of property in the State of Texas did not or
will not violate any statute of the State of Texas or any rule, regulation or,
to the knowledge of such counsel, any order of any agency of the State of Texas
having jurisdiction over any of the Plains Entities or any of their respective
properties, except for any such violations which, individually or in the
aggregate, would not have a material adverse effect upon the Unitholders or the
operations conducted in the State of Texas by the Plains Parties taken as a
whole.
(xxviii) Each of the Conveyance Agreements relating to the transfer of
property in the State of Texas, is a valid and legally binding agreement of the
parties thereto under the laws of the State of Texas enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general application relating to
or affecting creditors' rights generally and to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law); each of the Conveyance Agreements is in a form legally
sufficient as between the parties thereto to convey to the transferee thereunder
all of the right, title and interest of the transferor stated therein in and to
the properties located in the State of Texas, as described in the Conveyance
Agreements, subject to the conditions, reservations and limitations contained in
the Conveyance Agreements, except motor vehicles or other property requiring
conveyance of certificated title as to which the Conveyance Agreements are
legally sufficient to compel delivery of such certificated title.
(xxix) Each of the deeds and assignments (including, without limitation,
the form of the exhibits and schedules thereto) is in a form legally sufficient
for recordation in the appropriate public offices of the State of Texas, to the
extent such recordation is required, and, upon proper recordation of any of such
deeds and assignments in the State of Texas, will constitute notice to all third
parties under the recordation statutes of the State of Texas concerning record
title to the assets transferred thereby; recordation in the office of the County
Clerk for each county in which either Operating Partnership or Gathering LLC
owns property is the appropriate public office in the State of Texas for the
recordation of deeds and assignments of interests in real property located in
such county.
(xxx) To the knowledge of such counsel, each of the Plains Entities
which is subject to regulation as an interstate common carrier pipeline is
conducting business consistent with its common carrier classification in all
material respects and is in material
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compliance with all applicable federal statutes, rules and regulations
pertaining thereto, including but not limited to, all tariff and rate
requirements.
(xxxi) To the knowledge of such counsel, each of the Plains Entities
which is subject to regulation by the State of Texas as a common carrier
pipeline is conducting its business consistent with its common carrier
classification in all material respects and is in material compliance with all
applicable Texas statutes, rules and regulations pertaining thereto, including
but not limited to, all safety and environmental requirements. As a result of
the conveyance of interstate common carrier pipeline assets included in the
assets transferred to the Operating Partnerships and Gathering LLC pursuant to
the Conveyance Agreements, the Operating Partnerships and Gathering LLC are
entitled to exercise the power of eminent domain to secure rights-of-way
necessary to operate such pipeline assets in the State of Texas.
(xxxii) The statements in the Registration Statement and Prospectus
under the captions "The Transactions," "Cash Distribution Policy," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--The
Partnership--Capital Resources Liquidity and Financial Condition," "Business--
Regulation," "Business--Environmental Regulation," "Certain Relationships and
Related Transactions," "Conflicts of Interest and Fiduciary Responsibilities,"
"Description of the Common Units" and "The Partnership Agreement," insofar as
they constitute descriptions of the Operative Agreements or refer to statements
of law or legal conclusions, are accurate and complete in all material respects,
and the Units, the Common Units, the Subordinated Units and Incentive
Distribution Rights conform in all material respects to the descriptions thereof
contained in the Registration Statement and Prospectus under the captions
"Prospectus Summary--The Offering," "Cash Distribution Policy," "Description of
the Common Units" and "The Partnership Agreement".
(xxxiii) The opinion of Andrews & Kurth L.L.P. that is filed as Exhibit
8.1 to the Registration Statement is confirmed and the Underwriters may rely
upon such opinion as if it were addressed to them.
(xxxiv) The Registration Statement was declared effective under the Act
on _______________, 1998; to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or threatened by the
Commission; and any required filing of the Prospectus pursuant to Rule 424(b)
has been made in the manner and within the time period required by such Rule.
(xxxv) The Registration Statement and the Prospectus (except for the
financial statements and the notes and the schedules thereto and the other
financial, statistical and accounting data included in the Registration
Statement or the Prospectus, as to which
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such counsel need not express any opinion) comply as to form in all material
respects with the requirements of the Act and the rules and regulations
promulgated thereunder.
(xxxvi) To the knowledge of such counsel, (A) there is no legal or
governmental proceeding pending or threatened to which any of the Plains
Entities is a party or to which any of their respective properties is subject
that is required to be disclosed in the Prospectus and is not so disclosed and
(B) there are no agreements, contracts or other documents to which any of the
Plains Entities is a party that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required.
(xxxvii) None of the Plains Parties is an "investment company" or a
company "controlled by" an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(xxxviii) Upon delivery to the Underwriters of certificates evidencing
the Units issued in the name of the Underwriters and payment by the Underwriters
of the purchase price for the Units, the Underwriters will acquire the Units
free of any adverse claim (as such term is defined in Section 8-302 of the New
York Uniform Commercial Code), assuming that the Underwriters are acting in good
faith and without notice of any adverse claim.
(xxxix) The Common Units have been approved for listing on the NYSE,
subject only to official notice of issuance.
(xl) The offer, sale and issuance of the Sponsor Units to each of the
General Partner and Plains Resources pursuant to the Partnership Agreement and
the offer, sale and issuance of Incentive Distribution Rights to the General
Partner pursuant to the Partnership Agreement are exempt from the registration
requirements of the Act and the securities laws of any state having jurisdiction
with respect thereto.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Plains Entities and
the independent public accountants of the Partnership and your representatives,
at which the contents of the Registration Statement and the Prospectus and
related matters were discussed, and although such counsel has not independently
verified, is not passing on, and is not assuming any responsibility for the
accuracy, completeness or fairness of the statements contained in, the
Registration Statement and the Prospectus (except to the extent specified in the
foregoing opinion), no facts have come to such counsel's attention that lead
such counsel to believe that the Registration Statement (other than (i) the
financial statements included therein, including the notes and schedules thereto
and the auditors' reports thereon and (ii) the other historical, pro forma and
projected financial information and the statistical and accounting information
included therein, as to which such counsel need not comment), as of its
effective date contained an untrue statement of a material fact or omitted to
state a material fact
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required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus (other than (i) the financial statements
included therein, including the notes and schedules thereto and the auditors'
reports thereon, and (ii) the other historical, pro forma and projected
financial information and the statistical and accounting information included
therein, as to which such counsel need not comment), as of its issue date and
the Closing Date contained an untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the Plains
Entities and upon information obtained from public officials, (B) assume that
all documents submitted to them as originals are authentic, that all copies
submitted to them conform to the originals thereof, and that the signatures on
all documents examined by them are genuine, (C) state that their opinion is
limited to federal laws, the Delaware LP Act, the Delaware LLC Act, the DGCL and
the laws of the States of New York and Texas, (D) with respect to the opinions
expressed in paragraphs (ii), (iv), (vi), (viii) and (x) above as to the due
qualification or registration as a foreign limited partnership, corporation or
limited liability company, as the case may be, of each of the Plains Entities,
state that such opinions are based upon the opinions of DeConcini McDonald
Yetwin & Lacy, P.C., Goodin, MacBride, Squeri, Scholtz & Ritchie, LLP, Hinkle,
Cox, Eaton, Coffield & Hensley, L.L.P. and Michael J. Blaschke provided pursuant
to (e) below and upon certificates of foreign qualification or registration
provided by the Secretary of State of the States of Arizona, California,
Colorado, Florida, Illinois, Kansas, Louisiana, Mississippi, New Mexico,
Oklahoma and Texas (each of which shall be dated as of a date not more than
fourteen days prior to the Closing Date and shall be provided to you), (E) state
that they express no opinion with respect to the title of any of the Plains
Entities to any of their respective real or personal property, (F) state that
they express no opinion with respect to state or local taxes or tax statutes to
which any of the limited partners of the Partnership or any of the Plains
Parties may be subject and (G) with respect to the opinions expressed in
paragraph (xx) above as to a breach, violation or default under the agreements
and indentures set forth in Exhibit B to this opinion state that such opinions
are based upon the opinion of Fulbright & Jaworski LLP.
(d) You shall have received on the Closing Date an opinion of Michael R.
Patterson, general counsel for Plains Resources, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, to the effect
that:
(i) To the knowledge of such counsel, none of the Plains Entities is in
(A) breach or violation of the provisions of its agreement of limited
partnership, limited liability company operating agreement, certificate or
articles of incorporation or bylaws or other organizational documents or (B)
default (and no event has occurred which, with notice or lapse of time or both,
would constitute such a default) or violation in the performance of any
obligation, agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any agreement, indenture, lease or other
instrument to which it is a party or by which it or any of its properties may be
bound, which breach, default or
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violation would, if continued, have a material adverse effect on the financial
condition, business or results of operations of the Plains Parties, taken as a
whole, or could materially impair the ability of any of the Plains Entities to
perform their obligations under this Agreement or the Operative Agreements.
(ii) To the knowledge of such counsel, each of the Plains Entities has
such permits, consents, licenses, franchises and authorizations ("permits")
issued by the appropriate Texas or federal governmental or regulatory
authorities as are necessary to own or lease its properties and to conduct its
business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus, and except for such
permits which, if not obtained would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect upon the operations
conducted in the State of Texas by the Plains Parties, taken as a whole; and, to
the knowledge of such counsel, none of the Plains Entities has received any
notice of proceedings relating to the revocation or modification of any such
permits which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to have a
material adverse effect upon the operations conducted in the State of Texas by
the Plains Parties, taken as a whole.
In addition, such counsel shall state that he has participated in
conferences with officers and other representatives of the Plains Entities and
the independent public accountants of the Partnership and your representatives,
at which the contents of the Registration Statement and the Prospectus and
related matters were discussed, and although such counsel has not independently
verified, is not passing on, and is not assuming any responsibility for the
accuracy, completeness or fairness of the statements contained in, the
Registration Statement and the Prospectus, no facts have come to such counsel's
attention that lead such counsel to believe that the Registration Statement
(other than (i) the financial statements included therein, including the notes
and schedules thereto and the auditors' reports thereon and (ii) the other
historical, pro forma and projected financial information and the statistical
and accounting information included therein, as to which such counsel need not
comment), as of its effective date contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the Prospectus
(other than (i) the financial statements included therein, including the notes
and schedules thereto and the auditors' reports thereon, and (ii) the other
historical, pro forma and projected financial information and the statistical
and accounting information included therein, as to which such counsel need not
comment), as of its issue date and the Closing Date contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the Plains
Entities and upon information obtained from public officials, (B) assume that
all documents submitted to him as originals are authentic, that all
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copies submitted to him conform to the originals thereof, and that the
signatures on all documents examined by them are genuine, (C) state that such
opinions are limited to federal laws and the laws of the State of Delaware and
the State of Texas and (D) state that he expresses no opinion with respect to
state or local taxes or tax statutes.
(e) You shall have received on the Closing Date, an opinion of each of
(i) DeConcini McDonald Yetwin & Lacy, P.C., with respect to the State of
Arizona, (ii) Goodin, MacBride, Squeri, Scholtz & Ritchie, LLP, with respect to
the State of California, (iii) Hinkle, Cox, Eaton, Coffield & Hensley, L.L.P.,
with respect to the State of New Mexico and (iv) Michael J. Blaschke, with
respect to the State of Oklahoma, each of which is acting as special local
counsel for the Plains Entities, dated the Closing Date and addressed to you, as
Representatives of the several Underwriters, to the effect that:
(i) Each of the Plains Parties has been duly qualified or
registered as a foreign corporation, a foreign limited liability company or
a foreign limited partnership, as the case may be, for the transaction of
business under the laws of [insert applicable state].
(ii) Each Operating Partnership has all requisite power and
authority as a limited partnership under the laws of the State of [insert
applicable state] to own or lease its properties and to conduct its
business in the State of [insert applicable state]; and upon the
consummation of the Transactions (assuming that the Partnership will not be
liable under the laws of the State of Delaware for the liabilities of the
Operating Partnerships and that the Unitholders will not be liable under
the laws of the State of Delaware for liabilities of the Partnership or the
Operating Partnerships), the Partnership will not be liable under the laws
of the State of [insert applicable state] for the liabilities of the
Operating Partnerships, and the Unitholders will not be liable under the
laws of the State of [insert applicable state] for the liabilities of the
Partnership or the Operating Partnerships, except in each case to the same
extent as under the laws of the State of Delaware.
(iii) Assuming that the merger of the Plains Midstream Subsidiaries
into Plains Resources is legally sufficient under applicable Delaware law
to vest in Plains Resources the Midstream Assets, then such merger is
legally sufficient, under the law of the State of [insert applicable
state], to so vest in Plains Resources the Midstream Assets located in the
State of [insert applicable state].
(iv) Assuming that the conversion of Plains All American Pipeline
Company into All American Texas is legally sufficient under the TBCA and
the TRLPA to vest in All American Texas all assets of Plains All American
Pipeline Company and the conversion of All American Texas into All American
Delaware is legally sufficient under the TRLPA and the Delaware LP Act to
vest in All American Delaware all assets of All American Texas, then such
conversion is legally sufficient, under the law of the State of [insert
applicable state], to so vest in All American Delaware the assets of Plains
All American Pipeline Company located in the State of [insert applicable
state].
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(v) The execution, delivery and performance of the Conveyance
Agreements relating to the transfer of property in the State of [insert
applicable state] did not or will not violate any statute of the State of
[insert applicable state] or any rule, regulation or, to the knowledge of
such counsel, any order of any agency of the State of [insert applicable
state] having jurisdiction over any of the Plains Entities or any of their
respective properties, except for any such violations which, individually
or in the aggregate, would not have a material adverse effect upon the
Unitholders or the operations conducted in the State of [insert applicable
state] by the Plains Parties taken as a whole.
(vi) Each of the Conveyance Agreements relating to the transfer of
property in the State of [insert applicable state], assuming the due
authorization, execution and delivery thereof by the parties thereto, to
the extent it is a valid and legally binding agreement under the applicable
law as stated therein and that such law applies thereto, is a valid and
legally binding agreement of the parties thereto under the laws of the
State of [insert applicable state], enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general application relating
to or affecting creditors' rights generally and to general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law); each of the Conveyance Agreements is in a
form legally sufficient as between the parties thereto to convey to the
transferee thereunder all of the right, title and interest of the
transferor stated therein in and to the properties located in the State of
[insert applicable state], as described in the Conveyance Agreements,
subject to the conditions, reservations and limitations contained in the
Conveyance Agreements, except motor vehicles or other property requiring
conveyance of certificated title as to which the Conveyance Agreements are
legally sufficient to compel delivery of such certificated title.
(vii) Each of the deeds and assignments (including, without
limitation, the form of the exhibits and schedules thereto) is in a form
legally sufficient for recordation in the appropriate public offices of the
State of [insert applicable state], to the extent such recordation is
required, and, upon proper recordation of any of such deeds and assignments
in the State of [insert applicable state], will constitute notice to all
third parties under the recordation statutes of the State of [insert
applicable state] concerning record title to the assets transferred
thereby; recordation in the office of the County Clerk for each county in
which either of the Operating Partnerships or Gathering LLC owns property
is the appropriate public office in the State of [insert applicable state]
for the recordation of deeds and assignments of interests in real property
located in such county.
(viii) No permit, consent, approval, authorization, order,
registration, filing or qualification of or with any court, governmental
agency or body of the State of [insert applicable state] having
jurisdiction over the Plains Entities or any of their respective properties
is required for the offering, issuance and sale by the Partnership of the
Units, the execution, delivery and performance of this Agreement or the
Operative Agreements by the Plains Entities party thereto (including the
mortgaging of assets pursuant to the Bank Credit
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Agreement) or the conveyance of properties located in the State of [insert
applicable state] purported to be conveyed to either of the Operating
Partnerships or Gathering LLC pursuant to the Conveyance Agreements or the
consummation of the transactions (including the Transactions) contemplated
by this Agreement and the Operative Agreements, except (A) as may be
required under state securities or "Blue Sky" laws, as to which such
counsel need not express any opinion, (B) for such permits, consents,
approvals and similar authorizations which have been obtained, and (C) for
such permits, consents, approvals and similar authorizations which, if not
obtained, would not, individually or in the aggregate, have a material
adverse effect upon the condition (financial or other), business,
prospects, properties, net worth or results of operations conducted in the
State of [insert applicable state] by the Plains Parties, taken as a whole.
(ix) To the knowledge of such counsel, each of the Plains Entities
has such permits, consents, licenses, franchises and authorizations
("permits") issued by the appropriate [insert applicable state]
governmental or regulatory authorities as are necessary to own or lease its
properties and to conduct its business in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the
Prospectus, and except for such permits which, if not obtained would not
reasonably be expected to have, individually or in the aggregate, a
material adverse effect upon the operations conducted in the State of
[insert applicable state] by the Plains Parties, taken as a whole; and, to
the knowledge of such counsel, none of the Plains Entities has received any
notice of proceedings relating to the revocation or modification of any
such permits which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to
have a material adverse effect upon the operations conducted in the State
of [insert applicable state] by the Plains Parties, taken as a whole.
(x) [As to Arizona, California and New Mexico only] To the
knowledge of such counsel, each of the Plains Entities which is subject to
regulation by the State of [insert applicable state] as a common carrier
pipeline is conducting its business consistent with its common carrier
classification in all material respects and is in material compliance with
all applicable [insert applicable state] statutes, rules and regulations
pertaining thereto, including but not limited to, all safety and
environmental requirements. As a result of the conveyance of interstate
common carrier pipeline assets included in the assets transferred to the
Operating Partnerships and Gathering LLC pursuant to the Conveyance
Agreements, the Operating Partnerships and Gathering LLC are entitled to
exercise the power of eminent domain to secure rights-of-way necessary to
operate such pipeline assets in the State of [insert applicable state].
(xi) [As to Oklahoma only] To the knowledge of such counsel, each
of the Plains Entities which is subject to regulation by the State of
Oklahoma as a common carrier is conducting its business consistent with its
common carrier classification in all material respects and is in material
compliance with all applicable Oklahoma statutes, rules
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and regulations pertaining thereto, including but not limited to, all
safety and environmental requirements.
In rendering such opinion, such counsel may (A) rely in respect of matters
of fact upon certificates of officers and employees of the Plains Entities and
upon information obtained from public officials, (B) assume that all documents
submitted to them as originals are authentic, that all copies submitted to them
conform to the originals thereof, and that the signatures on all documents
examined by them are genuine, (C) state that such opinions are limited to
federal laws and the laws of the State of [insert applicable state], (D) state
that they express no opinion with respect to the title of any of the real or
personal property purported to be transferred by the Conveyance Agreements, and
(E) state that they express no opinion with respect to state or local taxes or
tax statutes to which any of the limited partners of the Partnership or any of
the Plains Entities may be subject.
In rendering such opinion, such counsel shall state that (A) Andrews &
Kurth L.L.P. is hereby authorized to rely upon such opinion letter in connection
with the Transactions as if such opinion letter were addressed and delivered to
them on the date hereof and (B) subject to the foregoing, such opinion letter
may be relied upon only by the Underwriters and its counsel in connection with
the Transactions and no other use or distribution of this opinion letter may be
made without such counsel's prior written consent.
(f) You shall have received on the Closing Date an opinion of Baker &
Botts, L.L.P., counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the issuance and sale of the Units, the Registration Statement and the
Prospectus (together with any supplement or amendment thereto) and other related
matters as the Representatives may reasonably require.
(g) You shall have received letters addressed to you, as Representatives
of the several Underwriters, and dated the date hereof and the Closing Date from
PriceWaterhouseCoopers LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(h) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been instituted or taken or, to the knowledge of the Partnership and the General
Partner, shall be threatened by the Commission at or prior to the Closing Date;
(ii) there shall not have been any change in the partners' capital or
shareholder's equity of the Partnership, the Operating Partnerships or the
General Partner, as the case may be, nor any material increase in the short-term
or the long-term debt of the Partnership, the Operating Partnerships or the
General Partner (other than in the ordinary course of business) from that set
forth or contemplated in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); (iii) there shall not have been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), except as may
otherwise be stated in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), any material adverse change in or affecting
the condition (financial or other), business, prospects, properties, net worth
or results of operations
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of the Plains Parties, taken as a whole; (iv) the Plains Parties shall not have
any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Plains Parties taken as a
whole other than those reflected in the Registration Statement or the Prospectus
(or any amendment or supplement thereto); and (v) all the representations and
warranties of the Plains Entities contained in this Agreement shall be true and
correct on and as of the date hereof and on and as of the Closing Date as if
made on and as of the Closing Date.
(i) The Plains Entities shall not have failed at or prior to the Closing
Date to have performed or complied in all material respects with any of their
agreements herein contained and required to be performed or complied with by
them hereunder at or prior to the Closing Date.
(j) The NYSE shall have approved the Units for inclusion, subject only
to official notice of issuance and evidence of satisfactory distribution.
(k) The Plains Entities shall have furnished or caused to be furnished
to you such further certificates and documents as you shall have reasonably
requested.
(l) Prior to or simultaneously with the sale of the Units on the Closing
Date, (i) the conveyance of assets to the Operating Partnerships and Gathering
LLC contemplated in the Conveyance Agreements shall have been consummated, (ii)
each of the Bank Credit Agreement and the Letter of Credit Facility shall have
been executed and delivered and become effective in substantially the form filed
as an exhibit to the Registration Statement, (iii) the transactions contemplated
by the Midstream Merger Agreement and the CT&T Merger Agreement shall have been
consummated and (iv) the conversion of Plains All American Pipeline Company into
All American, L.P., shall have been consummated.
(m) There shall have been furnished to you at the Closing Date a
certificate reasonably satisfactory to you, signed on behalf of the Partnership
by the General Partner by the President or the Executive Vice President and the
Chief Financial Officer thereof to the effect that: (A) the representations and
warranties of each of the Partnership, the General Partner, the Operating
Partnerships and Gathering LLC contained in this Agreement are true and correct
at and as of the Closing Date as though made at and as of the Closing Date; (B)
each of the Partnership, the General Partner, the Operating Partnerships and
Gathering LLC has in all material respects performed all obligations required to
be performed by it pursuant to the terms of this Agreement at or prior to the
Closing Date; (C) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been instituted
or taken or, to the knowledge of any of the Partnership, the General Partner,
the Operating Partnerships and Gathering LLC, threatened by the Commission, and
all requests for additional information on the part of the Commission have been
complied with or otherwise satisfied; (D) the Common Units have been duly
approved for listing, subject to official notice of issuance, on the NYSE; and
(E) no event contemplated by subsection (h) of this Section 8 in respect of the
Partnership, the Operating Partnerships or the General Partner shall have
occurred.
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(n) There shall have been furnished to you at the Closing Date, a
certificate reasonably satisfactory to you, signed on behalf of Plains Resources
by the President or a Vice President thereof, respectively, to the effect that
(A) the representations and warranties of Plains Resources contained in this
Agreement are true and correct at and as of the Closing Date as though made at
and as of the Closing Date and (B) Plains Resources has in all material respects
performed all obligations required to be performed by it pursuant to the terms
of this Agreement at or prior to the Closing Date;
(o) On or prior to the date hereof, the Partnership shall have furnished
to you a letter substantially in the form of Exhibit C hereto from each officer
and each director of the General Partner.
All such opinions, certificates, letters and other documents referred
to in this Section 8 will be in compliance with the provisions hereof only if
they are reasonably satisfactory in form and substance to you and your counsel.
The Partnership shall furnish to the Representatives conformed copies of such
opinions, certificates, letters and other documents in such number as they shall
reasonably request.
The several obligations of the Underwriters to purchase Additional Units
hereunder are subject to the satisfaction on and as of any Option Closing Date
of the conditions set forth in this Section 8, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (g), (k), (m) and (n) shall be
dated the Option Closing Date in question and the opinions called for by
paragraphs (c), (d) and (f), as applicable, shall be revised to reflect the sale
of Additional Units.
9. Expenses. The Partnership agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Units; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Units, including any stamp taxes in
connection with the original issuance and sale of the Units; (iv) the printing
(or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda, and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Units; (v)
the registration of the Common Units under the Exchange Act and the listing of
the Common Units on the NYSE; (vi) the registration or qualification of the
Units for offer and sale under the securities or Blue Sky laws of the several
states as provided in Section 5(g) hereof (including the reasonable fees,
expenses and disbursements of counsel for the Underwriters relating to the
preparation, printing or reproduction, and delivery of the preliminary and
supplemental Blue Sky Memoranda and such registration and qualification); (vii)
the
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filing fees and the reasonable fees and expenses of counsel for the Underwriters
in connection with any filings required to be made with the National Association
of Securities Dealers, Inc.; (viii) the transportation and other expenses
incurred by or on behalf of officers and employees of the Partnership in
connection with presentations to prospective purchasers of the Units; and (ix)
the fees and expenses of the Partnership's accountants and the fees and expenses
of counsel (including local and special counsel) for the Partnership.
It is understood, however, that except as otherwise provided in this
Section 9 and Section 5(j) hereof, the Underwriters will pay all of their own
costs and expenses, including the fees of their counsel, transfer taxes on any
resale of the Units by any Underwriter, any advertising expenses connected with
any offers they may make and the transportation and other expenses incurred by
the Underwriters on their own behalf in connection with presentations to
prospective purchasers of the Units.
10. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
Registration Statement or a post-effective amendment thereto to be declared
effective before the offering of the Units may commence, when notification of
the effectiveness of the Registration Statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Partnership by notifying you,
or by you, as Representatives of the several Underwriters, by notifying the
Partnership.
If any one or more of the Underwriters shall fail or refuse to purchase
Units which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Units which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than one-
tenth of the aggregate number of the Units which the Underwriters are obligated
to purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Units set forth
opposite its name in Schedule I hereto bears to the aggregate number of Firm
Units set forth opposite the names of all non-defaulting Underwriters or in such
other proportion as you may specify in accordance with Section 20 of the Master
Agreement Among Underwriters of Salomon Smith Barney Inc., to purchase the Units
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or refuse
to purchase Units which it or they are obligated to purchase on the Closing Date
and the aggregate number of Units with respect to which such default occurs is
more than one-tenth of the aggregate number of Units which the Underwriters are
obligated to purchase on the Closing Date and arrangements satisfactory to you
and the Partnership for the purchase of such Units by one or more non-defaulting
Underwriters or other party or parties approved by you and the Partnership are
not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any party hereto (other than the defaulting
Underwriter). In any such case which does not result in termination of this
Agreement, either you or the Partnership shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the
-42-
<PAGE>
Prospectus or any other documents or arrangements may be effected. If any one or
more of the Underwriters shall fail or refuse to purchase Additional Units which
it or they are obligated to purchase hereunder on the Option Closing Date, each
non-defaulting Underwriter shall be obligated, severally, in the proportion
which the number of Firm Units set forth opposite its name in Schedule I hereto
bears to the aggregate number of Firm Units set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Salomon
Smith Barney Inc., to purchase the Additional Units which such defaulting
Underwriter or Underwriters are obligated, but fail or refuse, to purchase. Any
action taken under this paragraph shall not relieve any defaulting Underwriter
from liability in respect of any such default of any such Underwriter under this
Agreement. The term "Underwriter" as used in this Agreement includes, for all
purposes of this Agreement, any party not listed in Schedule I hereto who, with
your approval and the approval of the Partnership, purchases Units which a
defaulting Underwriter is obligated, but fails or refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to any Plains Entity, by notice to the Partnership, if prior to the
Closing Date or any Option Closing Date (if different from the Closing Date and
then only as to the Additional Units), as the case may be, (i) trading in
securities generally on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market shall have been suspended or materially limited,
(ii) a general moratorium on commercial banking activities in New York or Texas
shall have been declared by either federal or state authorities, or (iii) there
shall have occurred any outbreak or escalation of hostilities or other
international or domestic calamity, crisis or change in political, financial or
economic conditions, the effect of which on the financial markets of the United
States is such as to make it, in your judgment, impracticable or inadvisable to
commence or continue the offering of the Units at the offering price to the
public set forth on the cover page of the Prospectus or to enforce contracts for
the resale of the Units by the Underwriters. Notice of such termination may be
given to the Partnership by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set forth
in the last paragraph on the cover page, the stabilization legend on the inside
cover page, and the statements in the first, fifth, seventh and ninth paragraphs
and the third sentence of the seventh paragraph under the caption "Underwriting"
in any Prepricing Prospectus and in the Prospectus, constitute the only
information furnished by or on behalf of the Underwriters through you as such
information is referred to in Sections 6(a) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 7, 10 and
11 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to any of the Plains Entities, at the
office of the Partnership at 500 Dallas, Suite 700, Houston, Texas 77002,
Attention: Michael R. Patterson, or (ii) if to you, as Representatives of the
-43-
<PAGE>
several Underwriters, care of Salomon Smith Barney Inc., 388 Greenwich Street,
New York, New York 10013, Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Plains Entities, their directors and officers, and the
other controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Units in his status
as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
-44-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Partnership, the Operating Partnerships, All American Pipeline
Company, the General Partner and Plains Resources and the several Underwriters.
Very truly yours,
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.
its General Partner
By:
---------------------------
Name:
Title:
PLAINS MARKETING, L.P.
By: PLAINS ALL AMERICAN INC.
its General Partner
By:
---------------------------
Name:
Title:
ALL AMERICAN, L.P.
By: PLAINS ALL AMERICAN INC.
its General Partner
By:
---------------------------
Name:
Title:
ALL AMERICAN PIPELINE COMPANY
By:
---------------------------
Name:
Title:
-45-
<PAGE>
PLAINS ALL AMERICAN INC.
By:
--------------------------------
Name:
Title:
PLAINS RESOURCES INC.
By:
--------------------------------
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SALOMON SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
A.G. EDWARDS & SONS, INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS, a division of
Dain Rauscher Incorporated
ING BARING FURMAN SELZ LLC
As Representatives of the Several Underwriters
By: SALOMON SMITH BARNEY INC.
By:
------------------------------
Managing Director
-46-
<PAGE>
SCHEDULE I
Plains All American Pipeline, L.P.
<TABLE>
<CAPTION>
Number of Firm Units
Underwriter to be Purchased
----------- --------------------
<S> <C>
Salomon Smith Barney Inc.............................................
PaineWebber Incorporated.............................................
A.G. Edwards & Sons, Inc.............................................
Donaldson, Lufkin & Jenrette Securities Corporation..................
Goldman, Sachs & Co..................................................
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated......
ING Baring Furman Selz LLC...........................................
Total 12,782,609
==========
</TABLE>
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
Entity Jurisdiction in which registered or qualified
------ ---------------------------------------------
<S> <C>
Partnership
Plains Marketing, L.P. Arizona, California, Colorado, Florida, Illinois, Kansas, Louisiana,
Mississippi, New Mexico, Oklahoma, Texas
All American, L.P. Arizona, California, New Mexico, Texas
General Partner Arizona, California, Colorado, Florida, Illinois, Kansas, Louisiana,
Mississippi, New Mexico, Oklahoma, Texas
Plains Resources California, Colorado, Florida, Kansas, Louisiana, Mississippi, New
Mexico, Oklahoma, Texas
Gathering LLC California, Oklahoma, Texas
</TABLE>
-1-
<PAGE>
EXHIBIT B
(i) The indenture dated as of March 15, 1996, among Plains Resources, the
subsidiary guarantors named therein and Texas Commerce Bank National
Association, as Trustee for Plains Resources's 10 1/4% Senior
Subordinated Notes due 2006, Series A and Series B
(ii) The indenture dated as of July 21, 1997 among Plains Resources, the
subsidiary guarantors named therein and Texas Commerce Bank National
Association, as Trustee for Plains Resources's 10 1/4% Senior
Subordinated Notes due 2006, Series C and Series D.
(iii) The First Supplemental Indenture dated as of July 15, 1998, between
Plains Resources and Chase Bank of Texas, National Association (formerly
known as Texas Commerce Bank National Association), as Trustee.
(iv) The Fourth Amended and Restated Credit Agreement dated as of May 22,
1998, among Plains Resources and ING (U.S.) Capital Corporation, et al.
(v) The Credit Agreement dated as of July 30, 1998, between the General
Partner and ING (U.S.) Capital Corporation, et al.
(vi) The Credit Agreement dated as of July 30, 1998, between Plains Marketing
& Transportation Inc. and BankBoston, N.A., et al.
-1-
<PAGE>
EXHIBIT C
[Letterhead of officer, director or holder of Common Units or
Subordinated Units]
Plains All American Pipeline, L.P.
Public Offering of Common Units
-------------------------------
Salomon Smith Barney Inc.
PaineWebber Incorporated
A.G. Edwards & Sons, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Goldman, Sachs & Co.
Dain Rauscher Wessels, a Division of
Dain Rauscher Incorporated
ING Baring Furman Selz LLC
c/o Salomon Smith Barney, Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement") among Plains All American
Pipeline, L.P., a Delaware limited partnership (the "Partnership"), Plains
Marketing, L.P., All American, L.P, Plains All American Inc., Plains Resources
Inc., Salomon Smith Barney Inc., PaineWebber Incorporated, A.G. Edwards & Sons,
Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co.,
Dain Rauscher Wessels, a divisions of Dain Rauscher Incorporated and ING Baring
Furman Selz LLC as representatives of t[Bhe underwriters, relating to an
underwritten public offering of common units representing limited partner
interests (the "Common Units") of the Partnership.
To induce you to enter into the Underwriting Agreement, the
undersigned agrees that it will not offer, sell, contract to sell or otherwise
dispose of any Common Units or Subordinated Units (as defined in the
Underwriting Agreement), any securities that are convertible into, or
exercisable or exchangeable for, or that represent the right to receive, Common
Units or Subordinated Units or any securities that are senior to or pari passu
with Common Units for a period of 180 days after the date of the Prospectus (as
defined in the Underwriting Agreement) without the prior written consent of
Salomon Smith Barney Inc.
-1-
<PAGE>
If for any reason the Underwriting Agreement is terminated before the
Closing Date (as defined in the Underwriting Agreement), the agreement set forth
above shall likewise be terminated.
Yours very truly,
[Signature of officer, director or common
Unitholder]
[Name and address of officer, director or common
Unitholder]
-2-
<PAGE>
EXHIBIT 3.2
Draft of November 1, 1998
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PLAINS MARKETING, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
Section 1.1 Definitions 1
Section 1.2 Construction 12
ARTICLE II
ORGANIZATION
Section 2.1 Formation 12
Section 2.2 Name 12
Section 2.3 Registered Office; Registered Agent; Principal
Office; Other Offices 12
Section 2.4 Purpose and Business 13
Section 2.5 Powers 13
Section 2.6 Power of Attorney 14
Section 2.7 Term 15
Section 2.8 Title to Partnership Assets 15
ARTICLE III
RIGHTS OF LIMITED PARTNERS
Section 3.1 Limitation of Liability 16
Section 3.2 Management of Business 16
Section 3.3 Outside Activities of the Limited Partners 16
Section 3.4 Rights of Limited Partners 17
ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS
Section 4.1 Transfer Generally 18
Section 4.2 Transfer of General Partner's Partnership
Interest 18
Section 4.3 Transfer of a Limited Partner's Partnership
Interest 18
Section 4.4 Restrictions on Transfers 19
i
<PAGE>
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1 Initial Contributions 19
Section 5.2 Contributions Pursuant to the Contribution
and Conveyance Agreement 19
Section 5.3 Additional Capital Contributions 20
Section 5.4 Interest and Withdrawal 20
Section 5.5 Capital Accounts 20
Section 5.6 Loans from Partners 23
Section 5.7 Limited Preemptive Rights 24
Section 5.8 Fully Paid and Non-Assessable Nature of
Partnership Interests 24
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes 24
Section 6.2 Allocations for Tax Purposes 28
Section 6.3 Distributions 31
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management 31
Section 7.2 Certificate of Limited Partnership 33
Section 7.3 Restrictions on General Partner's Authority 34
Section 7.4 Reimbursement of the General Partner 34
Section 7.5 Outside Activities 35
Section 7.6 Partnership; Contracts with Affiliates;
Certain Restrictions on the Loans from the
General Partner; Loans or Contributions
from the General Partner 37
Section 7.7 Indemnification 38
Section 7.8 Liability of Indemnitees 40
Section 7.9 Resolution of Conflicts of Interest 41
Section 7.10 Other Matters Concerning the General Partner 42
Section 7.11 Reliance by Third Parties 43
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting 44
Section 8.2 Fiscal Year 44
ii
<PAGE>
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information 44
Section 9.2 Tax Elections 44
Section 9.3 Tax Controversies 45
Section 9.4 Withholding 45
ARTICLE X
ADMISSION OF PARTNERS
Section 10.1 Admission of Partners 45
Section 10.2 Admission of Substituted Limited Partner 45
Section 10.3 Admission of Additional Limited Partners 46
Section 10.4 Admission of Successor or Transferee
General Partner 46
Section 10.5 Amendment of Agreement and Certificate of
Limited Partnership 47
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
Section 11.1 Withdrawal of the General Partner 47
Section 11.2 Removal of the General Partner 49
Section 11.3 Interest of Departing Partner 49
Section 11.4 Withdrawal of a Limited Partner 50
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution 50
Section 12.2 Continuation of the Business of the
Partnership After Dissolution 50
Section 12.3 Liquidator 51
Section 12.4 Liquidation 52
Section 12.5 Cancellation of Certificate of Limited
Partnership 53
Section 12.6 Return of Contributions 53
Section 12.7 Waiver of Partition 53
Section 12.8 Capital Account Restoration 53
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT
Section 13.1 Amendment to be Adopted Solely by the
General Partner 54
Section 13.2 Amendment Procedures 55
iii
<PAGE>
ARTICLE XIV
MERGER
Section 14.1 Authority 56
Section 14.2 Procedure for Merger or Consolidation 56
Section 14.3 Approval by Limited Partners of Merger or
Consolidation 57
Section 14.4 Certificate of Merger 58
Section 14.5 Effect of Merger 58
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notices 59
Section 15.2 Further Action 59
Section 15.3 Binding Effect 59
Section 15.4 Integration 59
Section 15.5 Creditors 59
Section 15.6 Waiver 59
Section 15.7 Counterparts 60
Section 15.8 Applicable Law 60
Section 15.9 Invalidity of Provisions 60
Section 15.10 Consent of Partners 60
iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PLAINS MARKETING, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of PLAINS
MARKETING, L.P., dated as of _______________________________, is entered into by
and between Plains All American, Inc., a Delaware corporation, as the General
Partner, and Plains All American Pipeline, L.P., a Delaware limited partnership,
as the Organizational Limited Partner, together with any other Persons who
hereafter become Partners in the Partnership or parties hereto as provided
herein.
R E C I T A L S:
- - - - - - - -
WHEREAS, Plains All American, Inc. and Plains All American Pipeline, L.P.
formed the Partnership pursuant to the Agreement of Limited Partnership of
Plains Marketing, L.P. dated as of _________________, 1998 (the "Prior
Agreement"); and
WHEREAS, the Partners of the Partnership now desire to amend the Prior
Agreement to reflect additional contributions by the Partners and certain other
matters.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements contained herein, the parties hereto hereby amend the Prior Agreement
and, as so amended, restate it in its entirety as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
Capitalized terms used herein but not otherwise defined shall have the meaning
assigned to such term in the MLP Agreement.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 10.4 and who is shown
as such on the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each fiscal year of the Partnership, (a)
increased by any amounts that such Partner is obligated to restore under
the standards set by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or
is deemed obligated to restore under Treasury Regulation Sections 1.704-
<PAGE>
2(g) and 1.704-2(i)(5)) and (b) decreased by (i) the amount of all losses
and deductions that, as of the end of such fiscal year, are reasonably
expected to be allocated to such Partner in subsequent years under Sections
704(e)(2) and 706(d) of the Code and Treasury Regulation Section 1.751-
1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end
of such fiscal year, are reasonably expected to be made to such Partner in
subsequent years in accordance with the terms of this Agreement or
otherwise to the extent they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during (or prior to)
the year in which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback pursuant to
Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing definition of Adjusted
Capital Account is intended to comply with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith. The "Adjusted Capital Account" of a Partner in
respect of a General Partner Interest or any other specified interest in
the Partnership shall be the amount which such Adjusted Capital Account
would be if such General Partner Interest or other interest in the
Partnership were the only interest in the Partnership held by a Partner
from and after the date on which such general partner interest or other
interest was first issued.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii). Once an Adjusted
Property is deemed contributed to a new partnership in exchange for an
interest in the new partnership, followed by a deemed liquidation of the
Partnership for federal income tax purposes upon a termination of the
Partnership pursuant to Treasury Regulation Section 1.708-(b)(1)(iv), such
property shall thereafter constitute a Contributed Property until the
Carrying Value of such property is subsequently adjusted pursuant to
Section 5.5(d)(i) or 5.5(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As
used herein, the term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 6.1, including, without limitation, a Curative
Allocation (if appropriate to the context in which the term "Agreed
Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation
as it may adopt. The General Partner shall, in its discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate
Agreed Value of Contributed Properties contributed to the Partnership in a
2
<PAGE>
single or integrated transaction among each separate property on a basis
proportional to the fair market value of each Contributed Property.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership of Plains Marketing, L.P., as it may be amended, supplemented
or restated from time to time. The Agreement shall constitute a "limited
partnership agreement" as such term is defined in the Delaware Act.
"Assets" means the assets being conveyed to the Partnership on the
Closing Date pursuant to Section 5.2(a) and the Contribution and Conveyance
Agreement.
"Assignee" means a Person to whom one or more Partnership Interests
have been transferred in a manner permitted under this Agreement, but who
has not been admitted as a Substituted Partner.
"Associate" means, when used to indicate a relationship with any
Person, (a) any corporation or organization of which such Person is a
director, officer or partner or is, directly or indirectly, the owner of
20% or more of any class of voting stock or other voting interest; (b) any
trust or other estate in which such Person has at least a 20% beneficial
interest or as to which such Person serves as trustee or in a similar
fiduciary capacity; and (c) any relative or spouse of such Person, or any
relative of such spouse, who has the same principal residence as such
Person.
"Assumed Liabilities" means the liabilities that the Partnership is
either assuming or taking subject to in connection with the conveyance of
the Assets pursuant to Section 5.2(a) and the Contribution and Conveyance
Agreement.
"Available Cash" means, with respect to any Quarter ending prior to
the Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the
Partnership Group on hand at the end of such Quarter, and (ii) all
additional cash and cash equivalents of the Partnership Group on hand on
the date of determination of Available Cash with respect to such Quarter
resulting from Working Capital Borrowings made subsequent to the end of
such Quarter, less
(b) the amount of any cash reserves that is necessary or
appropriate in the reasonable discretion of the General Partner to (i)
provide for the proper conduct of the business of the Partnership Group
(including reserves for future capital expenditures and for anticipated
future credit needs of the Partnership Group) subsequent to such Quarter,
(ii) comply with applicable law or any loan agreement, security agreement,
mortgage, debt instrument or other agreement or obligation to which any
Group Member is a party or by
3
<PAGE>
which it is bound or its assets are subject or (iii) provide funds for
distributions under Section 6.4 or 6.5 of the MLP Agreement in respect of
any one or more of the next four Quarters; provided, however, that the
General Partner may not establish cash reserves pursuant to (iii) above if
the effect of such reserves would be that the MLP is unable to distribute
the Minimum Quarterly Distribution on all Common Units, plus any Cumulative
Common Unit Arrearage on all Common Units, with respect to such Quarter;
and provided further that disbursements made by a Group Member or cash
reserves established, increased or reduced after the end of such Quarter
but on or before the date of determination of Available Cash with respect
to such Quarter shall be deemed to have been made, established, increased
or reduced, for purposes of determining Available Cash, within such Quarter
if the General Partner so determines.
Notwithstanding the foregoing, "Available Cash" with respect to
the Quarter in which the Liquidation Date occurs and any subsequent Quarter
shall equal zero.
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax
purposes as of such date. A Partner's share of the Partnership's Book-Tax
Disparities in all of its Contributed Property and Adjusted Property will
be reflected by the difference between such Partner's Capital Account
balance as maintained pursuant to Section 5.5 and the hypothetical balance
of such Partner's Capital Account computed as if it had been maintained
strictly in accordance with federal income tax accounting principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York and Texas shall not be regarded as a
Business Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.5. The "Capital Account" of a Partner in respect of a
General Partner Interest or any other specified interest in the Partnership
shall be the amount which such Capital Account would be if such General
Partner Interest or other specified interest in the Partnership were the
only interest in the Partnership held by a Partner from and after the date
on which such General Partner Interest or other specified interest in the
Partnership was first issued.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property that a Partner contributes to the
Partnership pursuant to this Agreement or the Contribution and Conveyance
Agreement.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all
depreciation, amortization and
4
<PAGE>
cost recovery deductions charged to the Partners' and Assignees' Capital
Accounts in respect of such Contributed Property, and (b) with respect to
any other Partnership property, the adjusted basis of such property for
federal income tax purposes, all as of the time of determination. The
Carrying Value of any property shall be adjusted from time to time in
accordance with Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the
General Partner.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership of the Partnership filed with the Secretary of State of the
State of Delaware as referenced in Section 2.1, as such Certificate of
Limited Partnership may be amended, supplemented or restated from time to
time.
"Closing Date" means the first date on which Common Units are sold by
the MLP to the Underwriters pursuant to the provisions of the Underwriting
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any
corresponding provision of successor law.
"Commission" means the United States Securities and Exchange
Commission.
"Common Unit" has the meaning assigned to such term in the MLP
Agreement.
"Contributed Property" means each property or other asset, in such
form as may be permitted by the Delaware Act, but excluding cash,
contributed to the Partnership (or deemed contributed to a new Partnership
on termination of the Partnership pursuant to Section 708 of the Code. Once
the Carrying Value of a Contributed Property is adjusted pursuant to
Section 5.5(d), such property shall no longer constitute a Contributed
Property, but shall be deemed an Adjusted Property.
"Contribution and Conveyance Agreement" means that certain
Contribution, Conveyance and Assumption Agreement, dated as of the Closing
Date, among the General Partner, the Plains Midstream Subsidiaries, the
MLP, the Partnership and certain other parties, together with the
additional conveyance documents and instruments contemplated or referenced
thereunder.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(ix).
5
<PAGE>
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C. (S)17-101, et seq., as amended, supplemented or restated
from time to time, and any successor to such statute.
"Departing Partner" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1 or 11.2.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation Section 1.752-2(a).
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"General Partner" means Plains All American, Inc. and its successors
and permitted assigns as general partner of the Partnership.
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (except voting pursuant to a revocable proxy
or consent given to such Person in response to a proxy or consent
solicitation made to 10 or more Persons) or disposing of any MLP Securities
with any other Person that beneficially owns, or whose Affiliates or
Associates beneficially own, directly or indirectly, MLP Securities.
"Group Member" means a member of the Partnership Group.
"Indemnitee" means (a) any General Partner, any Departing Partner and
any Person who is or was an Affiliate of the General Partner or any
Departing Partner, (b) any Person who is or was a director, officer,
employee, agent or trustee of a Group Member, (c) any Person who is or was
an officer, member, partner, director, employee, agent or trustee of the
General Partner or any Departing Partner or any Affiliate of the General
Partner or any Departing Partner, or any Affiliate of any such Person and
(d) any Person who is or was serving at the request of the General Partner
or any Departing Partner or any such Affiliate as a director, officer,
employee, member, partner, agent, fiduciary or trustee of another Person;
provided, that a Person shall not be an Indemnitee by reason of providing,
on a fee-for-services basis, trustee, fiduciary or custodial services.
"Initial Offering" means the initial offering and sale of Common Units
to the public, as described in the Registration Statement.
"Liquidation Date" means (a) in the case of an event giving rise to
the dissolution of the Partnership of the type described in clauses (a) and
(b) of the first sentence of Section 12.2, the date on which the applicable
time period during which the Partners have the right
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to elect to reconstitute the Partnership and continue its business has
expired without such an election being made, and (b) in the case of any
other event giving rise to the dissolution of the Partnership, the date on
which such event occurs.
"Liquidator" means one or more Persons selected by the General Partner
to perform the functions described in Section 12.3 as liquidating trustee
of the Partnership within the meaning of the Delaware Act.
"Limited Partner" means any Person that is admitted to the Partnership
as a limited partner pursuant to the terms and conditions of this
Agreement; but the term Limited Partner shall not include any Person from
and after the time such Person withdraws as a Limited Partner from the
Partnership.
"Merger Agreement" has the meaning assigned to such term in Section
14.1.
"Minimum Quarterly Distribution" has the meaning assigned to such term
in the MLP Agreement.
"MLP" means Plains All American Pipeline, L.P.
"MLP Agreement" means the Amended and Restated Agreement of Limited
Partnership of Plains All American Pipeline, L.P., as it may be amended,
supplemented or restated from time to time.
"MLP Security" has the meaning assigned to the term "Partnership
Security" in the MLP Agreement.
"Net Agreed Value" means, (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed
by the Partnership upon such contribution or to which such property is
subject when contributed, and (b) in the case of any property distributed
to a Partner or Assignee by the Partnership, the Partnership's Carrying
Value of such property (as adjusted pursuant to Section 5.5(d)(ii)) at the
time such property is distributed, reduced by any indebtedness either
assumed by such Partner or Assignee upon such distribution or to which such
property is subject at the time of distribution, in either case, as
determined under Section 752 of the Code.
"Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss)
for such taxable year over the Partnership's items of loss and deduction
(other than those items taken into account in the computation of Net
Termination Gain or Net Termination Loss) for such taxable year. The items
included
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in the calculation of Net Income shall be determined in accordance with
Section 5.5(b) and shall not include any items specially allocated under
Section 6.1(d).
"Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction (other than those items taken
into account in the computation of Net Termination Gain or Net Termination
Loss) for such taxable year over the Partnership's items of income and gain
(other than those items taken into account in the computation of Net
Termination Gain or Net Termination Loss) for such taxable year. The items
included in the calculation of Net Loss shall be determined in accordance
with Section 5.5(b) and shall not include any items specially allocated
under Section 6.1(d).
"Net Termination Gain" means, for any taxable year, the sum, if
positive, of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the
determination of Net Termination Gain shall be determined in accordance
with Section 5.5(b) and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
"Net Termination Loss" means, for any taxable year, the sum, if
negative, of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the
determination of Net Termination Loss shall be determined in accordance
with Section 5.5(b) and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would
be allocated to the Partners pursuant to Sections 6.2(b)(i)(A),
6.2(b)(ii)(A) and 6.2(b)(iii) if such properties were disposed of in a
taxable transaction in full satisfaction of such liabilities and for no
other consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in
accordance with the principles of Treasury Regulation Section 1.704-2(b),
are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"OLP Subsidiary" means a Subsidiary of the OLP.
"Omnibus Agreement" means that Omnibus Agreement, dated as of the
Closing Date, among Plains Resources, Inc., the General Partner, the MLP,
the Partnership and All American, L.P.
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"Opinion of Counsel" means a written opinion of counsel (which may be
regular counsel to the Partnership or the General Partner or any of its
Affiliates) acceptable to the General Partner in its reasonable discretion.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with the
principles of Treasury Regulation Section 1.704-2(i), are attributable to a
Partner Nonrecourse Debt.
"Partnership" means Plains Marketing, L.P., a Delaware limited
partnership, and any successors thereto.
"Partnership Group" means the Partnership and all OLP Subsidiaries,
treated as a single consolidated entity.
"Partnership Interest" means an ownership interest of a Partner in the
Partnership.
"Partnership Minimum Gain" means that amount determined in accordance
with the principles of Treasury Regulation Section 1.704-2(d).
"Percentage Interest" means, (a) as to the General Partner, an
aggregate 1.0101% and (b) as to the MLP, 98.9899%.
"Person" means an individual or a corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization,
association, government agency or political subdivision thereof or other
entity.
"Prior Agreement" is defined in the Recitals.
"Pro Rata" means, when modifying Partners and Assignees, apportioned
among all Partners and Assignees in accordance with their relative
Percentage Interests.
"Quarter" means, unless the context requires otherwise, a fiscal
quarter of the Partnership.
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"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or 743
of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to
such property or asset.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-64107) as it has been or as it may be amended or
supplemented from time to time, filed by the MLP with the Commission under
the Securities Act to register the offering and sale of the Common Units in
the Initial Offering.
"Required Allocations" means (a) any limitation imposed on any
allocation of Net Losses or Net Termination Losses under Section 6.1(b) or
6.1(c)(ii) and (b) any allocation of an item of income, gain, loss or
deduction pursuant to Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv),
6.1(d)(vii) or 6.1(d)(ix).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of a
Contributed Property or Adjusted Property, to the extent such item of gain
or loss is not allocated pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A),
respectively, to eliminate Book-Tax Disparities.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such
statute.
"Special Approval" has the meaning assigned to such term in the MLP
Agreement.
"Subsidiary" means, with respect to any Person, (a) a corporation of
which more than 50% of the voting power of shares entitled (without regard
to the occurrence of any contingency) to vote in the election of directors
or other governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person or a combination thereof, (b) a partnership
(whether general or limited) in which such Person or a Subsidiary of such
Person is, at the date of determination, a general or limited partner of
such partnership, but only if more than 50% of the partnership interests of
such partnership (considering all of the partnership interests of the
partnership as a single class) is owned, directly or indirectly, at the
date of determination, by such Person, by one or more Subsidiaries of such
Person, or a combination thereof, or (c) any other Person (other than a
corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or
indirectly, at the date of determination, has (i) at least a majority
ownership interest or (ii) the power to elect or direct the election of a
majority of the directors or other governing body of such Person.
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"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 10.2 in place of and
with all the rights of a Limited Partner and who is shown as a Limited
Partner on the books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Transfer" has the meaning assigned to such term in Section 4.4(a).
"Underwriter" means each Person named as an underwriter in Schedule I
to the Underwriting Agreement who purchases Common Units pursuant thereto.
"Underwriting Agreement" means the Underwriting Agreement dated
_______________, 1998 among the Underwriters, the MLP and certain other
parties, providing for the purchase of Common Units by such Underwriters.
"Unit" has the meaning assigned to such term in the MLP Agreement.
"Unit Majority" has the meaning assigned to such term in the MLP
Agreement.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property as of such date (as determined under Section
5.5(d)) over (b) the Carrying Value of such property as of such date (prior
to any adjustment to be made pursuant to Section 5.5(d) as of such date).
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the
Carrying Value of such property as of such date (prior to any adjustment to
be made pursuant to Section 5.5(d) as of such date) over (b) the fair
market value of such property as of such date (as determined under Section
5.5(d)).
"U.S. GAAP" means United States Generally Accepted Accounting
Principles consistently applied.
"Working Capital Borrowings" means borrowings exclusively for working
capital purposes made pursuant to a credit facility or other arrangement
requiring all such borrowings thereunder to be reduced to a relatively
small amount each year for an economically meaningful period of time.
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Section 1.2 Construction.
Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) "include" or "includes" means includes,
without limitation, and "including" means including, without limitation.
ARTICLE II
ORGANIZATION
Section 2.1 Formation.
The Partnership was previously formed as a limited partnership pursuant to
the provisions of the Delaware Act. The Partners hereby amend and restate the
Prior Agreement in its entirety. This amendment and restatement shall become
effective on the date of this Agreement. Except as expressly provided to the
contrary in this Agreement, the rights, duties (including fiduciary duties),
liabilities and obligations of the Partners and the administration, dissolution
and termination of the Partnership shall be governed by the Delaware Act. All
Partnership Interests shall constitute personal property of the owner thereof
for all purposes and a Partner has no interest in specific Partnership property.
Section 2.2 Name.
The name of the Partnership shall be "Plains Marketing, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner in its sole discretion,
including the name of the General Partner. The words "Limited Partnership,"
"L.P." or "Ltd." shall be included in the Partnership's name where necessary for
the purpose of complying with the laws of any jurisdiction that so requires. The
General Partner in its discretion may change the name of the Partnership at any
time and from time to time and shall notify the other Partner(s) of such change
in the next regular communication to the Partners.
Section 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices.
Unless and until changed by the General Partner, the registered office of
the Partnership in the State of Delaware shall be located at 1013 Center Road,
Wilmington, Delaware 19805-1297, and the registered agent for service of process
on the Partnership in the State of Delaware at such registered office shall be
Corporation Service Company. The principal office of the Partnership shall be
located at 500 Dallas, Suite 700, Houston, Texas 77002 or such other place as
the General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems necessary
or appropriate. The address of the General Partner shall be 500 Dallas, Suite
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700, Houston, Texas 77002 or such other place as the General Partner may from
time to time designate by notice to the Limited Partners.
Section 2.4 Purpose and Business.
The purpose and nature of the business to be conducted by the Partnership
shall be to (a) acquire, manage, operate and sell the Assets and any similar
assets or properties now or hereafter acquired by the Partnership, (b) engage
directly in, or enter into or form any corporation, partnership, joint venture,
limited liability company or other arrangement to engage indirectly in, any
business activity that the Partnership is permitted to engage in, any type of
business or activity engaged in by the General Partner prior to the Closing Date
and, in connection therewith, to exercise all of the rights and powers conferred
upon the Partnership pursuant to the agreements relating to such business
activity, (c) engage directly in, or enter into or form any corporation,
partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that is approved by the General
Partner and which lawfully may be conducted by a limited partnership organized
pursuant to the Delaware Act and, in connection therewith, to exercise all of
the rights and powers conferred upon the Partnership pursuant to the agreements
relating to such business activity; provided, however, that the General Partner
reasonably determines, as of the date of the acquisition or commencement of such
activity, that such activity (i) generates "qualifying income" (as such term is
defined pursuant to Section 7704 of the Code) or (ii) enhances the operations of
an activity of the Partnership that generates qualifying income, and (d) do
anything necessary or appropriate to the foregoing, including the making of
capital contributions or loans to a Group Member, the MLP or any Subsidiary of
the MLP. The General Partner has no obligation or duty to the Partnership, the
Limited Partners, or the Assignees to propose or approve, and in its discretion
may decline to propose or approve, the conduct by the Partnership of any
business.
Section 2.5 Powers.
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in Section
2.4 and for the protection and benefit of the Partnership.
Section 2.6 Power of Attorney.
(a) Each Partner and each Assignee hereby constitutes and appoints the
General Partner and, if a Liquidator shall have been selected pursuant to
Section 12.3, the Liquidator, severally (and any successor to the Liquidator by
merger, transfer, assignment, election or otherwise) and each of their
authorized officers and attorneys-in-fact, as the case may be, with full power
of substitution, as its true and lawful agent and attorney-in-fact, with full
power and authority in his name, place and stead, to:
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(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including this Agreement and the Certificate of Limited
Partnership and all amendments or restatements hereof or thereof) that the
General Partner or the Liquidator deems necessary or appropriate to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership in the State of Delaware and in all other jurisdictions
in which the Partnership may conduct business or own property; (B) all
certificates, documents and other instruments that the General Partner or
the Liquidator deems necessary or appropriate to reflect, in accordance
with its terms, any amendment, change, modification or restatement of this
Agreement; (C) all certificates, documents and other instruments (including
conveyances and a certificate of cancellation) that the General Partner or
the Liquidator deems necessary or appropriate to reflect the dissolution
and liquidation of the Partnership pursuant to the terms of this Agreement;
(D) all certificates, documents and other instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article IV, X, XI or XII; (E) all
certificates, documents and other instruments relating to the determination
of the rights, preferences and privileges of any class or series of
Partnership Interests issued pursuant hereto; and (F) all certificates,
documents and other instruments (including agreements and a certificate of
merger) relating to a merger or consolidation of the Partnership pursuant
to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the General
Partner or the Liquidator, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made or given by
the Partners hereunder or is consistent with the terms of this Agreement or
is necessary or appropriate, in the discretion of the General Partner or
the Liquidator, to effectuate the terms or intent of this Agreement;
provided, that when required by any provision of this Agreement that
establishes a percentage of the Limited Partners or of the Limited Partners
of any class or series required to take any action, the General Partner and
the Liquidator may exercise the power of attorney made in this Section
2.6(a)(ii) only after the necessary vote, consent or approval of the
Limited Partners or of the Limited Partners of such class or series, as
applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the General Partner to amend this Agreement except in accordance with Article
XIII or as may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and, to
the maximum extent permitted by law, not be affected by the subsequent death,
incompetency, disability, incapacity, dissolution, bankruptcy or termination of
any Limited Partner or Assignee and the transfer of all or any portion of such
Limited Partner's or Assignee's Partnership Interest and shall extend to such
Limited Partner's or
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Assignee's successors and assigns. Each such Limited Partner or Assignee hereby
agrees to be bound by any representation made by the General Partner or the
Liquidator acting in good faith pursuant to such power of attorney; and each
such Limited Partner or Assignee, to the maximum extent permitted by law, hereby
waives any and all defenses that may be available to contest, negate or
disaffirm the action of the General Partner or the Liquidator taken in good
faith under such power of attorney. Each Limited Partner or Assignee shall
execute and deliver to the General Partner or the Liquidator, within 15 days
after receipt of the request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidator deems
necessary to effectuate this Agreement and the purposes of the Partnership.
Section 2.7 Term.
The term of the Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the close of Partnership business on December 31, 2088 or until
the earlier dissolution of the Partnership in accordance with the provisions of
Article XII. The existence of the Partnership as a separate legal entity shall
continue until the cancellation of the Certificate of Limited Partnership as
provided in the Delaware Act.
Section 2.8 Title to Partnership Assets.
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner or Assignee, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner, one or more of its Affiliates or one or more nominees, as
the General Partner may determine. The General Partner hereby declares and
warrants that any Partnership assets for which record title is held in the name
of the General Partner or one or more of its Affiliates or one or more nominees
shall be held by the General Partner or such Affiliate or nominee for the use
and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use reasonable
efforts to cause record title to such assets (other than those assets in respect
of which the General Partner determines that the expense and difficulty of
conveyancing makes transfer of record title to the Partnership impracticable) to
be vested in the Partnership as soon as reasonably practicable; provided,
further, that, prior to the withdrawal or removal of the General Partner or as
soon thereafter as practicable, the General Partner shall use reasonable efforts
to effect the transfer of record title to the Partnership and, prior to any such
transfer, will provide for the use of such assets in a manner satisfactory to
the General Partner. All Partnership assets shall be recorded as the property of
the Partnership in its books and records, irrespective of the name in which
record title to such Partnership assets is held.
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ARTICLE III
RIGHTS OF LIMITED PARTNERS
Section 3.1 Limitation of Liability.
The Limited Partners and the Assignees shall have no liability under this
Agreement except as expressly provided in this Agreement or in the Delaware Act.
Section 3.2 Management of Business.
No Limited Partner or Assignee, in its capacity as such, shall participate
in the operation, management or control (within the meaning of the Delaware Act)
of the Partnership's business, transact any business in the Partnership's name
or have the power to sign documents for or otherwise bind the Partnership. Any
action taken by any Affiliate of the General Partner or any officer, director,
employee, member, general partner, agent or trustee of the General Partner or
any of its Affiliates, or any officers, director, employee, member, general
partner, agent or trustee of a Group Member, in its capacity as such, shall not
be deemed to be participation in the control of the business of the Partnership
by a limited partner of the Partnership (within the meaning of Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate the limitations
on the liability of the Limited Partners or Assignees under this Agreement.
Section 3.3 Outside Activities of the Limited Partners.
Subject to the provisions of Section 7.5, which shall continue to be
applicable to the Persons referred to therein, regardless of whether such
Persons shall also be Limited Partners or Assignees, any Limited Partner or
Assignee shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and activities in direct competition with the Partnership
Group. Neither the Partnership nor any of the other Partners or Assignees shall
have any rights by virtue of this Agreement in any business ventures of any
Limited Partner or Assignee.
Section 3.4 Rights of Limited Partners.
(a) In addition to other rights provided by this Agreement or by
applicable law, and except as limited by Section 3.4(b), each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon reasonable written demand
and at such Limited Partner's own expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
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(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local income tax returns for each year;
(iii) to have furnished to him a current list of the name and last
known business, residence or mailing address of each Partner;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto, together
with a copy of the executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash
and a description and statement of the Net Agreed Value of any other
Capital Contribution by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner; and
(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
(b) The General Partner may keep confidential from the Limited Partners and
Assignees, for such period of time as the General Partner deems reasonable, (i)
any information that the General Partner reasonably believes to be in the nature
of trade secrets or (ii) other information the disclosure of which the General
Partner in good faith believes (A) is not in the best interests of the MLP or
the Partnership Group, (B) could damage the MLP or the Partnership Group or (C)
that any Group Member is required by law or by agreement with any third party to
keep confidential (other than agreements with Affiliates of the Partnership the
primary purpose of which is to circumvent the obligations set forth in this
Section 3.4).
ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS
Section 4.1 Transfer Generally.
(a) The term "transfer," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which a
Partner assigns its Partnership Interest to another Person who becomes a Partner
or an Assignee, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article IV.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
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(c) Nothing contained in this Agreement shall be construed to prevent
a disposition by any shareholder of the General Partner of any or all of the
issued and outstanding capital stock of the General Partner.
Section 4.2 Transfer of General Partner's Partnership Interest.
If the General Partner transfers its interest as the general partner
of the MLP to any Person in accordance with the provisions of the MLP Agreement,
the General Partner shall contemporaneously therewith transfer all, but not less
than all, of its General Partner Interest herein to such Person, and the Limited
Partners hereby expressly consent to such transfer. Except as set forth in the
immediately preceding sentence and in Section 5.2, a General Partner may not
transfer all or any part of its Partnership Interest as the General Partner;
provided, however, that this provision shall not preclude or limit a General
Partner's ability to mortgage, pledge, hypothecate or grant a security interest
in its Partnership Interest as the General Partner and shall not prevent any
forced sale of any or all of its Partnership Interest as the General Partner
pursuant to the foreclosure of, or other realization upon, any such encumbrance.
Section 4.3 Transfer of a Limited Partner's Partnership Interest.
A Limited Partner may transfer all, but not less than all, of its
Partnership Interest as a Limited Partner in connection with the merger,
consolidation or other combination of such Limited Partner with or into any
other Person or the transfer by such Limited Partner of all or substantially all
of its assets to another Person, and following any such transfer such Person may
become a Substituted Limited Partner pursuant to Article X. Except as set forth
in the immediately preceding sentence and in Section 5.2, or in connection with
any pledge of (or any related foreclosure on) a Partnership Interest as a
Limited Partner solely for the purpose of securing, directly or indirectly,
indebtedness of the Partnership or the MLP, and except for the transfers
contemplated by Sections 5.2 and 10.1, a Limited Partner may not transfer all or
any part of its Partnership Interest or withdraw from the Partnership.
Section 4.4 Restrictions on Transfers.
(a) Notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interest shall be made if such transfer would (i)
violate the then applicable federal or state securities laws or rules and
regulations of the Commission, any state securities commission or any other
governmental authority with jurisdiction over such transfer, (ii) terminate the
existence or qualification of the Partnership or the MLP under the laws of the
jurisdiction of its formation or (iii) cause the Partnership or the MLP to be
treated as an association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not already so treated
or taxed).
(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid
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a significant risk of the Partnership or the MLP becoming taxable as a
corporation or otherwise to be taxed as an entity for federal income tax
purposes. The restrictions may be imposed by making such amendments to this
Agreement as the General Partner may determine to be necessary or appropriate to
impose such restrictions.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1 Initial Contributions.
In connection with the formation of the Partnership, the General Partner
made an initial Capital Contribution to the Partnership in the amount of $50.00
in exchange for an interest in the Partnership and was admitted as General
Partner, and the MLP made an initial Capital Contribution to the Partnership in
the amount of $50.00 in exchange for an interest in the Partnership and was
admitted as a Limited Partner.
Section 5.2 Contributions Pursuant to the Contribution and Conveyance
Agreement.
(a) Pursuant to the Contribution and Conveyance Agreement, the General
Partner has contributed to the capital of the Partnership certain of the Assets
acquired by it from certain of the Plains Midstream Subsidiaries in exchange for
addtional Partnership Interests. Immediately following such contribution, the
General Partner transferred all but a 1.0101% Partnership Interest to the MLP in
exchange for certain interests therein as more particularly described in the
Registration Statement.
(b) Pursuant to the Contribution and Conveyance Agreement, the
Partnership assumed certain indebtedness relating to the Assets.
(c) Pursuant to the Contribution and Conveyance Agreement, the MLP has
contributed to the Partnership all of the net proceeds from the sale of Common
Units offered pursuant to the Registration Statement and all of the limited
partner interest in All American, L.P. in exchange for a Partnership Interest as
a Limited Partner.
(d) Following the foregoing transactions, the General Partner holds a
1.0101% Partnership Interest as General Partner and the MLP holds a 98.9899%
Partnership Interest as a Limited Partner.
Section 5.3 Additional Capital Contributions.
With the consent of the General Partner, any Limited Partner may, but shall
not be obligated to, make additional Capital Contributions to the Partnership.
Contemporaneously with the making of any Capital Contributions by a Limited
Partner, in addition to those provided in Sections 5.1 and
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5.2, the General Partner shall be obligated to make an additional Capital
Contribution to the Partnership in an amount equal to [1.0101 divided by
98.9899] of the Net Agreed Value of the additional Capital Contribution then
made by such Limited Partner. Except as set forth in the immediately preceding
sentence and in Article XII, the General Partner shall not be obligated to make
any additional Capital Contributions to the Partnership.
Section 5.4 Interest and Withdrawal.
No interest shall be paid by the Partnership on Capital Contributions. No
Partner or Assignee shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent, if any, that distributions made pursuant to
this Agreement or upon termination of the Partnership may be considered as such
by law and then only to the extent provided for in this Agreement. Except to the
extent expressly provided in this Agreement, no Partner or Assignee shall have
priority over any other Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions. Any such return shall
be a compromise to which all Partners or Assignees agree within the meaning of
Section 17-502(b) of the Delaware Act.
Section 5.5 Capital Accounts.
(a) The Partnership shall maintain for each Partner (or a beneficial
owner of Partnership Interests held by a nominee in any case in which the
nominee has furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other method acceptable to
the General Partner in its sole discretion) owning a Partnership Interest a
separate Capital Account with respect to such Partnership Interest in accordance
with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital
Account shall be increased by (i) the amount of all Capital Contributions made
to the Partnership with respect to such Partnership Interest pursuant to this
Agreement and (ii) all items of Partnership income and gain (including, without
limitation, income and gain exempt from tax) computed in accordance with Section
5.5(b) and allocated with respect to such Partnership Interest pursuant to
Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of all
actual and deemed distributions of cash or property made with respect to such
Partnership Interest pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 5.5(b) and allocated with
respect to such Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of income, gain,
loss or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Partners' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
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(i) Solely for purposes of this Section 5.5, the Partnership shall be
treated as owning directly its proportionate share (as determined by the
General Partner) of all property owned by any OLP Subsidiary that is
classified as a partnership for federal income tax purposes.
(ii) All fees and other expenses incurred by the Partnership to
promote the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred and shall be
allocated among the Partners pursuant to Section 6.1.
(iii) Except as otherwise provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of
the Code which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes. To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 734(b) or 743(b) of the Code is
required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to
be taken into account in determining Capital Accounts, the amount of such
adjustment in the Capital Accounts shall be treated as an item of gain or
loss.
(iv) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of Section 704(b) of the
Code, any deductions for depreciation, cost recovery or amortization
attributable to any Contributed Property shall be determined as if the
adjusted basis of such property on the date it was acquired by the
Partnership were equal to the Agreed Value of such property. Upon an
adjustment pursuant to Section 5.5(d) to the Carrying Value of any
Partnership property subject to depreciation, cost recovery or
amortization, any further deductions for such depreciation, cost recovery
or amortization attributable to such property shall be determined (A) as if
the adjusted basis of such property were equal to the Carrying Value of
such property immediately following such adjustment and (B) using a rate of
depreciation, cost recovery or amortization derived from the same method
and useful life (or, if applicable, the remaining useful life) as is
applied for federal income tax purposes; provided, however, that, if the
asset has a zero adjusted basis for federal income tax purposes,
depreciation, cost recovery or amortization derived from the same method
and useful life (or, if applicable, the remaining useful life) as is
applied for federal income tax purposes; provided, however, that, if the
asset has a zero adjusted basis for federal income tax purposes,
depreciation, cost
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recovery or amortization deductions shall be determined using any
reasonable method that the General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to
Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction
shall, solely for purposes hereof, be deemed to be an additional
depreciation or cost recovery deduction in the year such property is placed
in service and shall be allocated among the Partners pursuant to Section
6.1. Any restoration of such basis pursuant to Section 48(q)(2) of the Code
shall, to the extent possible, be allocated in the same manner to the
Partners to whom such deemed deduction was allocated.
(c) A transferee of a Partnership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the Partnership
Interest so transferred.
(d) (i) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), on an issuance of additional Partnership Interests for cash or
Contributed Property or the conversion of the General Partner's Partnership
Interest to Common Units as provided in Section 11.3(a) (or upon the occurrence
of any other event listed in such regulation), the Capital Accounts of all
Partners and the Carrying Value of each Partnership property immediately prior
to such issuance shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Partnership property, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each
such property immediately prior to such issuance and had been allocated to the
Partners at such time pursuant to Section 6.1 in the same manner as any item of
gain or loss actually recognized during such period would have been allocated.
In determining such Unrealized Gain or Unrealized Loss, the aggregate cash
amount and fair market value of all Partnership assets (including, without
limitation, cash or cash equivalents) immediately prior to the issuance of
additional Partnership Interests shall be determined by the General Partner
using such reasonable method of valuation as it may adopt; provided, however,
that the General Partner, in arriving at such valuation, must take fully into
account the fair market value of the Partnership Interests of all Partners at
such time. The General Partner shall allocate such aggregate value among the
assets of the Partnership (in such manner as it determines in its discretion to
be reasonable) to arrive at a fair market value for individual properties.
(ii) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to a
Partner of any Partnership property (other than a distribution of cash that
is not in redemption or retirement of a Partnership Interest), the Capital
Accounts of all Partners and the Carrying Value of all Partnership property
shall be adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as if such
Unrealized Gain or Unrealized Loss had been recognized in a sale of such
property immediately prior to such distribution for an amount equal to its
fair market value, and had been allocated to the
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Partners, at such time, pursuant to Section 6.1 in the same manner as any
item of gain or loss actually recognized during such period would have been
allocated. In determining such Unrealized Gain or Unrealized Loss the
aggregate cash amount and fair market value of all Partnership assets
(including, without limitation, cash or cash equivalents) immediately prior
to a distribution shall (A) in the case of an actual distribution which is
not made pursuant to Section 12.4 or in the case of a deemed contribution
and/or distribution occurring as a result of a termination of the
Partnership pursuant to Section 708 of the Code, be determined and
allocated in the same manner as that provided in Section 5.5(d)(i) or (B)
in the case of a liquidating distribution pursuant to Section 12.4, be
determined and allocated by the Liquidator using such reasonable method of
valuation as it may adopt.
Section 5.6 Loans from Partners.
Loans by a Partner to the Partnership shall not constitute Capital
Contributions. If any Partner shall advance funds to the Partnership in excess
of the amounts required hereunder to be contributed by it to the capital of the
Partnership, the making of such excess advances shall not result in any increase
in the amount of the Capital Account of such Partner. The amount of any such
excess advances shall be a debt obligation of the Partnership to such Partner
and shall be payable or collectible only out of the Partnership assets in
accordance with the terms and conditions upon which such advances are made.
Section 5.7 Limited Preemptive Rights.
Except as provided in Section 5.3, no Person shall have preemptive,
preferential or other similar rights with respect to (a) additional Capital
Contributions; (b) issuance or sale of any class or series of Partnership
Interests, whether unissued, held in the treasury or hereafter created; (c)
issuance of any obligations, evidences of indebtedness or other securities of
the Partnership convertible into or exchangeable for, or carrying or accompanied
by any rights to receive, purchase or subscribe to, any such Partnership
Interests; (d) issuance of any right of subscription to or right to receive, or
any warrant or option for the purchase of, any such Partnership Interests; or
(e) issuance or sale of any other securities that may be issued or sold by the
Partnership.
Section 5.8 Fully Paid and Non-Assessable Nature of Partnership Interests.
All Partnership Interests issued to Limited Partners pursuant to, and in
accordance with the requirements of, this Article V shall be fully paid and non-
assessable Partnership Interests, except as such non-assessability may be
affected by Section 17-607 of the Delaware Act.
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes.
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Section 5.5(b)) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations set
forth in Section 6.1(d), Net Income for each taxable year and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable year shall be allocated among the Partners as follows:
(i) First, 100% to the General Partner, until the aggregate Net
Income allocated to the General Partner pursuant to this Section 6.1(a)(i)
for the current taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partner pursuant to Section
6.1(b)(ii) for all previous taxable years;
(ii) Second, 1.0101% to the General Partner and 98.9899% to the
Limited Partners in accordance with their respective Percentage Interests.
(b) Net Losses. After giving effect to the special allocations set
forth in Section 6.1(d), Net Losses for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Losses for
such taxable period shall be allocated among the Partners as follows:
(i) First, 1.0101% to the General Partner and 98.9899% to the Limited
Partners, in accordance with their respective Percentage Interests;
provided, however, that Net Losses shall not be allocated to a Limited
Partner pursuant to this Section 6.1(b)(i) to the extent that such
allocation would cause a Limited Partner to have a deficit balance in its
Adjusted Capital Account at the end of such taxable year (or increase any
existing deficit balance in such Limited Partners's Adjusted Capital
Account);
(ii) Second, the balance, if any, 100% to the General Partner.
(c) Net Termination Gains and Losses. After giving effect to the
special allocations set forth in Section 6.1(d), all items of income, gain, loss
and deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder.
All allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this Section
6.1 and after all distributions
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of Available Cash provided under Section 6.4 have been made with respect to the
taxable period ending on or before the Liquidation Date; provided, however, that
solely for purposes of this Section 6.1(c), Capital Accounts shall not be
adjusted for distributions made pursuant to Section 12.4.
(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 5.5(d)), such Net Termination Gain shall be allocated
among the Partners in the following manner (and the Capital Accounts of the
Partners shall be increased by the amount so allocated in each of the
following subclauses, in the order listed, before an allocation is made
pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance in its
Capital Account, in the proportion that such deficit balance bears to
the total deficit balances in the Capital Accounts of all Partners,
until each such Partner has been allocated Net Termination Gain equal
to any such deficit balance in its Capital Account; and
(B) Second, 1.0101% to the General Partner and 98.9899% to the
Limited Partners, in accordance with their respective Percentage
Interests.
(ii) If a Net Termination Loss is recognized (or deemed
recognized pursuant to Section 5.5(d)), such Net Termination Loss shall be
allocated among the Partners in the following manner:
(A) First, to the General Partner and the Limited Partners in
proportion to, and to the extent of, the positive balances in their
respective Capital Accounts; and
(B) Second, the balance, if any, 100% to the General Partner.
(d) Special Allocations. Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 6.1, if there is a net decrease in Partnership
Minimum Gain during any Partnership taxable period, each Partner shall be
allocated items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-
2(j)(2)(i), or any successor provision. For purposes of this Section
6.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.1(d) with respect to such taxable period (other than an
allocation pursuant to Sections 6.1(d)(v) and 6.1(d)(vi)). This Section
6.1(d)(i) is intended to comply with the Partnership Minimum Gain
chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall
be interpreted consistently therewith.
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(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning of such
taxable period shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in the manner and
amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and 1.704-
2(j)(2)(ii), or any successor provisions. For purposes of this Section
6.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.1(d), other than Section 6.1(d)(i) and other than an
allocation pursuant to Sections 6.1(d)(v) and 6.1(d)(vi), with respect to
such taxable period. This Section 6.1(d)(ii) is intended to comply with the
chargeback of items of income and gain requirement in Treasury Regulation
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(iii) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions
described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership income
and gain shall be specially allocated to such Partner in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
Regulations promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 6.1(d)(i)
or (ii).
(iv) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any Partnership
taxable period in excess of the sum of (A) the amount such Partner is
required to restore pursuant to the provisions of this Agreement and (B)
the amount such Partner is deemed obligated to restore pursuant to Treasury
Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such Partner shall be
specially allocated items of Partnership gross income and gain in the
amount of such excess as quickly as possible; provided, that an allocation
pursuant to this Section 6.1(d)(iv) shall be made only if and to the extent
that such Partner would have a deficit balance in its Capital Account as
adjusted after all other allocations provided for in this Section 6.1 have
been tentatively made as if this Section 6.1(d)(iv) were not in this
Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of
the Treasury Regulations promulgated under Section 704(b) of the Code, the
General Partner
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is authorized, upon notice to the other Partners, to revise the prescribed
ratio to the numerically closest ratio that does satisfy such requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
for any taxable period shall be allocated 100% to the Partner that bears
the Economic Risk of Loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulation Section 1.704-2(i). If more than one Partner bears
the Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such
Partner Nonrecourse Deductions attributable thereto shall be allocated
between or among such Partners in accordance with the ratios in which they
share such Economic Risk of Loss.
(vii) Nonrecourse Liabilities. For purposes of Treasury Regulation
Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of
the Partnership in excess of the sum of (A) the amount of Partnership
Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
(viii) Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Partnership asset pursuant to Section
734(b) or 743(c) of the Code is required, pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital Accounts
shall be treated as an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases such basis), and such
item of gain or loss shall be specially allocated to the Partners in a
manner consistent with the manner in which their Capital Accounts are
required to be adjusted pursuant to such Section of the Treasury
Regulations.
(ix) Curative Allocation.
(A) Notwithstanding any other provision of this Section 6.1,
other than the Required Allocations, the Required Allocations shall be
taken into account in making the Agreed Allocations so that, to the
extent possible, the net amount of items of income, gain, loss and
deduction allocated to each Partner pursuant to the Required
Allocations and the Agreed Allocations, together, shall be equal to
the net amount of such items that would have been allocated to each
such Partner under the Agreed Allocations had the Required Allocations
and the related Curative Allocation not otherwise been provided in
this Section 6.1. Notwithstanding the preceding sentence, Required
Allocations relating to (1) Nonrecourse Deductions shall not be taken
into account except to the extent that there has been a decrease in
Partnership Minimum Gain and (2) Partner Nonrecourse Deductions shall
not be taken into account except to the extent that there has been a
decrease in Partner Nonrecourse Debt Minimum Gain. Allocations
pursuant to this Section 6.1(d)(ix)(A) shall only be made with
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respect to Required Allocations to the extent the General Partner
reasonably determines that such allocations will otherwise be
inconsistent with the economic agreement among the Partners. Further,
allocations pursuant to this Section 6.1(d)(ix)(A) shall be deferred
with respect to allocations pursuant to clauses (1) and (2) hereof to
the extent the General Partner reasonably determines that such
allocations are likely to be offset by subsequent Required
Allocations.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of Section
6.1(d)(ix)(A) in whatever order is most likely to minimize the
economic distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to Section
6.1(d)(ix)(A) among the Partners in a manner that is likely to
minimize such economic distortions.
Section 6.2 Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners in the manner
provided under Section 704(c) of the Code that takes into account the
variation between the Agreed Value of such property and its adjusted basis
at the time of contribution; and (B) any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of "book" gain or loss
is allocated pursuant to Section 6.1.
(ii) (A) In the case of an Adjusted Property, such items shall (1)
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and the
allocations thereof pursuant to Section 5.5(d)(i) or 5.5(d)(ii), and (2)
second, in the event such property was originally a Contributed Property,
be allocated among the Partners in a manner consistent with Section
6.2(b)(i)(A); and (B) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be allocated among the Partners
in the same manner as its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1.
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(iii) The General Partner shall apply the principles of Treasury
Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Units or other limited partner interests of
the MLP (or any class or classes thereof), the General Partner shall have sole
discretion to (i) adopt such conventions as it deems appropriate in determining
the amount of depreciation, amortization and cost recovery deductions; (ii) make
special allocations for federal income tax purposes of income (including,
without limitation, gross income) or deductions; and (iii) amend the provisions
of this Agreement as appropriate (x) to reflect the proposal or promulgation of
Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y)
otherwise to preserve or achieve uniformity of the Units or other limited
partner interests of the MLP (or any class or classes thereof). The General
Partner may adopt such conventions, make such allocations and make such
amendments to this Agreement as provided in this Section 6.2(c) only if such
conventions, allocations or amendments would not have a material adverse effect
on the Partners, the holders of any class or classes of Units or other limited
partner interests of the MLP issued and outstanding or the Partnership and if
such allocations are consistent with the principles of Section 704 of the Code.
(d) The General Partner in its discretion may determine to depreciate
or amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Proposed Treasury Regulation Section 1.168-2(n), Treasury
Regulation Section 1.167(c)-l(a)(6) or the legislative history of Section 197 of
the Code. If the General Partner determines that such reporting position cannot
reasonably be taken, the General Partner may adopt depreciation and amortization
conventions under which all purchasers acquiring Limited Partner Interests of
the MLP in the same month would receive depreciation and amortization
deductions, based upon the same applicable rate as if they had purchased a
direct interest in the Partnership's property. If the General Partner chooses
not to utilize such aggregate method, the General Partner may use any other
reasonable depreciation and amortization conventions to preserve the uniformity
of the intrinsic tax characteristics of any Limited Partner Interests of the MLP
that would not have a material adverse effect on the Partners or the holders of
any class or classes of Limited Partner Interests of the MLP.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
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(f) All items of income, gain, loss, deduction and credit recognized
by the Partnership for federal income tax purposes and allocated to the Partners
in accordance with the provisions hereof shall be determined without regard to
any election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) The General Partner may adopt such methods of allocation of
income, gain, loss or deduction between a transferor and a transferee of a
Partnership Interest as it determines necessary, to the extent permitted or
required by Section 706 of the Code and the regulations or rulings promulgated
thereunder.
(h) Allocations that would otherwise be made to a Partner under the
provisions of this Article VI shall instead be made to the beneficial owner of
Partnership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion.
Section 6.3 Distributions.
(a) Within 45 days following the end of each Quarter commencing with
the Quarter ending on December 31, 1998, an amount equal to 100% of Available
Cash with respect to such Quarter shall, subject to Section 17-607 of the
Delaware Act, be distributed in accordance with this Article VI by the
Partnership to the Partners in accordance with their respective Percentage
Interests. The immediately preceding sentence shall not require any distribution
of cash if and to the extent such distribution would be prohibited by applicable
law or by any loan agreement, security agreement, mortgage, debt instrument or
other agreement or obligation to which the Partnership is a party or by which it
is bound or its assets are subject. All distributions required to be made under
this Agreement shall be made subject to Section 17-607 of the Delaware Act.
(b) In the event of the dissolution and liquidation of the
Partnership, all receipts received during or after the Quarter in which the
Liquidation Date occurs, other than from borrowings described in (a)(ii) of the
definition of Available Cash, shall be applied and distributed solely in
accordance with, and subject to the terms and conditions of, Section 12.4.
(c) The General Partner shall have the discretion to treat taxes paid
by the Partnership on behalf of, or amounts withheld with respect to, all or
less than all of the Partners, as a distribution of Available Cash to such
Partners.
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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management.
(a) The General Partner shall conduct, direct and manage all
activities of the Partnership. Except as otherwise expressly provided in this
Agreement, all management powers over the business and affairs of the
Partnership shall be exclusively vested in the General Partner, and no Limited
Partner shall have any management power over the business and affairs of the
Partnership. In addition to the powers now or hereafter granted a general
partner of a limited partnership under applicable law or which are granted to
the General Partner under any other provision of this Agreement, the General
Partner, subject to Section 7.3, shall have full power and authority to do all
things and on such terms as it, in its sole discretion, may deem necessary or
appropriate to conduct the business of the Partnership, to exercise all powers
set forth in Section 2.5 and to effectuate the purposes set forth in Section
2.4, including the following:
(i) the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness, including indebtedness that is convertible into a Partnership
Interest, and the incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the Partnership or
the merger or other combination of the Partnership with or into another
Person (the matters described in this clause (iii) being subject, however,
to any prior approval that may be required by Section 7.3);
(iv) the use of the assets of the Partnership (including cash on
hand) for any purpose consistent with the terms of this Agreement,
including the financing of the conduct of the operations of the Partnership
Group, subject to Section 7.6, the lending of funds to other Persons
(including the MLP, the General Partner and its Affiliates), the repayment
of obligations of the MLP or any member of the Partnership Group and the
making of capital contributions to any member of the Partnership Group;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including instruments that limit the
liability of the Partnership under contractual arrangements to all or
particular assets of the Partnership, with the other party to the contract
to have no recourse against the General Partner or its assets other than
its interest
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in the Partnership, even if same results in the terms of the transaction
being less favorable to the Partnership than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including employees
having titles such as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants, consultants and
contractors and the determination of their compensation and other terms of
employment or hiring;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited or
general partnerships, joint ventures, corporations or other relationships
subject to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations
of the Partnership, including the bringing and defending of actions at law
or in equity and otherwise engaging in the conduct of litigation and the
incurring of legal expense and the settlement of claims and litigation; and
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law.
(b) Notwithstanding any other provision of this Agreement, the MLP
Agreement, the Delaware Act or any applicable law, rule or regulation, each of
the Partners and each other Person who may acquire an interest in the
Partnership hereby (i) approves, ratifies and confirms the execution, delivery
and performance by the parties thereto of the Partnership Agreement, the MLP
Agreement, the Underwriting Agreement, the Omnibus Agreement, the Contribution
and Conveyance Agreement and the other agreements and documents described in or
filed as exhibits to the Registration Statement that are related to the
transactions contemplated by the Registration Statement; (ii) agrees that the
General Partner (on its own or through any officer of the Partnership) is
authorized to execute, deliver and perform the agreements referred to in clause
(i) of this sentence and the other agreements, acts, transactions and matters
described in or contemplated by the Registration Statement on behalf of the
Partnership without any further act, approval or vote of the Partners or the
other Persons who may acquire an interest in the Partnership; and (iii) agrees
that the execution, delivery or performance by the General Partner, the MLP, any
Group Member or any Affiliate of any of them, of this Agreement or any agreement
authorized or permitted under this Agreement (including the exercise by the
General Partner or any Affiliate of the General Partner of the rights accorded
pursuant to Article XV), shall not constitute a breach by the General Partner of
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any duty that the General Partner may owe the Partnership or the Partners or any
other Persons under this Agreement (or any other agreements) or of any duty
stated or implied by law or equity.
Section 7.2 Certificate of Limited Partnership.
The General Partner has caused the Certificate of Limited Partnership to be
filed with the Secretary of State of the State of Delaware as required by the
Delaware Act and shall use all reasonable efforts to cause to be filed such
other certificates or documents as may be determined by the General Partner in
its sole discretion to be reasonable and necessary or appropriate for the
formation, continuation, qualification and operation of a limited partnership
(or a partnership or other entity in which the limited partners have limited
liability) in the State of Delaware or any other state in which the Partnership
may elect to do business or own property. To the extent that such action is
determined by the General Partner in its sole discretion to be reasonable and
necessary or appropriate, the General Partner shall file amendments to and
restatements of the Certificate of Limited Partnership and do all things to
maintain the Partnership as a limited partnership (or a partnership or other
entity in which the limited partners have limited liability) under the laws of
the State of Delaware or of any other state in which the Partnership may elect
to do business or own property. Subject to the terms of Section 3.4(a), the
General Partner shall not be required, before or after filing, to deliver or
mail a copy of the Certificate of Limited Partnership, any qualification
document or any amendment thereto to any Limited Partner or Assignee.
Section 7.3 Restrictions on General Partner's Authority.
(a) The General Partner may not, without written approval of the
specific act by the Limited Partners or by other written instrument executed and
delivered by the Limited Partners subsequent to the date of this Agreement, take
any action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) committing any act that would make it impossible
to carry on the ordinary business of the Partnership; (ii) possessing
Partnership property, or assigning any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admitting a Person as a Partner;
(iv) amending this Agreement in any manner or (v) transferring its General
Partner Interest.
(b) Except as provided in Articles XII and XIV, the General Partner
may not sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
or approve on behalf of the Partnership the sale, exchange or other disposition
of all or substantially all of the assets of the Partnership, without the
approval of the Limited Partners; provided however that this provision shall not
preclude or limit the General Partner's ability to mortgage, pledge, hypothecate
or grant a security interest in all or substantially all of the assets of the
Partnership and shall not apply to any forced sale of any or all of the assets
of the Partnership pursuant to the foreclosure of, or other realization upon,
any such encumbrance. Without the approval of at least a Unit Majority, the
General Partner shall not, on behalf of the MLP, (i) consent to any amendment to
this Agreement or, except as expressly permitted
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by Section 7.9(d) of the MLP Agreement, take any action permitted to be taken by
a Partner, in either case, that would have a material adverse effect on the MLP
as a Partner or (ii) except as permitted under Sections 4.6, 11.1 and 11.2 of
the MLP Agreement, elect or cause the MLP to elect a successor general partner
of the Partnership.
Section 7.4 Reimbursement of the General Partner.
(a) Except as provided in this Section 7.4 and elsewhere in this
Agreement or in the MLP Agreement, the General Partner shall not be compensated
for its services as General Partner, general partner of the MLP or as general
partner of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or
such other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person including Affiliates of the
General Partner to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Reimbursements pursuant to this Section 7.4
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7.
(c) Subject to Section 5.7, the General Partner, in its sole
discretion and without the approval of the Limited Partners (who shall have no
right to vote in respect thereof), may propose and adopt on behalf of the
Partnership employee benefit plans, employee programs and employee practices, or
cause the Partnership to issue Partnership securities, in connection with,
pursuant to any employee benefit plan, employee program or employee practice
maintained or sponsored by the General Partner or any of its Affiliates, in each
case for the benefit of employees of the General Partner any Group Member or any
Affiliate, or any of them, in respect of services performed, directly or
indirectly, for the benefit of the Partnership Group. Expenses incurred by the
General Partner in connection with any such plans, programs and practices shall
be reimbursed in accordance with Section 7.4(b). Any and all obligations of the
General Partner under any employee benefit plans, employee programs or employee
practices adopted by the General Partner as permitted by this Section 7.4(c)
shall constitute obligations of the General Partner hereunder and shall be
assumed by any successor General Partner approved pursuant to Section 11.1 or
11.2 or the transferee of or successor to all of the General Partner's General
Partner Interest pursuant to Section 4.2.
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Section 7.5 Outside Activities.
(a) After the Closing Date, the General Partner, for so long as it is
the General Partner of the Partnership, (i) agrees that its sole business will
be to act as the general partner of the Partnership, the general partner of the
MLP, and a general partner of any other partnership of which the Partnership or
the MLP is, directly or indirectly, a partner and to undertake activities that
are ancillary or related thereto (including being a limited partner in the MLP),
(ii) shall not engage in any business or activity or incur any debts or
liabilities except in connection with or incidental to (A) its performance as
general partner of the Partnership, the MLP or as general partner or one or more
Group Members or as described in or contemplated by the Registration Statement
or (B) the acquiring, owning or disposing of debt or equity securities in the
MLP or any Group Member and (iii) except to the extent permitted in the Omnibus
Agreement, shall not, and shall cause its Affiliates not to, engage in any
Restricted Activity.
(b) The Omnibus Agreement, to which the Partnership is a party, sets
forth certain restrictions on the ability of Plains Resources, Inc. to engage in
Restricted Activities.
(c) Except as specifically restricted by Section 7.5(a) and the
Omnibus Agreement, each Indemnitee (other than the General Partner) shall have
the right to engage in businesses of every type and description and other
activities for profit and to engage in and possess an interest in other business
ventures of any and every type or description, whether in businesses engaged in
or anticipated to be engaged in by the MLP or any Group Member, independently or
with others, including business interests and activities in direct competition
with the business and activities of the MLP or any Group Member, and none of the
same shall constitute a breach of this Agreement or any duty express or implied
by law to the MLP or any Group Member or any Partner or Assignee. Neither the
MLP nor any Group Member, any Limited Partner, nor any other Person shall have
any rights by virtue of this Agreement, the MLP Agreement or the relationship
established hereby or thereby in any business ventures of any Indemnitee.
(d) Subject to the terms of the Omnibus Agreement, Section 7.5(a), (b)
and (c) but otherwise notwithstanding anything to the contrary in this
Agreement, (i) the engaging in competitive activities by any Indemnitees (other
than the General Partner) in accordance with the provisions of this Section 7.5
is hereby approved by the Partnership and all Partners, (ii) it shall be deemed
not to be a breach of the General Partner's fiduciary duty or any other
obligation of any type whatsoever of the General Partner for the Indemnitees
(other than the General Partner) to engage in such business interests and
activities in preference to or to the exclusion of the Partnership and (iii)
except as set forth in the Omnibus Agreement, the General Partner and the
Indemnities shall have no obligation to present business opportunities to the
Partnership.
(e) The General Partner and any of its Affiliates may acquire Common
Units or other MLP Securities in addition to those acquired on the Closing Date
and, except as otherwise
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provided in this Agreement, shall be entitled to exercise all rights relating to
such Common Units or MLP Securities.
(f) The term "Affiliates" when used in Section 7.5(a) and Section
7.5(e) with respect to the General Partner shall not include any Group Member or
any Subsidiary of the MLP or any Group Member.
(g) Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this
Agreement purport or are interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the General Partner to the Partnership and its
Limited Partners, or to constitute a waiver or consent by the Limited Partners
to any such restriction, such provisions shall be inapplicable and have no
effect in determining whether the General Partner has complied with its
fiduciary duties in connection with determinations made by it under this Section
7.5.
Section 7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the General
Partner.
(a) The General Partner or its Affiliates may lend to the MLP or any
Group Member, and the MLP or any Group Member may borrow from the General
Partner or any of its Affiliates, funds needed or desired by the MLP or the
Group Member for such periods of time and in such amounts as the General Partner
may determine; provided, however, that in any such case the lending party may
not charge the borrowing party interest at a rate greater than the rate that
would be charged the borrowing party or impose terms less favorable to the
borrowing party than would be charged or imposed on the borrowing party by
unrelated lenders on comparable loans made on an arm's-length basis (without
reference to the lending party's financial abilities or guarantees). The
borrowing party shall reimburse the lending party for any costs (other than any
additional interest costs) incurred by the lending party in connection with the
borrowing of such funds. For purposes of this Section 7.6(a) and Section 7.6(b),
the term "Group Member" shall include any Affiliate of a Group Member that is
controlled by the Group Member. No Group Member may lend funds to the General
Partner or any of its Affiliates (other than the MLP, a Subsidiary of the MLP or
a Subsidiary of another Group Member).
(b) The Partnership may lend or contribute to any Group Member, and
any Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.
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(c) The General Partner may itself, or may enter into an agreement
with any of its Affiliates to, render services to a Group Member or to the
General Partner in the discharge of its duties as general partner of the
Partnership. Any services rendered to a Group Member by the General Partner or
any of its Affiliates shall be on terms that are fair and reasonable to the
Partnership; provided, however, that the requirements of this Section 7.6(c)
shall be deemed satisfied as to (i) any transaction approved by Special
Approval, (ii) any transaction, the terms of which are no less favorable to the
Partnership Group than those generally being provided to or available from
unrelated third parties or (iii) any transaction that, taking into account the
totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership Group), is equitable to the Partnership Group. The provisions of
Section 7.4 shall apply to the rendering of services described in this Section
7.6(c).
(d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 7.6(e) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Sections 5.2 and 5.3, the Contribution and
Conveyance Agreement and any other transactions described in or contemplated by
the Registration Statement, (ii) any transaction approved by Special Approval,
(iii) any transaction, the terms of which are no less favorable to the
Partnership than those generally being provided to or available from unrelated
third parties, or (iv) any transaction that, taking into account the totality of
the relationships between the parties involved (including other transactions
that may be particularly favorable or advantageous to the Partnership), is
equitable to the Partnership.
(f) The General Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
Section 7.7 Indemnification.
(a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, all Indemnitees shall be
indemnified and held harmless by the
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Partnership from and against any and all losses, claims, damages, liabilities,
joint or several, expenses (including legal fees and expenses), judgments,
fines, penalties, interest, settlements or other amounts arising from any and
all claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, by reason of its status as
an Indemnitee; provided, that in each case the Indemnitee acted in good faith
and in a manner that such Indemnitee reasonably believed to be in, or (in the
case of a Person other than the General Partner) not opposed to, the best
interests of the Partnership and, with respect to any criminal proceeding, had
no reasonable cause to believe its conduct was unlawful; provided, further, no
indemnification pursuant to this Section 7.7 shall be available to the General
Partner with respect to its obligations incurred pursuant to the Underwriting
Agreement or the Contribution and Conveyance Agreement (other than obligations
incurred by the General Partner on behalf of the MLP or the Partnership). The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that the Indemnitee acted in a manner contrary to that
specified above. Any indemnification pursuant to this Section 7.7 shall be made
only out of the assets of the Partnership, it being agreed that the General
Partner shall not be personally liable for such indemnification and shall have
no obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal
fees and expenses) incurred by an Indemnitee who is indemnified pursuant to
Section 7.7(a) in defending any claim, demand, action, suit or proceeding shall,
from time to time, be advanced by the Partnership prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by the
Partnership of any undertaking by or on behalf of the Indemnitee to repay such
amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and
as to actions in any other capacity (including any capacity under the
Underwriting Agreement), and shall continue as to an Indemnitee who has ceased
to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the
General Partner or its Affiliates for the cost of) insurance, on behalf of the
General Partner, its Affiliates and such other Persons as the General Partner
shall determine, against any liability that may be asserted against or expense
that may be incurred by such Person in connection with the Partnership's
activities or such Person's activities on behalf of the Partnership, regardless
of whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement.
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(e) For purposes of this Section 7.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 7.7(a); and action taken
or omitted by it with respect to any employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the [Limited] Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligations of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.8 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, no Indemnitee shall be liable for monetary damages to the
Partnership, the Limited Partners, the Assignees or any other Persons who have
acquired interests in the Units or other Partnership Securities of the MLP, for
losses sustained or liabilities incurred as a result of any act or omission if
such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as General Partner set forth
in Section 7.1(a), the General Partner may exercise any of the powers granted to
it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents, and the General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
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(c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Limited Partners, the General Partner and any other Indemnitee acting
in connection with the Partnership's business or affairs shall not be liable to
the Partnership or to any Partner for its good faith reliance on the provisions
of this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership, the Limited Partners, the
General Partner, and the Partnership's and General Partner's directors, officers
and employees under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement, whenever a
potential conflict of interest exists or arises between the General Partner or
any of its Affiliates, on the one hand, and the Partnership, the MLP, any
Partner or any Assignee, on the other, any resolution or course of action by the
General Partner or its Affiliates in respect of such conflict of interest shall
be permitted and deemed approved by all Partners, and shall not constitute a
breach of this Agreement of the MLP Agreement, of any agreement contemplated
herein, or of any duty stated or implied by law or equity, if the resolution or
course of action is, or by operation of this Agreement is deemed to be, fair and
reasonable to the Partnership. The General Partner shall be authorized but not
required in connection with its resolution of such conflict of interest to seek
Special Approval of such resolution. Any conflict of interest and any resolution
of such conflict of interest shall be conclusively deemed fair and reasonable to
the Partnership if such conflict of interest or resolution is (i) approved by
Special Approval (as long as the material facts known to the General Partner or
any of its Affiliates regarding any proposed transaction were disclosed to the
Conflicts Committee at the time it gave its approval), (ii) on terms no less
favorable to the Partnership than those generally being provided to or available
from unrelated third parties or (iii) fair to the Partnership, taking into
account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership). The General Partner may also adopt a resolution or course
of action that has not received Special Approval. The General Partner (including
the Conflicts Committee in connection with Special Approval) shall be authorized
in connection with its determination of what is "fair and reasonable" to the
Partnership and in connection with its resolution of any conflict of interest to
consider (A) the relative interests of any party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such interest;
(B) any customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or
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principles; and (D) such additional factors as the General Partner (including
the Conflicts Committee) determines in its sole discretion to be relevant,
reasonable or appropriate under the circumstances. Nothing contained in this
Agreement, however, is intended to nor shall it be construed to require the
General Partner (including the Conflicts Committee) to consider the interests of
any Person other than the Partnership. In the absence of bad faith by the
General Partner, the resolution, action or terms so made, taken or provided by
the General Partner with respect to such matter shall not constitute a breach of
this Agreement or any other agreement contemplated herein or a breach of any
standard of care or duty imposed herein or therein or, to the extent permitted
by law, under the Delaware Act or any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or "necessary or advisable" or under a grant
of similar authority or latitude, except as otherwise provided herein, the
General Partner or such Affiliate shall be entitled to consider only such
interests and factors as it desires and shall have no duty or obligation to give
any consideration to any interest of, or factors affecting, the Partnership, any
Limited Partner or any Assignee, (ii) it may make such decision in its sole
discretion (regardless of whether there is a reference to "sole discretion" or
"discretion") unless another express standard is provided for, or (iii) in "good
faith" or under another express standard, the General Partner or such Affiliate
shall act under such express standard and shall not be subject to any other or
different standards imposed by this Agreement, the MLP Agreement, any other
agreement contemplated hereby or under the Delaware Act or any other law, rule
or regulation. In addition, any actions taken by the General Partner or such
Affiliate consistent with the standards of "reasonable discretion" set forth in
the definition of Available Cash shall not constitute a breach of any duty of
the General Partner to the Partnership or the Limited Partners. The General
Partner shall have no duty, express or implied, to sell or otherwise dispose of
any asset of the Partnership Group other than in the ordinary course of
business. No borrowing by any Group Member or the approval thereof by the
General Partner shall be deemed to constitute a breach of any duty of the
General Partner to the Partnership or the Limited Partners by reason of the fact
that the purpose or effect of such borrowing is directly or indirectly to (A)
enable distributions to the General Partner or its Affiliates to exceed 1% of
the total amount distributed to all members or (B) hasten the expiration of the
Subordination Period or the conversion of any Subordinated Units into Common
Units.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The MLP hereby authorizes the General Partner, on behalf of the
Partnership as a partner or member of a Group Member, to approve of actions by
the general partner of such Group Member similar to those actions permitted to
be taken by the General Partner pursuant to this Section 7.9.
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Section 7.10 Other Matters Concerning the General Partner.
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.
(d) Any standard of care and duty imposed by this Agreement or under
the Delaware Limited Liability Partnership Act or any applicable law, rule or
regulation shall be modified, waived or limited, to the extent permitted by law,
as required to permit the General Partner to act under this Agreement or any
other agreement contemplated by this Agreement and to make any decision pursuant
to the authority prescribed in this Agreement, so long as such action is
reasonably believed by the General Partner to be in, or not inconsistent with,
the best interests of the Partnership.
Section 7.11 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner and any officer of the General Partner authorized by the General Partner
to act on behalf of and in the name of the Partnership has full power and
authority to encumber, sell or otherwise use in any manner any and all assets of
the Partnership and to enter into any authorized contracts on behalf of the
Partnership, and such Person shall be entitled to deal with the General Partner
or any such officer as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner or any such officer in
connection with any such dealing. In no event shall any Person dealing with the
General Partner or any such officer or its representatives be obligated to
ascertain that the terms of the Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
any such officer or its representatives. Each and every certificate, document or
other instrument executed on behalf of the Partnership by the General Partner or
its representatives shall be conclusive evidence in favor of any
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and every Person relying thereon or claiming thereunder that (a) at the time of
the execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Partnership and (c) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting.
The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including books of account and records of
Partnership proceedings, may be kept on, or be in the form of, computer disks,
hard drives, punch cards, magnetic tape, photographs, micrographics or any other
information storage device; provided, that the books and records so maintained
are convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained, for financial reporting
purposes, on an accrual basis in accordance with U.S. GAAP.
Section 8.2 Fiscal Year.
The fiscal year of the Partnership shall be a fiscal year ending December
31.
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information.
The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by the Partners for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. The classification, realization and recognition of income, gain, losses
and deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.
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Section 9.2 Tax Elections.
(a) The Partnership shall make the election under Section 754 of the
Code in accordance with applicable regulations thereunder, subject to the
reservation of the right to seek to revoke any such election upon the General
Partner's determination that such revocation is in the best interests of the
Limited Partners.
(b) The Partnership shall elect to deduct expenses incurred in
organizing the Partnership ratably over a sixty-month period as provided in
Section 709 of the Code.
(c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.
Section 9.3 Tax Controversies.
Subject to the provisions hereof, the General Partner is designated as the
"tax matters partner" (as defined in the Code) and is authorized and required to
represent the Partnership (at the Partnership's expense) in connection with all
examinations of the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.
Section 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from the allocation or
distribution of income to any Partner or Assignee (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld may at
the discretion of the General Partner be treated by the Partnership as a
distribution of cash pursuant to Section 6.3 in the amount of such withholding
from such Partner.
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ARTICLE X
ADMISSION OF PARTNERS
Section 10.1 Admission of Partners.
Upon the consummation of the transfers and conveyances described in Section
5.2, the General Partner shall be the sole general partner of the Partnership
and the MLP shall be the sole limited partner of the Partnership.
Section 10.2 Admission of Substituted Limited Partner.
By transfer of a Partnership Interest in accordance with Article IV, the
transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Limited Partner subject to the conditions of, and in
the manner permitted under, this Agreement. A transferor of a Limited Partner
Interest shall, however, only have the authority to convey to a purchaser or
other transferee (a) the right to negotiate such Limited Partner Interest to a
purchaser or other transferee and (b) the right to request admission as a
Substituted Limited Partner to such purchaser or other transferee in respect of
the transferred Limited Partner Interests. Each transferee of a Limited Partner
Interest shall be an Assignee and be deemed to have applied to become a
Substituted Limited Partner with respect to the Interests so transferred to such
Person. Such Assignee shall become a Substituted Limited Partner (x) at such
time as the General Partner consents thereto, which consent may be given or
withheld in the General Partner's discretion, and (y) when any such admission is
shown on the books and records of the Partnership. If such consent is withheld,
such transferee shall remain an Assignee. An Assignee shall have an interest in
the Partnership equivalent to that of a Limited Partner with respect to
allocations and distributions, including liquidating distributions, of the
Partnership. With respect to voting rights attributable to Limited Partner
Interests that are held by Assignees, the General Partner shall be deemed to be
the Partner with respect thereto and shall, in exercising the voting rights in
respect of such Interests on any matter, vote such Limited Partner Interests at
the written direction of the Assignee. If no such written direction is received,
such Partnership Interests will not be voted. An Assignee shall have no other
rights of a Limited Partner.
Section 10.3 Admission of Additional Limited Partners.
(a) A Person (other than the General Partner, the MLP or a Substituted
Limited Partner) who makes a Capital Contribution to the Partnership in
accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including the power of attorney granted
in Section 2.6, and (ii) such other documents or instruments as may be required
in the discretion of the General Partner to effect such Person's admission as an
Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 10.3, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
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Section 10.4 Admission of Successor or Transferee General Partner.
A successor General Partner approved pursuant to Section 11.1 or 11.2 or
the transferee of or successor to all of the General Partner's Partnership
Interest pursuant to Section 4.2 who is proposed to be admitted as a successor
General Partner shall, subject to compliance with the terms of Section 11.3, if
applicable, be admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the predecessor or
transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer of
the General Partner's Partnership Interest pursuant to Section 4.2, provided,
however, that no such successor shall be admitted to the Partnership until
compliance with the terms of Section 4.2 has occurred and such successor has
executed and delivered such other documents or instruments as may be required to
effect such admission. Any such successor shall, subject to the terms hereof,
carry on the business of the members of the Partnership Group without
dissolution.
Section 10.5 Amendment of Agreement and Certificate of Limited Partnership.
To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act to
amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
Section 11.1 Withdrawal of the General Partner.
(a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal");
(i) The General Partner voluntarily withdraws from the Partnership by
giving written notice to the other Partners;
(ii) The General Partner transfers all of its rights as General
Partner pursuant to Section 4.2;
(iii) The General Partner is removed pursuant to Section 11.2;
(iv) The General Partner withdraws from, or is removed as the General
Partner of, the MLP;
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(v) The General Partner (A) makes a general assignment for the
benefit of creditors; (B) files a voluntary bankruptcy petition for relief
under Chapter 7 of the United States Bankruptcy Code; (C) files a petition
or answer seeking for itself a liquidation, dissolution or similar relief
(but not a reorganization) under any law; (D) files an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed against the General Partner in a proceeding of the type
described in clauses (A)-(C) of this Section 11.1(a)(v); or (E) seeks,
consents to or acquiesces in the appointment of a trustee (but not a debtor
in possession), receiver or liquidator of the General Partner or of all or
any substantial part of its properties;
(vi) A final and non-appealable order of relief under Chapter 7 of
the United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or against
the General Partner; or
(vii) (A) in the event the General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the General
Partner, or 90 days expire after the date of notice to the General Partner
of revocation of its charter without a reinstatement of its charter, under
the laws of its state of incorporation; (B) in the event the General
Partner is a partnership or limited liability company, the dissolution and
commencement of winding up of the General Partner; (C) in the event the
General Partner is acting in such capacity by virtue of being a trustee of
a trust, the termination of the trust; (D) in the event the General Partner
is a natural person, his death or adjudication of incompetency; and (E)
otherwise in the event of the termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv)(with respect to
withdrawal), (v), (vi) or (vii)(A), (B), (C) or (E) occurs, the withdrawing
General Partner shall give notice to the Limited Partners within 30 days after
such occurrence. The Partners hereby agree that only the Events of Withdrawal
described in this Section 11.1 shall result in the withdrawal of the General
Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on December 31, 2008, the General Partner voluntarily withdraws by giving
at least 90 days' advance notice of its intention to withdraw to the Limited
Partners; provided that prior to the effective date of such withdrawal, the
withdrawal is approved by the other Partners and the General Partner delivers to
the Partnership an Opinion of Counsel ("Withdrawal Opinion of Counsel") that
such withdrawal (following the selection of the successor General Partner) would
not result in the loss of the limited liability of any Partner or of the limited
partners of the MLP or cause the Partnership or the MLP to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for
federal income tax purposes (to the extent not previously treated as such); (ii)
at any time after 12:00 midnight, Eastern Standard Time, on
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December 31, 2008, the General Partner voluntarily withdraws by giving at least
90 days' advance notice to the Limited Partners, such withdrawal to take effect
on the date specified in such notice; (iii) at any time that the General Partner
ceases to be the General Partner pursuant to Section 11.1(a)(ii), (iii) or (iv).
If the General Partner gives a notice of withdrawal pursuant to Section
11.1(a)(i) hereof or Section 11.1(a)(i) of the MLP Agreement, the Limited
Partners or the MLP, as the case may be, may, prior to the effective date of
such withdrawal, elect a successor General Partner; provided, however, that such
successor shall be the same person, if any, that is elected by the limited
partners of the MLP pursuant to Section 11.1 of the MLP Agreement as the
successor to the general partner of the MLP. If, prior to the effective date of
the General Partner's withdrawal, a successor is not selected by the other
Partners or the limited partners of the MLP, as the case may be, as provided
herein or the Partnership does not receive a Withdrawal Opinion of Counsel, the
Partnership shall be dissolved in accordance with Section 12.1. Any successor
General Partner elected in accordance with the terms of this Section 11.1 shall
be subject to the provisions of Section 10.3.
Section 11.2 Removal of the General Partner.
The General Partner shall be removed if the General Partner is removed as
the general partner of the MLP pursuant to Section 11.2 of the MLP Agreement.
Such removal shall be effective concurrently with the effectiveness of the
removal of the General Partner as the general partner of the MLP pursuant to the
terms of the MLP Agreement. If a successor general partner for the MLP is
elected in connection with the removal of the General Partner, such successor
general partner for the MLP shall, upon admission pursuant to Article X,
automatically become the successor General Partner of the Partnership. The
admission of any such successor General Partner to the Partnership shall be
subject to the provisions of Section 10.3.
Section 11.3 Interest of Departing Partner.
(a) The Partnership Interest of the Departing Partner departing as a
result of withdrawal or removal pursuant to Section 11.1 or 11.2 shall (unless
it is otherwise required to be converted into Common Units pursuant to Section
11.3(b) of the MLP Agreement) be purchased by the successor to the Departing
Partner for cash in the manner specified in the MLP Agreement. Such purchase
(or conversion into Common Units, as applicable) shall be a condition to the
admission to the Partnership of the successor as the General Partner. Any
successor General Partner shall indemnify the Departing Partner as to all debts
and liabilities of the Partnership arising on or after the effective date of the
withdrawal or removal of the Departing Partner.
(b) The Departing Partner shall be entitled to receive all
reimbursements due such Departing Partner pursuant to Section 7.4, including any
employee-related liabilities (including severance liabilities), incurred in
connection with the termination of any employees employed by such Departing
Partner for the benefit of the Partnership.
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Section 11.4 Withdrawal of a Limited Partner.
Without the prior written consent of the General Partner, which may be
granted or withheld in its sole discretion, and except as provided in Section
10.1, no Limited Partner shall have the right to withdraw from the Partnership.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution.
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided in
Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected
and an Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and
such successor is admitted to the Partnership pursuant to Section 10.3;
(c) an election to dissolve the Partnership by the General Partner
that is approved by all of the Limited Partners;
(d) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act;
(e) the sale of all or substantially all of the assets and properties
of the Partnership Group; or
(f) the dissolution of the MLP.
Section 12.2 Continuation of the Business of the Partnership After
Dissolution.
Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event
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of Withdrawal as defined in Section 11.1(a)(iv), (v) or (vi) of the MLP
Agreement, then, to the maximum extent permitted by law, within 180 days
thereafter, all of the Limited Partners may elect to reconstitute the
Partnership and continue its business on the same terms and conditions set forth
in this Agreement by forming a new limited partnership on terms identical to
those set forth in this Agreement and having as a general partner a Person
approved by a majority in interest of the Limited Partners. In addition, upon
dissolution of the Partnership pursuant to Section 12.1(f), if the MLP is
reconstituted pursuant to Section 12.2 of the MLP Agreement, the reconstituted
MLP may, within 180 days after such event of dissolution, acting alone,
regardless of whether there are any other Limited Partners, elect to
reconstitute the Partnership in accordance with the immediately preceding
sentence. Upon any such election by the Limited Partners or the MLP, as the case
may be, all Partners shall be bound thereby and shall be deemed to have approved
same. Unless such an election is made within the applicable time period as set
forth above, the Partnership shall conduct only activities necessary to wind up
its affairs. If such an election is so made, then:
(a) the reconstituted Partnership shall continue until the end of the
term set forth in Section 2.7 unless earlier dissolved in accordance with this
Article XII;
(b) if the successor General Partner is not the former General
Partner, then the interest of the former General Partner shall be purchased by
the successor General Partner or converted into Common Units of the MLP as
provided in the MLP Agreement; and
(c) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as necessary, to
file, a new partnership agreement and certificate of limited partnership, and
the successor General Partner may for this purpose exercise the power of
attorney granted the General Partner pursuant to Section 2.6; provided, that the
right of the MLP to reconstitute and to continue the business of the Partnership
shall not exist and may not be exercised unless the Partnership has received an
Opinion of Counsel that (x) the exercise of the right would not result in the
loss of limited liability of the Limited Partners or any limited partner of the
MLP and (y) neither the Partnership, the reconstituted limited partnership, the
MLP nor any Group Member would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax purposes
upon the exercise of such right to continue.
Section 12.3 Liquidator.
Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner) shall be entitled
to receive such compensation for its services as may be approved by a majority
of the Limited Partners. The Liquidator (if other than the General Partner)
shall agree not to resign at any time without 15 days' prior notice and may be
removed at any time, with or without cause, by notice of removal approved by a
majority in interest of the Limited Partners. Upon dissolution, removal or
resignation of the Liquidator, a successor and substitute Liquidator (who shall
have and succeed to
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all rights, powers and duties of the original Liquidator) shall within 30 days
thereafter be approved by at least a majority in interest of the Limited
Partners. The right to approve a successor or substitute Liquidator in the
manner provided herein shall be deemed to refer also to any such successor or
substitute Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XII, the Liquidator approved in the manner
provided herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
General Partner under the terms of this Agreement (but subject to all of the
applicable limitations, contractual and otherwise, upon the exercise of such
powers, other than the limitation on sale set forth in Section 7.3(b)) to the
extent necessary or desirable in the good faith judgment of the Liquidator to
carry out the duties and functions of the Liquidator hereunder for and during
such period of time as shall be reasonably required in the good faith judgment
of the Liquidator to complete the winding up and liquidation of the Partnership
as provided for herein.
Section 12.4 Liquidation.
The Liquidator shall proceed to dispose of the assets of the Partnership,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Partners, subject to Section 17-804 of the Delaware Act and the following:
(a) Disposition of Assets. The assets may be disposed of by public
or private sale or by distribution in kind to one or more Partners on such terms
as the Liquidator and such Partner or Partners may agree. If any property is
distributed in kind, the Partner receiving the property shall be deemed for
purposes of Section 12.4(c) to have received cash equal to its fair market
value; and contemporaneously therewith, appropriate cash distributions must be
made to the other Partners. The Liquidator may, in its absolute discretion,
defer liquidation or distribution of the Partnership's assets for a reasonable
time if it determines that an immediate sale or distribution of all or some of
the Partnership's assets would be impractical or would cause undue loss to the
Partners. The Liquidator may, in its absolute discretion, distribute the
Partnership's assets, in whole or in part, in kind if it determines that a sale
would be impractical or would cause undue loss to the Partners.
(b) Discharge of Liabilities. Liabilities of the Partnership include
amounts owed to Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is contingent, conditional
or unmatured or is otherwise not yet due and payable, the Liquidator shall
either settle such claim for such amount as it thinks appropriate or establish a
reserve of cash or other assets to provide for its payment. When paid, any
unused portion of the reserve shall be distributed as additional liquidation
proceeds.
(c) Liquidation Distributions. All property and all cash in excess
of that required to discharge liabilities as provided in Section 12.4(b) shall
be distributed to the Partners in accordance with, and to the extent of, the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments (other than those made by
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reason of distributions pursuant to this Section 12.4(c)) for the taxable year
of the Partnership during which the liquidation of the Partnership occurs (with
such date of occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such occurrence).
Section 12.5 Cancellation of Certificate of Limited Partnership.
Upon the completion of the distribution of Partnership cash and property as
provided in Section 12.4 in connection with the liquidation of the Partnership,
the Partnership shall be terminated and the Certificate of Limited Partnership,
as well as all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware, shall be canceled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
Section 12.6 Return of Contributions.
The General Partner shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners, or any portion thereof, it being expressly understood that any such
return shall be made solely from Partnership assets.
Section 12.7 Waiver of Partition.
To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.
Section 12.8 Capital Account Restoration.
No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT
Section 13.1 Amendment to be Adopted Solely by the General Partner.
Each Partner agrees that the General Partner, without the approval of any
Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:
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(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership in which the Partners have limited
liability under the laws of any state or to ensure that neither the Partnership
nor the MLP will be treated as an association taxable as a corporation or
otherwise taxed as an entity for federal income tax purposes;
(d) a change that, in the discretion of the General Partner, (i) does
not adversely affect the Limited Partners in any material respect, (ii) is
necessary or advisable to (A) satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation of any federal
or state agency or judicial authority or contained in any federal or state
statute (including the Delaware Act) or (B) facilitate the trading of limited
partner interests of the MLP (including the division of any class or classes of
outstanding limited partner interests of the MLP into different classes to
facilitate uniformity of tax consequences within such classes of limited partner
interests of the MLP) or comply with any rule, regulation, guideline or
requirement of any National Securities Exchange on which such limited partner
interests are or will be listed for trading, compliance with any of which the
General Partner determines in its discretion to be in the best interests of the
MLP and the limited partners of the MLP, (iii) is required to effect the intent
expressed in the Registration Statement or the intent of the provisions of this
Agreement or is otherwise contemplated by this Agreement or (iv) is required to
conform the provisions of this Agreement with the provisions of the MLP
Agreement as the provisions of the MLP Agreement may be amended, supplemented or
restated from time to time;
(e) a change in the fiscal year or taxable year of the Partnership and
any changes that, in the discretion of the General Partner, are necessary or
advisable as a result of a change in the fiscal year or taxable year of the
Partnership including, if the General Partner shall so determine, a change in
the definition of "Quarter" and the dates on which distributions are to be made
by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership, or the General Partner or its directors, officers,
trustees or agents from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;
53
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(g) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;
(h) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(i) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately the
formation by the Partnership of, or investment by the Partnership in, any
corporation, partnership, joint venture, limited liability company or other
entity, in connection with the conduct by the Partnership of activities
permitted by the terms of Section 2.4;
(j) a merger or conveyance pursuant to Section 14.3(d); or
(k) any other amendments substantially similar to the foregoing.
Section 13.2 Amendment Procedures.
Except with respect to amendments of he type described in Section 13.1, all
amendments to this Agreement shall be made in accordance with the following
requirements: Amendments to this Agreement may be proposed only by or with the
consent of the General Partner which consent may be given or withheld in its
sole discretion. A proposed amendment shall be effective upon its approval by
the Limited Partner.
ARTICLE XIV
MERGER
Section 14.1 Authority.
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.
Section 14.2 Procedure for Merger or Consolidation.
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its
54
<PAGE>
discretion, to consent to the merger or consolidation, the General Partner shall
approve the Merger Agreement, which shall set forth:
(a) The names and jurisdictions of formation or organization of each
of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation (the
"Surviving Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partner interests, rights, securities or obligations of the
Surviving Business Entity; and (i) if any general or limited partner interests,
securities or rights of any constituent business entity are not to be exchanged
or converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities represented by certificates, upon the
surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;
(e) A statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or agreement
of limited partnership or other similar charter or governing document) of the
Surviving Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 14.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be later than the date of the
filing of the certificate of merger, the effective time shall be fixed no later
than the time of the filing of the certificate of merger and stated therein);
and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.
55
<PAGE>
Section 14.3 Approval by Limited Partners of Merger or Consolidation.
(a) Except as provided in Section 14.3(d), the General Partner, upon
its approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of the Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall
be approved upon receiving the affirmative vote or consent of the Limited
Partners.
(c) Except as provided in Section 14.3(d), after such approval by vote
or consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in
this Agreement, the General Partner is permitted, in its discretion, without
Limited Partner approval, to merge the Partnership or any Group Member into, or
convey all of the Partnership's assets to, another limited liability entity
which shall be newly formed and shall have no assets, liabilities or operations
at the time of such Merger other than those it receives from the Partnership or
other Group Member if (i) the General Partner has received an Opinion of Counsel
that the merger or conveyance, as the case may be, would not result in the loss
of the limited liability of any Limited Partner or any limited partner in the
MLP or cause the Partnership or the MLP to be treated as an association taxable
as a corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously treated as such), (ii) the sole purpose
of such merger or conveyance is to effect a mere change in the legal form of the
Partnership into another limited liability entity and (iii) the governing
instruments of the new entity provide the Limited Partners and the General
Partner with the same rights and obligations as are herein contained.
Section 14.4 Certificate of Merger.
Upon the required approval by the General Partner and the Limited Partners
of a Merger Agreement, a certificate of merger shall be executed and filed with
the Secretary of State of the State of Delaware in conformity with the
requirements of the Delaware Limited Liability Partnership Act.
Section 14.5 Effect of Merger.
(a) At the effective time of the certificate of merger:
(i) all of the rights, privileges and powers of each of the business
entities that has merged or consolidated, and all property, real, personal
and mixed, and all debts due to any
56
<PAGE>
of those business entities and all other things and causes of action
belonging to each of those business entities, shall be vested in the
Surviving Business Entity and after the merger or consolidation shall be
the property of the Surviving Business Entity to the extent they were of
each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in
any of those constituent business entities shall not revert and is not in
any way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests
in property of any of those constituent business entities shall be
preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity and may be enforced
against it to the same extent as if the debts, liabilities and duties had
been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall
not be deemed to result in a transfer or assignment of assets or liabilities
from one entity to another.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notices.
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
communication to the Partner at the address described below. Any notice to the
Partnership shall be deemed given if received by the General Partner at the
principal office of the Partnership designated pursuant to Section 2.3. The
General Partner may rely and shall be protected in relying on any notice or
other document from a Partner, Assignee or other Person if believed by it to be
genuine.
Section 15.2 Further Action.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
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Section 15.3 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.4 Integration.
This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.
Section 15.5 Creditors.
None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.
Section 15.6 Waiver.
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach of any other covenant, duty, agreement or condition.
Section 15.7 Counterparts.
This Agreement may be executed in counterparts, all of which together shall
constitute an agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto, independently of the signature of any other party.
Section 15.8 Applicable Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.
Section 15.9 Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
58
<PAGE>
Section 15.10 Consent of Partners.
Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be bound
by the results of such action.
[Rest of page Intentionally Left Blank]
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
PLAINS ALL AMERICAN, INC.
By:
------------------------------
Name:
Its:
LIMITED PARTNER:
PLAINS ALL AMERICAN PIPELINE, L.P.
By:
------------------------------
Name:
Its:
60
<PAGE>
EXHIBIT 3.3
Draft of November 1, 1998
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ALL AMERICAN, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
Section 1.1 Definitions 1
Section 1.2 Construction 12
ARTICLE II
ORGANIZATION
Section 2.1 Formation 12
Section 2.2 Name 12
Section 2.3 Registered Office; Registered Agent; Principal Office; Other Offices 12
Section 2.4 Purpose and Business 13
Section 2.5 Powers 13
Section 2.6 Power of Attorney 14
Section 2.7 Term 15
Section 2.8 Title to Partnership Assets 15
ARTICLE III
RIGHTS OF LIMITED PARTNERS
Section 3.1 Limitation of Liability 16
Section 3.2 Management of Business 16
Section 3.3 Outside Activities of the Limited Partners 16
Section 3.4 Rights of Limited Partners 17
ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS
Section 4.1 Transfer Generally 18
Section 4.2 Transfer of General Partner's Partnership Interest 18
Section 4.3 Transfer of a Limited Partner's Partnership Interest 18
Section 4.4 Restrictions on Transfers 19
</TABLE>
i
<PAGE>
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
<TABLE>
<S> <C> <C>
Section 5.1 Initial Contributions 19
Section 5.2 Contributions Pursuant to the Contribution and Conveyance Agreement 19
Section 5.3 Additional Capital Contributions 20
Section 5.4 Interest and Withdrawal 20
Section 5.5 Capital Accounts 20
Section 5.6 Loans from Partners 23
Section 5.7 Limited Preemptive Rights 24
Section 5.8 Fully Paid and Non-Assessable Nature of Partnership Interests 24
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes 24
Section 6.2 Allocations for Tax Purposes 28
Section 6.3 Distributions 31
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management 31
Section 7.2 Certificate of Limited Partnership 33
Section 7.3 Restrictions on General Partner's Authority 34
Section 7.4 Reimbursement of the General Partner 34
Section 7.5 Outside Activities 35
Section 7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions
on the General Partner 37
Section 7.7 Indemnification 38
Section 7.8 Liability of Indemnitees 40
Section 7.9 Resolution of Conflicts of Interest 41
Section 7.10 Other Matters Concerning the General Partner 42
Section 7.11 Reliance by Third Parties 43
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting 44
Section 8.2 Fiscal Year 44
</TABLE>
ii
<PAGE>
ARTICLE IX
TAX MATTERS
<TABLE>
<S> <C> <C>
Section 9.1 Tax Returns and Information 44
Section 9.2 Tax Elections 44
Section 9.3 Tax Controversies 45
Section 9.4 Withholding 45
ARTICLE X
ADMISSION OF PARTNERS
Section 10.1 Admission of Partners 45
Section 10.2 Admission of Substituted Limited Partner 45
Section 10.3 Admission of Additional Limited Partners 46
Section 10.4 Admission of Successor or Transferee General Partner 46
Section 10.5 Amendment of Agreement and Certificate of Limited Partnership 47
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
Section 11.1 Withdrawal of the General Partner 47
Section 11.2 Removal of the General Partner 49
Section 11.3 Interest of Departing Partner 49
Section 11.4 Withdrawal of a Limited Partner 50
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution 50
Section 12.2 Continuation of the Business of the Partnership After Dissolution 50
Section 12.3 Liquidator 51
Section 12.4 Liquidation 52
Section 12.5 Cancellation of Certificate of Limited Partnership 53
Section 12.6 Return of Contributions 53
Section 12.7 Waiver of Partition 53
Section 12.8 Capital Account Restoration 53
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT
Section 13.1 Amendment to be Adopted Solely by the General Partner 54
Section 13.2 Amendment Procedures 55
</TABLE>
iii
<PAGE>
ARTICLE XIV
MERGER
<TABLE>
<S> <C> <C>
Section 14.1 Authority 56
Section 14.2 Procedure for Merger or Consolidation 56
Section 14.3 Approval by Limited Partners of Merger or Consolidation 57
Section 14.4 Certificate of Merger 58
Section 14.5 Effect of Merger 58
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notices 59
Section 15.2 Further Action 59
Section 15.3 Binding Effect 59
Section 15.4 Integration 59
Section 15.5 Creditors 59
Section 15.6 Waiver 59
Section 15.7 Counterparts 60
Section 15.8 Applicable Law 60
Section 15.9 Invalidity of Provisions 60
Section 15.10 Consent of Partners 60
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ALL AMERICAN, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of ALL AMERICAN,
L.P., dated as of _______________________________, is entered into by and
between Plains All American, Inc., a Delaware corporation, as the General
Partner, and Plains All American Pipeline, L.P., a Delaware limited partnership,
as the Organizational Limited Partner, together with any other Persons who
hereafter become Partners in the Partnership or parties hereto as provided
herein.
R E C I T A L S:
- - - - - - - -
WHEREAS, Plains All American, Inc. and Plains All American Pipeline, L.P.
formed the Partnership pursuant to the Agreement of Limited Partnership of All
American, L.P. dated as of _________________, 1998 (the "Prior Agreement"); and
WHEREAS, the Partners of the Partnership now desire to amend the Prior
Agreement to reflect additional contributions by the Partners and certain other
matters.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements contained herein, the parties hereto hereby amend the Prior Agreement
and, as so amended, restate it in its entirety as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
Capitalized terms used herein but not otherwise defined shall have the meaning
assigned to such term in the MLP Agreement.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 10.4 and who is shown
as such on the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each fiscal year of the Partnership, (a)
increased by any amounts that such Partner is obligated to restore under
the standards set by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or
is deemed obligated to restore under Treasury Regulation Sections 1.704-
2(g) and 1.704-2(i)(5)) and (b) decreased by (i) the amount of all losses
and deductions that,
<PAGE>
as of the end of such fiscal year, are reasonably expected to be allocated
to such Partner in subsequent years under Sections 704(e)(2) and 706(d) of
the Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the
amount of all distributions that, as of the end of such fiscal year, are
reasonably expected to be made to such Partner in subsequent years in
accordance with the terms of this Agreement or otherwise to the extent they
exceed offsetting increases to such Partner's Capital Account that are
reasonably expected to occur during (or prior to) the year in which such
distributions are reasonably expected to be made (other than increases as a
result of a minimum gain chargeback pursuant to Section 6.1(d)(i) or
6.1(d)(ii)). The foregoing definition of Adjusted Capital Account is
intended to comply with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently
therewith. The "Adjusted Capital Account" of a Partner in respect of a
General Partner Interest or any other specified interest in the Partnership
shall be the amount which such Adjusted Capital Account would be if such
General Partner Interest or other interest in the Partnership were the only
interest in the Partnership held by a Partner from and after the date on
which such general partner interest or other interest was first issued.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii). Once an Adjusted
Property is deemed contributed to a new partnership in exchange for an
interest in the new partnership, followed by a deemed liquidation of the
Partnership for federal income tax purposes upon a termination of the
Partnership pursuant to Treasury Regulation Section 1.708-(b)(1)(iv), such
property shall thereafter constitute a Contributed Property until the
Carrying Value of such property is subsequently adjusted pursuant to
Section 5.5(d)(i) or 5.5(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As
used herein, the term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 6.1, including, without limitation, a Curative
Allocation (if appropriate to the context in which the term "Agreed
Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation
as it may adopt. The General Partner shall, in its discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate
Agreed Value of Contributed Properties contributed to the Partnership in a
2
<PAGE>
single or integrated transaction among each separate property on a basis
proportional to the fair market value of each Contributed Property.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership of All American, L.P., as it may be amended, supplemented or
restated from time to time. The Agreement shall constitute a "limited
partnership agreement" as such term is defined in the Delaware Act.
"Assets" means the assets being conveyed to the Partnership on the
Closing Date pursuant to Section 5.2(a) and the Contribution and Conveyance
Agreement.
"Assignee" means a Person to whom one or more Partnership Interests
have been transferred in a manner permitted under this Agreement, but who
has not been admitted as a Substituted Partner.
"Associate" means, when used to indicate a relationship with any
Person, (a) any corporation or organization of which such Person is a
director, officer or partner or is, directly or indirectly, the owner of
20% or more of any class of voting stock or other voting interest; (b) any
trust or other estate in which such Person has at least a 20% beneficial
interest or as to which such Person serves as trustee or in a similar
fiduciary capacity; and (c) any relative or spouse of such Person, or any
relative of such spouse, who has the same principal residence as such
Person.
"Assumed Liabilities" means the liabilities that the Partnership is
either assuming or taking subject to in connection with the conveyance of
the Assets pursuant to Section 5.2(a) and the Contribution and Conveyance
Agreement.
"Available Cash" means, with respect to any Quarter ending prior to
the Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the
Partnership Group on hand at the end of such Quarter, and (ii) all
additional cash and cash equivalents of the Partnership Group on hand on
the date of determination of Available Cash with respect to such Quarter
resulting from Working Capital Borrowings made subsequent to the end of
such Quarter, less
(b) the amount of any cash reserves that is necessary or
appropriate in the reasonable discretion of the General Partner to (i)
provide for the proper conduct of the business of the Partnership Group
(including reserves for future capital expenditures and for anticipated
future credit needs of the Partnership Group) subsequent to such Quarter,
(ii) comply with applicable law or any loan agreement, security agreement,
mortgage, debt instrument or other agreement or obligation to which any
Group Member is a party or by
3
<PAGE>
which it is bound or its assets are subject or (iii) provide funds for
distributions under Section 6.4 or 6.5 of the MLP Agreement in respect of
any one or more of the next four Quarters; provided, however, that the
General Partner may not establish cash reserves pursuant to (iii) above if
the effect of such reserves would be that the MLP is unable to distribute
the Minimum Quarterly Distribution on all Common Units, plus any Cumulative
Common Unit Arrearage on all Common Units, with respect to such Quarter;
and provided further that disbursements made by a Group Member or cash
reserves established, increased or reduced after the end of such Quarter
but on or before the date of determination of Available Cash with respect
to such Quarter shall be deemed to have been made, established, increased
or reduced, for purposes of determining Available Cash, within such Quarter
if the General Partner so determines.
Notwithstanding the foregoing, "Available Cash" with respect to
the Quarter in which the Liquidation Date occurs and any subsequent Quarter
shall equal zero.
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax
purposes as of such date. A Partner's share of the Partnership's Book-Tax
Disparities in all of its Contributed Property and Adjusted Property will
be reflected by the difference between such Partner's Capital Account
balance as maintained pursuant to Section 5.5 and the hypothetical balance
of such Partner's Capital Account computed as if it had been maintained
strictly in accordance with federal income tax accounting principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York and Texas shall not be regarded as a
Business Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.5. The "Capital Account" of a Partner in respect of a
General Partner Interest or any other specified interest in the Partnership
shall be the amount which such Capital Account would be if such General
Partner Interest or other specified interest in the Partnership were the
only interest in the Partnership held by a Partner from and after the date
on which such General Partner Interest or other specified interest in the
Partnership was first issued.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property that a Partner contributes to the
Partnership pursuant to this Agreement or the Contribution and Conveyance
Agreement.
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all
depreciation, amortization and
4
<PAGE>
cost recovery deductions charged to the Partners' and Assignees' Capital
Accounts in respect of such Contributed Property, and (b) with respect to
any other Partnership property, the adjusted basis of such property for
federal income tax purposes, all as of the time of determination. The
Carrying Value of any property shall be adjusted from time to time in
accordance with Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the
General Partner.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership of the Partnership filed with the Secretary of State of the
State of Delaware as referenced in Section 2.1, as such Certificate of
Limited Partnership may be amended, supplemented or restated from time to
time.
"Closing Date" means the first date on which Common Units are sold by
the MLP to the Underwriters pursuant to the provisions of the Underwriting
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any
corresponding provision of successor law.
"Commission" means the United States Securities and Exchange
Commission.
"Common Unit" has the meaning assigned to such term in the MLP
Agreement.
"Contributed Property" means each property or other asset, in such
form as may be permitted by the Delaware Act, but excluding cash,
contributed to the Partnership (or deemed contributed to a new Partnership
on termination of the Partnership pursuant to Section 708 of the Code. Once
the Carrying Value of a Contributed Property is adjusted pursuant to
Section 5.5(d), such property shall no longer constitute a Contributed
Property, but shall be deemed an Adjusted Property.
"Contribution and Conveyance Agreement" means that certain
Contribution, Conveyance and Assumption Agreement, dated as of the Closing
Date, among the General Partner, the Plains Midstream Subsidiaries, the
MLP, the Partnership and certain other parties, together with the
additional conveyance documents and instruments contemplated or referenced
thereunder.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(ix).
5
<PAGE>
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C. (S)17-101, et seq., as amended, supplemented or restated
from time to time, and any successor to such statute.
"Departing Partner" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1 or 11.2.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation Section 1.752-2(a).
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"General Partner" means Plains All American, Inc. and its successors
and permitted assigns as general partner of the Partnership.
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (except voting pursuant to a revocable proxy
or consent given to such Person in response to a proxy or consent
solicitation made to 10 or more Persons) or disposing of any MLP Securities
with any other Person that beneficially owns, or whose Affiliates or
Associates beneficially own, directly or indirectly, MLP Securities.
"Group Member" means a member of the Partnership Group.
"Indemnitee" means (a) any General Partner, any Departing Partner and
any Person who is or was an Affiliate of the General Partner or any
Departing Partner, (b) any Person who is or was a director, officer,
employee, agent or trustee of a Group Member, (c) any Person who is or was
an officer, member, partner, director, employee, agent or trustee of the
General Partner or any Departing Partner or any Affiliate of the General
Partner or any Departing Partner, or any Affiliate of any such Person and
(d) any Person who is or was serving at the request of the General Partner
or any Departing Partner or any such Affiliate as a director, officer,
employee, member, partner, agent, fiduciary or trustee of another Person;
provided, that a Person shall not be an Indemnitee by reason of providing,
on a fee-for-services basis, trustee, fiduciary or custodial services.
"Initial Offering" means the initial offering and sale of Common Units
to the public, as described in the Registration Statement.
"Liquidation Date" means (a) in the case of an event giving rise to
the dissolution of the Partnership of the type described in clauses (a) and
(b) of the first sentence of Section 12.2, the date on which the applicable
time period during which the Partners have the right
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to elect to reconstitute the Partnership and continue its business has
expired without such an election being made, and (b) in the case of any
other event giving rise to the dissolution of the Partnership, the date on
which such event occurs.
"Liquidator" means one or more Persons selected by the General Partner
to perform the functions described in Section 12.3 as liquidating trustee
of the Partnership within the meaning of the Delaware Act.
"Limited Partner" means any Person that is admitted to the Partnership
as a limited partner pursuant to the terms and conditions of this
Agreement; but the term Limited Partner shall not include any Person from
and after the time such Person withdraws as a Limited Partner from the
Partnership.
"Merger Agreement" has the meaning assigned to such term in Section
14.1.
"Minimum Quarterly Distribution" has the meaning assigned to such term
in the MLP Agreement.
"MLP" means Plains All American Pipeline, L.P.
"MLP Agreement" means the Amended and Restated Agreement of Limited
Partnership of Plains All American Pipeline, L.P., as it may be amended,
supplemented or restated from time to time.
"MLP Security" has the meaning assigned to the term "Partnership
Security" in the MLP Agreement.
"Net Agreed Value" means, (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed
by the Partnership upon such contribution or to which such property is
subject when contributed, and (b) in the case of any property distributed
to a Partner or Assignee by the Partnership, the Partnership's Carrying
Value of such property (as adjusted pursuant to Section 5.5(d)(ii)) at the
time such property is distributed, reduced by any indebtedness either
assumed by such Partner or Assignee upon such distribution or to which such
property is subject at the time of distribution, in either case, as
determined under Section 752 of the Code.
"Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss)
for such taxable year over the Partnership's items of loss and deduction
(other than those items taken into account in the computation of Net
Termination Gain or Net Termination Loss) for such taxable year. The items
included
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in the calculation of Net Income shall be determined in accordance with
Section 5.5(b) and shall not include any items specially allocated under
Section 6.1(d).
"Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction (other than those items taken
into account in the computation of Net Termination Gain or Net Termination
Loss) for such taxable year over the Partnership's items of income and gain
(other than those items taken into account in the computation of Net
Termination Gain or Net Termination Loss) for such taxable year. The items
included in the calculation of Net Loss shall be determined in accordance
with Section 5.5(b) and shall not include any items specially allocated
under Section 6.1(d).
"Net Termination Gain" means, for any taxable year, the sum, if
positive, of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the
determination of Net Termination Gain shall be determined in accordance
with Section 5.5(b) and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
"Net Termination Loss" means, for any taxable year, the sum, if
negative, of all items of income, gain, loss or deduction recognized by the
Partnership after the Liquidation Date. The items included in the
determination of Net Termination Loss shall be determined in accordance
with Section 5.5(b) and shall not include any items of income, gain or loss
specially allocated under Section 6.1(d).
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would
be allocated to the Partners pursuant to Sections 6.2(b)(i)(A),
6.2(b)(ii)(A) and 6.2(b)(iii) if such properties were disposed of in a
taxable transaction in full satisfaction of such liabilities and for no
other consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in
accordance with the principles of Treasury Regulation Section 1.704-2(b),
are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"OLP Subsidiary" means a Subsidiary of the OLP.
"Omnibus Agreement" means that Omnibus Agreement, dated as of the
Closing Date, among Plains Resources, Inc., the General Partner, the MLP,
the Partnership and All American, L.P.
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"Opinion of Counsel" means a written opinion of counsel (which may be
regular counsel to the Partnership or the General Partner or any of its
Affiliates) acceptable to the General Partner in its reasonable discretion.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with the
principles of Treasury Regulation Section 1.704-2(i), are attributable to a
Partner Nonrecourse Debt.
"Partnership" means All American, L.P., a Delaware limited
partnership, and any successors thereto.
"Partnership Group" means the Partnership and all OLP Subsidiaries,
treated as a single consolidated entity.
"Partnership Interest" means an ownership interest of a Partner in the
Partnership.
"Partnership Minimum Gain" means that amount determined in accordance
with the principles of Treasury Regulation Section 1.704-2(d).
"Percentage Interest" means, (a) as to the General Partner, an
aggregate 1.0101% and (b) as to the MLP, 98.9899%.
"Person" means an individual or a corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization,
association, government agency or political subdivision thereof or other
entity.
"Prior Agreement" is defined in the Recitals.
"Pro Rata" means, when modifying Partners and Assignees, apportioned
among all Partners and Assignees in accordance with their relative
Percentage Interests.
"Quarter" means, unless the context requires otherwise, a fiscal
quarter of the Partnership.
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"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or 743
of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to
such property or asset.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-64107) as it has been or as it may be amended or
supplemented from time to time, filed by the MLP with the Commission under
the Securities Act to register the offering and sale of the Common Units in
the Initial Offering.
"Required Allocations" means (a) any limitation imposed on any
allocation of Net Losses or Net Termination Losses under Section 6.1(b) or
6.1(c)(ii) and (b) any allocation of an item of income, gain, loss or
deduction pursuant to Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv),
6.1(d)(vii) or 6.1(d)(ix).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of a
Contributed Property or Adjusted Property, to the extent such item of gain
or loss is not allocated pursuant to Section 6.2(b)(i)(A) or 6.2(b)(ii)(A),
respectively, to eliminate Book-Tax Disparities.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such
statute.
"Special Approval" has the meaning assigned to such term in the MLP
Agreement.
"Subsidiary" means, with respect to any Person, (a) a corporation of
which more than 50% of the voting power of shares entitled (without regard
to the occurrence of any contingency) to vote in the election of directors
or other governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person or a combination thereof, (b) a partnership
(whether general or limited) in which such Person or a Subsidiary of such
Person is, at the date of determination, a general or limited partner of
such partnership, but only if more than 50% of the partnership interests of
such partnership (considering all of the partnership interests of the
partnership as a single class) is owned, directly or indirectly, at the
date of determination, by such Person, by one or more Subsidiaries of such
Person, or a combination thereof, or (c) any other Person (other than a
corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or
indirectly, at the date of determination, has (i) at least a majority
ownership interest or (ii) the power to elect or direct the election of a
majority of the directors or other governing body of such Person.
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"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 10.2 in place of and
with all the rights of a Limited Partner and who is shown as a Limited
Partner on the books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Transfer" has the meaning assigned to such term in Section 4.4(a).
"Underwriter" means each Person named as an underwriter in Schedule I
to the Underwriting Agreement who purchases Common Units pursuant thereto.
"Underwriting Agreement" means the Underwriting Agreement dated
_______________, 1998 among the Underwriters, the MLP and certain other
parties, providing for the purchase of Common Units by such Underwriters.
"Unit" has the meaning assigned to such term in the MLP Agreement.
"Unit Majority" has the meaning assigned to such term in the MLP
Agreement.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property as of such date (as determined under Section
5.5(d)) over (b) the Carrying Value of such property as of such date (prior
to any adjustment to be made pursuant to Section 5.5(d) as of such date).
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the
Carrying Value of such property as of such date (prior to any adjustment to
be made pursuant to Section 5.5(d) as of such date) over (b) the fair
market value of such property as of such date (as determined under Section
5.5(d)).
"U.S. GAAP" means United States Generally Accepted Accounting
Principles consistently applied.
"Working Capital Borrowings" means borrowings exclusively for working
capital purposes made pursuant to a credit facility or other arrangement
requiring all such borrowings thereunder to be reduced to a relatively
small amount each year for an economically meaningful period of time.
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Section 1.2 Construction.
Unless the context requires otherwise: (a) any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) "include" or "includes" means includes,
without limitation, and "including" means including, without limitation.
ARTICLE II
ORGANIZATION
Section 2.1 Formation.
The Partnership was previously formed as a limited partnership pursuant to
the provisions of the Delaware Act. The Partners hereby amend and restate the
Prior Agreement in its entirety. This amendment and restatement shall become
effective on the date of this Agreement. Except as expressly provided to the
contrary in this Agreement, the rights, duties (including fiduciary duties),
liabilities and obligations of the Partners and the administration, dissolution
and termination of the Partnership shall be governed by the Delaware Act. All
Partnership Interests shall constitute personal property of the owner thereof
for all purposes and a Partner has no interest in specific Partnership property.
Section 2.2 Name.
The name of the Partnership shall be "All American, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner in its sole discretion,
including the name of the General Partner. The words "Limited Partnership,"
"L.P." or "Ltd." shall be included in the Partnership's name where necessary for
the purpose of complying with the laws of any jurisdiction that so requires. The
General Partner in its discretion may change the name of the Partnership at any
time and from time to time and shall notify the other Partner(s) of such change
in the next regular communication to the Partners.
Section 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices.
Unless and until changed by the General Partner, the registered office of
the Partnership in the State of Delaware shall be located at 1013 Center Road,
Wilmington, Delaware 19805-1297, and the registered agent for service of process
on the Partnership in the State of Delaware at such registered office shall be
Corporation Service Company. The principal office of the Partnership shall be
located at 500 Dallas, Suite 700, Houston, Texas 77002 or such other place as
the General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems necessary
or appropriate. The address of the General Partner shall be 500 Dallas, Suite
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700, Houston, Texas 77002 or such other place as the General Partner may from
time to time designate by notice to the Limited Partners.
Section 2.4 Purpose and Business.
The purpose and nature of the business to be conducted by the Partnership
shall be to (a) acquire, manage, operate and sell the Assets and any similar
assets or properties now or hereafter acquired by the Partnership, (b) engage
directly in, or enter into or form any corporation, partnership, joint venture,
limited liability company or other arrangement to engage indirectly in, any
business activity that the Partnership is permitted to engage in, any type of
business or activity engaged in by the General Partner prior to the Closing Date
and, in connection therewith, to exercise all of the rights and powers conferred
upon the Partnership pursuant to the agreements relating to such business
activity, (c) engage directly in, or enter into or form any corporation,
partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that is approved by the General
Partner and which lawfully may be conducted by a limited partnership organized
pursuant to the Delaware Act and, in connection therewith, to exercise all of
the rights and powers conferred upon the Partnership pursuant to the agreements
relating to such business activity; provided, however, that the General Partner
reasonably determines, as of the date of the acquisition or commencement of such
activity, that such activity (i) generates "qualifying income" (as such term is
defined pursuant to Section 7704 of the Code) or (ii) enhances the operations of
an activity of the Partnership that generates qualifying income, and (d) do
anything necessary or appropriate to the foregoing, including the making of
capital contributions or loans to a Group Member, the MLP or any Subsidiary of
the MLP. The General Partner has no obligation or duty to the Partnership, the
Limited Partners, or the Assignees to propose or approve, and in its discretion
may decline to propose or approve, the conduct by the Partnership of any
business.
Section 2.5 Powers.
The Partnership shall be empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described in Section
2.4 and for the protection and benefit of the Partnership.
Section 2.6 Power of Attorney.
(a) Each Partner and each Assignee hereby constitutes and appoints the
General Partner and, if a Liquidator shall have been selected pursuant to
Section 12.3, the Liquidator, severally (and any successor to the Liquidator by
merger, transfer, assignment, election or otherwise) and each of their
authorized officers and attorneys-in-fact, as the case may be, with full power
of substitution, as its true and lawful agent and attorney-in-fact, with full
power and authority in his name, place and stead, to:
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(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including this Agreement and the Certificate of Limited
Partnership and all amendments or restatements hereof or thereof) that the
General Partner or the Liquidator deems necessary or appropriate to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership in the State of Delaware and in all other jurisdictions
in which the Partnership may conduct business or own property; (B) all
certificates, documents and other instruments that the General Partner or
the Liquidator deems necessary or appropriate to reflect, in accordance
with its terms, any amendment, change, modification or restatement of this
Agreement; (C) all certificates, documents and other instruments (including
conveyances and a certificate of cancellation) that the General Partner or
the Liquidator deems necessary or appropriate to reflect the dissolution
and liquidation of the Partnership pursuant to the terms of this Agreement;
(D) all certificates, documents and other instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant to,
or other events described in, Article IV, X, XI or XII; (E) all
certificates, documents and other instruments relating to the determination
of the rights, preferences and privileges of any class or series of
Partnership Interests issued pursuant hereto; and (F) all certificates,
documents and other instruments (including agreements and a certificate of
merger) relating to a merger or consolidation of the Partnership pursuant
to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the General
Partner or the Liquidator, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made or given by
the Partners hereunder or is consistent with the terms of this Agreement or
is necessary or appropriate, in the discretion of the General Partner or
the Liquidator, to effectuate the terms or intent of this Agreement;
provided, that when required by any provision of this Agreement that
establishes a percentage of the Limited Partners or of the Limited Partners
of any class or series required to take any action, the General Partner and
the Liquidator may exercise the power of attorney made in this Section
2.6(a)(ii) only after the necessary vote, consent or approval of the
Limited Partners or of the Limited Partners of such class or series, as
applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the General Partner to amend this Agreement except in accordance with Article
XIII or as may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and, to
the maximum extent permitted by law, not be affected by the subsequent death,
incompetency, disability, incapacity, dissolution, bankruptcy or termination of
any Limited Partner or Assignee and the transfer of all or any portion of such
Limited Partner's or Assignee's Partnership Interest and shall extend to such
Limited Partner's or
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Assignee's successors and assigns. Each such Limited Partner or Assignee hereby
agrees to be bound by any representation made by the General Partner or the
Liquidator acting in good faith pursuant to such power of attorney; and each
such Limited Partner or Assignee, to the maximum extent permitted by law, hereby
waives any and all defenses that may be available to contest, negate or
disaffirm the action of the General Partner or the Liquidator taken in good
faith under such power of attorney. Each Limited Partner or Assignee shall
execute and deliver to the General Partner or the Liquidator, within 15 days
after receipt of the request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidator deems
necessary to effectuate this Agreement and the purposes of the Partnership.
Section 2.7 Term.
The term of the Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the close of Partnership business on December 31, 2088 or until
the earlier dissolution of the Partnership in accordance with the provisions of
Article XII. The existence of the Partnership as a separate legal entity shall
continue until the cancellation of the Certificate of Limited Partnership as
provided in the Delaware Act.
Section 2.8 Title to Partnership Assets.
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner or Assignee, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner, one or more of its Affiliates or one or more nominees, as
the General Partner may determine. The General Partner hereby declares and
warrants that any Partnership assets for which record title is held in the name
of the General Partner or one or more of its Affiliates or one or more nominees
shall be held by the General Partner or such Affiliate or nominee for the use
and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use reasonable
efforts to cause record title to such assets (other than those assets in respect
of which the General Partner determines that the expense and difficulty of
conveyancing makes transfer of record title to the Partnership impracticable) to
be vested in the Partnership as soon as reasonably practicable; provided,
further, that, prior to the withdrawal or removal of the General Partner or as
soon thereafter as practicable, the General Partner shall use reasonable efforts
to effect the transfer of record title to the Partnership and, prior to any such
transfer, will provide for the use of such assets in a manner satisfactory to
the General Partner. All Partnership assets shall be recorded as the property of
the Partnership in its books and records, irrespective of the name in which
record title to such Partnership assets is held.
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ARTICLE III
RIGHTS OF LIMITED PARTNERS
Section 3.1 Limitation of Liability.
The Limited Partners and the Assignees shall have no liability under this
Agreement except as expressly provided in this Agreement or in the Delaware Act.
Section 3.2 Management of Business.
No Limited Partner or Assignee, in its capacity as such, shall participate
in the operation, management or control (within the meaning of the Delaware Act)
of the Partnership's business, transact any business in the Partnership's name
or have the power to sign documents for or otherwise bind the Partnership. Any
action taken by any Affiliate of the General Partner or any officer, director,
employee, member, general partner, agent or trustee of the General Partner or
any of its Affiliates, or any officers, director, employee, member, general
partner, agent or trustee of a Group Member, in its capacity as such, shall not
be deemed to be participation in the control of the business of the Partnership
by a limited partner of the Partnership (within the meaning of Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate the limitations
on the liability of the Limited Partners or Assignees under this Agreement.
Section 3.3 Outside Activities of the Limited Partners.
Subject to the provisions of Section 7.5, which shall continue to be
applicable to the Persons referred to therein, regardless of whether such
Persons shall also be Limited Partners or Assignees, any Limited Partner or
Assignee shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including
business interests and activities in direct competition with the Partnership
Group. Neither the Partnership nor any of the other Partners or Assignees shall
have any rights by virtue of this Agreement in any business ventures of any
Limited Partner or Assignee.
Section 3.4 Rights of Limited Partners.
(a) In addition to other rights provided by this Agreement or by
applicable law, and except as limited by Section 3.4(b), each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon reasonable written demand
and at such Limited Partner's own expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
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(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local income tax returns for each year;
(iii) to have furnished to him a current list of the name and last
known business, residence or mailing address of each Partner;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto, together
with a copy of the executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash
and a description and statement of the Net Agreed Value of any other
Capital Contribution by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner; and
(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
(b) The General Partner may keep confidential from the Limited
Partners and Assignees, for such period of time as the General Partner deems
reasonable, (i) any information that the General Partner reasonably believes to
be in the nature of trade secrets or (ii) other information the disclosure of
which the General Partner in good faith believes (A) is not in the best
interests of the MLP or the Partnership Group, (B) could damage the MLP or the
Partnership Group or (C) that any Group Member is required by law or by
agreement with any third party to keep confidential (other than agreements with
Affiliates of the Partnership the primary purpose of which is to circumvent the
obligations set forth in this Section 3.4).
ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS
Section 4.1 Transfer Generally.
(a) The term "transfer," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which a
Partner assigns its Partnership Interest to another Person who becomes a Partner
or an Assignee, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article IV.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
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(c) Nothing contained in this Agreement shall be construed to prevent
a disposition by any shareholder of the General Partner of any or all of the
issued and outstanding capital stock of the General Partner.
Section 4.2 Transfer of General Partner's Partnership Interest.
If the General Partner transfers its interest as the general partner
of the MLP to any Person in accordance with the provisions of the MLP Agreement,
the General Partner shall contemporaneously therewith transfer all, but not less
than all, of its General Partner Interest herein to such Person, and the Limited
Partners hereby expressly consent to such transfer. Except as set forth in the
immediately preceding sentence and in Section 5.2, a General Partner may not
transfer all or any part of its Partnership Interest as the General Partner;
provided, however, that this provision shall not preclude or limit a General
Partner's ability to mortgage, pledge, hypothecate or grant a security interest
in its Partnership Interest as the General Partner and shall not prevent any
forced sale of any or all of its Partnership Interest as the General Partner
pursuant to the foreclosure of, or other realization upon, any such encumbrance.
Section 4.3 Transfer of a Limited Partner's Partnership Interest.
A Limited Partner may transfer all, but not less than all, of its
Partnership Interest as a Limited Partner in connection with the merger,
consolidation or other combination of such Limited Partner with or into any
other Person or the transfer by such Limited Partner of all or substantially all
of its assets to another Person, and following any such transfer such Person may
become a Substituted Limited Partner pursuant to Article X. Except as set forth
in the immediately preceding sentence and in Section 5.2, or in connection with
any pledge of (or any related foreclosure on) a Partnership Interest as a
Limited Partner solely for the purpose of securing, directly or indirectly,
indebtedness of the Partnership or the MLP, and except for the transfers
contemplated by Sections 5.2 and 10.1, a Limited Partner may not transfer all or
any part of its Partnership Interest or withdraw from the Partnership.
Section 4.4 Restrictions on Transfers.
(a) Notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interest shall be made if such transfer would (i)
violate the then applicable federal or state securities laws or rules and
regulations of the Commission, any state securities commission or any other
governmental authority with jurisdiction over such transfer, (ii) terminate the
existence or qualification of the Partnership or the MLP under the laws of the
jurisdiction of its formation or (iii) cause the Partnership or the MLP to be
treated as an association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not already so treated
or taxed).
(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid
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a significant risk of the Partnership or the MLP becoming taxable as a
corporation or otherwise to be taxed as an entity for federal income tax
purposes. The restrictions may be imposed by making such amendments to this
Agreement as the General Partner may determine to be necessary or appropriate to
impose such restrictions.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1 Initial Contributions.
In connection with the formation of the Partnership, the General Partner
made an initial Capital Contribution to the Partnership in the amount of $50.00
in exchange for an interest in the Partnership and was admitted as General
Partner, and the MLP made an initial Capital Contribution to the Partnership in
the amount of $50.00 in exchange for an interest in the Partnership and was
admitted as a Limited Partner.
Section 5.2 Contributions Pursuant to the Contribution and Conveyance
Agreement.
(a) Pursuant to the Contribution and Conveyance Agreement, the General
Partner has contributed to the capital of the Partnership certain of the Assets
acquired by it from certain of the Plains Midstream Subsidiaries in exchange for
addtional Partnership Interests. Immediately following such contribution, the
General Partner transferred all but a 1.0101% Partnership Interest to the MLP in
exchange for certain interests therein as more particularly described in the
Registration Statement.
(b) Pursuant to the Contribution and Conveyance Agreement, the
Partnership assumed certain indebtedness relating to the Assets.
(c) Pursuant to the Contribution and Conveyance Agreement, the MLP has
contributed to the Partnership all of the net proceeds from the sale of Common
Units offered pursuant to the Registration Statement and all of the limited
partner interest in All American, L.P. in exchange for a Partnership Interest as
a Limited Partner.
(d) Following the foregoing transactions, the General Partner holds a
1.0101% Partnership Interest as General Partner and the MLP holds a 98.9899%
Partnership Interest as a Limited Partner.
Section 5.3 Additional Capital Contributions.
With the consent of the General Partner, any Limited Partner may, but shall
not be obligated to, make additional Capital Contributions to the Partnership.
Contemporaneously with the making of any Capital Contributions by a Limited
Partner, in addition to those provided in Sections 5.1 and
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5.2, the General Partner shall be obligated to make an additional Capital
Contribution to the Partnership in an amount equal to [1.0101 / 98.9899] of the
Net Agreed Value of the additional Capital Contribution then made by such
Limited Partner. Except as set forth in the immediately preceding sentence and
in Article XII, the General Partner shall not be obligated to make any
additional Capital Contributions to the Partnership.
Section 5.4 Interest and Withdrawal.
No interest shall be paid by the Partnership on Capital Contributions. No
Partner or Assignee shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent, if any, that distributions made pursuant to
this Agreement or upon termination of the Partnership may be considered as such
by law and then only to the extent provided for in this Agreement. Except to the
extent expressly provided in this Agreement, no Partner or Assignee shall have
priority over any other Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions. Any such return shall
be a compromise to which all Partners or Assignees agree within the meaning of
Section 17-502(b) of the Delaware Act.
Section 5.5 Capital Accounts.
(a) The Partnership shall maintain for each Partner (or a beneficial
owner of Partnership Interests held by a nominee in any case in which the
nominee has furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other method acceptable to
the General Partner in its sole discretion) owning a Partnership Interest a
separate Capital Account with respect to such Partnership Interest in accordance
with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital
Account shall be increased by (i) the amount of all Capital Contributions made
to the Partnership with respect to such Partnership Interest pursuant to this
Agreement and (ii) all items of Partnership income and gain (including, without
limitation, income and gain exempt from tax) computed in accordance with Section
5.5(b) and allocated with respect to such Partnership Interest pursuant to
Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of all
actual and deemed distributions of cash or property made with respect to such
Partnership Interest pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 5.5(b) and allocated with
respect to such Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of income, gain,
loss or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Partners' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
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(i) Solely for purposes of this Section 5.5, the Partnership shall be
treated as owning directly its proportionate share (as determined by the
General Partner) of all property owned by any OLP Subsidiary that is
classified as a partnership for federal income tax purposes.
(ii) All fees and other expenses incurred by the Partnership to
promote the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred and shall be
allocated among the Partners pursuant to Section 6.1.
(iii) Except as otherwise provided in Treasury Regulation Section
1.704-1(b)(2)(iv)(m), computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of
the Code which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes. To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Section 734(b) or 743(b) of the Code is
required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to
be taken into account in determining Capital Accounts, the amount of such
adjustment in the Capital Accounts shall be treated as an item of gain or
loss.
(iv) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of Section 704(b) of the
Code, any deductions for depreciation, cost recovery or amortization
attributable to any Contributed Property shall be determined as if the
adjusted basis of such property on the date it was acquired by the
Partnership were equal to the Agreed Value of such property. Upon an
adjustment pursuant to Section 5.5(d) to the Carrying Value of any
Partnership property subject to depreciation, cost recovery or
amortization, any further deductions for such depreciation, cost recovery
or amortization attributable to such property shall be determined (A) as if
the adjusted basis of such property were equal to the Carrying Value of
such property immediately following such adjustment and (B) using a rate of
depreciation, cost recovery or amortization derived from the same method
and useful life (or, if applicable, the remaining useful life) as is
applied for federal income tax purposes; provided, however, that, if the
asset has a zero adjusted basis for federal income tax purposes,
depreciation, cost recovery or amortization derived from the same method
and useful life (or, if applicable, the remaining useful life) as is
applied for federal income tax purposes; provided, however, that, if the
asset has a zero adjusted basis for federal income tax purposes,
depreciation, cost
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recovery or amortization deductions shall be determined using any
reasonable method that the General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to
Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction
shall, solely for purposes hereof, be deemed to be an additional
depreciation or cost recovery deduction in the year such property is placed
in service and shall be allocated among the Partners pursuant to Section
6.1. Any restoration of such basis pursuant to Section 48(q)(2) of the Code
shall, to the extent possible, be allocated in the same manner to the
Partners to whom such deemed deduction was allocated.
(c) A transferee of a Partnership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the
Partnership Interest so transferred.
(d) (iv) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), on an issuance of additional Partnership Interests for cash
or Contributed Property or the conversion of the General Partner's
Partnership Interest to Common Units as provided in Section 11.3(a) (or
upon the occurrence of any other event listed in such regulation), the
Capital Accounts of all Partners and the Carrying Value of each Partnership
property immediately prior to such issuance shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as if such Unrealized Gain or Unrealized Loss
had been recognized on an actual sale of each such property immediately
prior to such issuance and had been allocated to the Partners at such time
pursuant to Section 6.1 in the same manner as any item of gain or loss
actually recognized during such period would have been allocated. In
determining such Unrealized Gain or Unrealized Loss, the aggregate cash
amount and fair market value of all Partnership assets (including, without
limitation, cash or cash equivalents) immediately prior to the issuance of
additional Partnership Interests shall be determined by the General Partner
using such reasonable method of valuation as it may adopt; provided,
however, that the General Partner, in arriving at such valuation, must take
fully into account the fair market value of the Partnership Interests of
all Partners at such time. The General Partner shall allocate such
aggregate value among the assets of the Partnership (in such manner as it
determines in its discretion to be reasonable) to arrive at a fair market
value for individual properties.
(ii) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to a
Partner of any Partnership property (other than a distribution of cash that
is not in redemption or retirement of a Partnership Interest), the Capital
Accounts of all Partners and the Carrying Value of all Partnership property
shall be adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as if such
Unrealized Gain or Unrealized Loss had been recognized in a sale of such
property immediately prior to such distribution for an amount equal to its
fair market value, and had been allocated to the
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Partners, at such time, pursuant to Section 6.1 in the same manner as any
item of gain or loss actually recognized during such period would have been
allocated. In determining such Unrealized Gain or Unrealized Loss the
aggregate cash amount and fair market value of all Partnership assets
(including, without limitation, cash or cash equivalents) immediately prior
to a distribution shall (A) in the case of an actual distribution which is
not made pursuant to Section 12.4 or in the case of a deemed contribution
and/or distribution occurring as a result of a termination of the
Partnership pursuant to Section 708 of the Code, be determined and
allocated in the same manner as that provided in Section 5.5(d)(i) or (B)
in the case of a liquidating distribution pursuant to Section 12.4, be
determined and allocated by the Liquidator using such reasonable method of
valuation as it may adopt.
Section 5.6 Loans from Partners.
Loans by a Partner to the Partnership shall not constitute Capital
Contributions. If any Partner shall advance funds to the Partnership in excess
of the amounts required hereunder to be contributed by it to the capital of the
Partnership, the making of such excess advances shall not result in any increase
in the amount of the Capital Account of such Partner. The amount of any such
excess advances shall be a debt obligation of the Partnership to such Partner
and shall be payable or collectible only out of the Partnership assets in
accordance with the terms and conditions upon which such advances are made.
Section 5.7 Limited Preemptive Rights.
Except as provided in Section 5.3, no Person shall have preemptive,
preferential or other similar rights with respect to (a) additional Capital
Contributions; (b) issuance or sale of any class or series of Partnership
Interests, whether unissued, held in the treasury or hereafter created; (c)
issuance of any obligations, evidences of indebtedness or other securities of
the Partnership convertible into or exchangeable for, or carrying or accompanied
by any rights to receive, purchase or subscribe to, any such Partnership
Interests; (d) issuance of any right of subscription to or right to receive, or
any warrant or option for the purchase of, any such Partnership Interests; or
(e) issuance or sale of any other securities that may be issued or sold by the
Partnership.
Section 5.8 Fully Paid and Non-Assessable Nature of Partnership Interests.
All Partnership Interests issued to Limited Partners pursuant to, and in
accordance with the requirements of, this Article V shall be fully paid and non-
assessable Partnership Interests, except as such non-assessability may be
affected by Section 17-607 of the Delaware Act.
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes.
For purposes of maintaining the Capital Accounts and in determining the
rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Section 5.5(b)) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations set
forth in Section 6.1(d), Net Income for each taxable year and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable year shall be allocated among the Partners as follows:
(i) First, 100% to the General Partner, until the aggregate Net
Income allocated to the General Partner pursuant to this Section 6.1(a)(i)
for the current taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partner pursuant to Section
6.1(b)(ii) for all previous taxable years;
(ii) Second, 1.0101% to the General Partner and 98.9899% to the
Limited Partners in accordance with their respective Percentage Interests..
(b) Net Losses. After giving effect to the special allocations set
forth in Section 6.1(d), Net Losses for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Losses for
such taxable period shall be allocated among the Partners as follows:
(i) First, 1.0101% to the General Partner and 98.9899% to the Limited
Partners, in accordance with their respective Percentage Interests;
provided, however, that Net Losses shall not be allocated to a Limited
Partner pursuant to this Section 6.1(b)(i) to the extent that such
allocation would cause a Limited Partner to have a deficit balance in its
Adjusted Capital Account at the end of such taxable year (or increase any
existing deficit balance in such Limited Partners's Adjusted Capital
Account);
(ii) Second, the balance, if any, 100% to the General Partner.
(c) Net Termination Gains and Losses. After giving effect to the
special allocations set forth in Section 6.1(d), all items of income, gain, loss
and deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder.
All allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this Section
6.1 and after all distributions
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of Available Cash provided under Section 6.4 have been made with respect to the
taxable period ending on or before the Liquidation Date; provided, however, that
solely for purposes of this Section 6.1(c), Capital Accounts shall not be
adjusted for distributions made pursuant to Section 12.4.
(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 5.5(d)), such Net Termination Gain shall be allocated
among the Partners in the following manner (and the Capital Accounts of the
Partners shall be increased by the amount so allocated in each of the
following subclauses, in the order listed, before an allocation is made
pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance in its
Capital Account, in the proportion that such deficit balance bears to
the total deficit balances in the Capital Accounts of all Partners,
until each such Partner has been allocated Net Termination Gain equal
to any such deficit balance in its Capital Account; and
(B) Second, 1.0101% to the General Partner and 98.9899% to the
Limited Partners, in accordance with their respective Percentage
Interests.
(ii) If a Net Termination Loss is recognized (or deemed
recognized pursuant to Section 5.5(d)), such Net Termination Loss shall be
allocated among the Partners in the following manner:
(A) First, to the General Partner and the Limited Partners in
proportion to, and to the extent of, the positive balances in their
respective Capital Accounts; and
(B) Second, the balance, if any, 100% to the General Partner.
(d) Special Allocations. Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 6.1, if there is a net decrease in Partnership
Minimum Gain during any Partnership taxable period, each Partner shall be
allocated items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-
2(j)(2)(i), or any successor provision. For purposes of this Section
6.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.1(d) with respect to such taxable period (other than an
allocation pursuant to Sections 6.1(d)(v) and 6.1(d)(vi)). This Section
6.1(d)(i) is intended to comply with the Partnership Minimum Gain
chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall
be interpreted consistently therewith.
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(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning of such
taxable period shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in the manner and
amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and 1.704-
2(j)(2)(ii), or any successor provisions. For purposes of this Section
6.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.1(d), other than Section 6.1(d)(i) and other than an
allocation pursuant to Sections 6.1(d)(v) and 6.1(d)(vi), with respect to
such taxable period. This Section 6.1(d)(ii) is intended to comply with the
chargeback of items of income and gain requirement in Treasury Regulation
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(iii) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions
described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership income
and gain shall be specially allocated to such Partner in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
Regulations promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 6.1(d)(i)
or (ii).
(iv) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any Partnership
taxable period in excess of the sum of (A) the amount such Partner is
required to restore pursuant to the provisions of this Agreement and (B)
the amount such Partner is deemed obligated to restore pursuant to Treasury
Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such Partner shall be
specially allocated items of Partnership gross income and gain in the
amount of such excess as quickly as possible; provided, that an allocation
pursuant to this Section 6.1(d)(iv) shall be made only if and to the extent
that such Partner would have a deficit balance in its Capital Account as
adjusted after all other allocations provided for in this Section 6.1 have
been tentatively made as if this Section 6.1(d)(iv) were not in this
Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of
the Treasury Regulations promulgated under Section 704(b) of the Code, the
General Partner
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is authorized, upon notice to the other Partners, to revise the prescribed
ratio to the numerically closest ratio that does satisfy such requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
for any taxable period shall be allocated 100% to the Partner that bears
the Economic Risk of Loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulation Section 1.704-2(i). If more than one Partner bears
the Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such
Partner Nonrecourse Deductions attributable thereto shall be allocated
between or among such Partners in accordance with the ratios in which they
share such Economic Risk of Loss.
(vii) Nonrecourse Liabilities. For purposes of Treasury Regulation
Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of
the Partnership in excess of the sum of (A) the amount of Partnership
Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
(viii) Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Partnership asset pursuant to Section
734(b) or 743(c) of the Code is required, pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital Accounts
shall be treated as an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases such basis), and such
item of gain or loss shall be specially allocated to the Partners in a
manner consistent with the manner in which their Capital Accounts are
required to be adjusted pursuant to such Section of the Treasury
Regulations.
(ix) Curative Allocation.
(A) Notwithstanding any other provision of this Section 6.1,
other than the Required Allocations, the Required Allocations shall be
taken into account in making the Agreed Allocations so that, to the
extent possible, the net amount of items of income, gain, loss and
deduction allocated to each Partner pursuant to the Required
Allocations and the Agreed Allocations, together, shall be equal to
the net amount of such items that would have been allocated to each
such Partner under the Agreed Allocations had the Required Allocations
and the related Curative Allocation not otherwise been provided in
this Section 6.1. Notwithstanding the preceding sentence, Required
Allocations relating to (1) Nonrecourse Deductions shall not be taken
into account except to the extent that there has been a decrease in
Partnership Minimum Gain and (2) Partner Nonrecourse Deductions shall
not be taken into account except to the extent that there has been a
decrease in Partner Nonrecourse Debt Minimum Gain. Allocations
pursuant to this Section 6.1(d)(ix)(A) shall only be made with
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respect to Required Allocations to the extent the General Partner
reasonably determines that such allocations will otherwise be
inconsistent with the economic agreement among the Partners. Further,
allocations pursuant to this Section 6.1(d)(ix)(A) shall be deferred
with respect to allocations pursuant to clauses (1) and (2) hereof to
the extent the General Partner reasonably determines that such
allocations are likely to be offset by subsequent Required
Allocations.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of Section
6.1(d)(ix)(A) in whatever order is most likely to minimize the
economic distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to Section
6.1(d)(ix)(A) among the Partners in a manner that is likely to
minimize such economic distortions.
Section 6.2 Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners in the manner
provided under Section 704(c) of the Code that takes into account the
variation between the Agreed Value of such property and its adjusted basis
at the time of contribution; and (B) any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of "book" gain or loss
is allocated pursuant to Section 6.1.
(ii) (A) In the case of an Adjusted Property, such items shall (1)
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and the
allocations thereof pursuant to Section 5.5(d)(i) or 5.5(d)(ii), and (2)
second, in the event such property was originally a Contributed Property,
be allocated among the Partners in a manner consistent with Section
6.2(b)(i)(A); and (B) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be allocated among the Partners
in the same manner as its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1.
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(iii) The General Partner shall apply the principles of Treasury
Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Units or other limited partner interests of
the MLP (or any class or classes thereof), the General Partner shall have sole
discretion to (i) adopt such conventions as it deems appropriate in determining
the amount of depreciation, amortization and cost recovery deductions; (ii) make
special allocations for federal income tax purposes of income (including,
without limitation, gross income) or deductions; and (iii) amend the provisions
of this Agreement as appropriate (x) to reflect the proposal or promulgation of
Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y)
otherwise to preserve or achieve uniformity of the Units or other limited
partner interests of the MLP (or any class or classes thereof). The General
Partner may adopt such conventions, make such allocations and make such
amendments to this Agreement as provided in this Section 6.2(c) only if such
conventions, allocations or amendments would not have a material adverse effect
on the Partners, the holders of any class or classes of Units or other limited
partner interests of the MLP issued and outstanding or the Partnership and if
such allocations are consistent with the principles of Section 704 of the Code.
(d) The General Partner in its discretion may determine to depreciate
or amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Proposed Treasury Regulation Section 1.168-2(n), Treasury
Regulation Section 1.167(c)-l(a)(6) or the legislative history of Section 197 of
the Code. If the General Partner determines that such reporting position cannot
reasonably be taken, the General Partner may adopt depreciation and amortization
conventions under which all purchasers acquiring Limited Partner Interests of
the MLP in the same month would receive depreciation and amortization
deductions, based upon the same applicable rate as if they had purchased a
direct interest in the Partnership's property. If the General Partner chooses
not to utilize such aggregate method, the General Partner may use any other
reasonable depreciation and amortization conventions to preserve the uniformity
of the intrinsic tax characteristics of any Limited Partner Interests of the MLP
that would not have a material adverse effect on the Partners or the holders of
any class or classes of Limited Partner Interests of the MLP.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 6.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
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(f) All items of income, gain, loss, deduction and credit recognized
by the Partnership for federal income tax purposes and allocated to the Partners
in accordance with the provisions hereof shall be determined without regard to
any election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) The General Partner may adopt such methods of allocation of
income, gain, loss or deduction between a transferor and a transferee of a
Partnership Interest as it determines necessary, to the extent permitted or
required by Section 706 of the Code and the regulations or rulings promulgated
thereunder.
(h) Allocations that would otherwise be made to a Partner under the
provisions of this Article VI shall instead be made to the beneficial owner of
Partnership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion.
Section 6.3 Distributions.
(a) Within 45 days following the end of each Quarter commencing with
the Quarter ending on December 31, 1998, an amount equal to 100% of Available
Cash with respect to such Quarter shall, subject to Section 17-607 of the
Delaware Act, be distributed in accordance with this Article VI by the
Partnership to the Partners in accordance with their respective Percentage
Interests. The immediately preceding sentence shall not require any distribution
of cash if and to the extent such distribution would be prohibited by applicable
law or by any loan agreement, security agreement, mortgage, debt instrument or
other agreement or obligation to which the Partnership is a party or by which it
is bound or its assets are subject. All distributions required to be made under
this Agreement shall be made subject to Section 17-607 of the Delaware Act.
(b) In the event of the dissolution and liquidation of the
Partnership, all receipts received during or after the Quarter in which the
Liquidation Date occurs, other than from borrowings described in (a)(ii) of the
definition of Available Cash, shall be applied and distributed solely in
accordance with, and subject to the terms and conditions of, Section 12.4.
(c) The General Partner shall have the discretion to treat taxes paid
by the Partnership on behalf of, or amounts withheld with respect to, all or
less than all of the Partners, as a distribution of Available Cash to such
Partners.
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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management.
(a) The General Partner shall conduct, direct and manage all
activities of the Partnership. Except as otherwise expressly provided in this
Agreement, all management powers over the business and affairs of the
Partnership shall be exclusively vested in the General Partner, and no Limited
Partner shall have any management power over the business and affairs of the
Partnership. In addition to the powers now or hereafter granted a general
partner of a limited partnership under applicable law or which are granted to
the General Partner under any other provision of this Agreement, the General
Partner, subject to Section 7.3, shall have full power and authority to do all
things and on such terms as it, in its sole discretion, may deem necessary or
appropriate to conduct the business of the Partnership, to exercise all powers
set forth in Section 2.5 and to effectuate the purposes set forth in Section
2.4, including the following:
(i) the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness, including indebtedness that is convertible into a Partnership
Interest, and the incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the Partnership or
the merger or other combination of the Partnership with or into another
Person (the matters described in this clause (iii) being subject, however,
to any prior approval that may be required by Section 7.3);
(iv) the use of the assets of the Partnership (including cash on
hand) for any purpose consistent with the terms of this Agreement,
including the financing of the conduct of the operations of the Partnership
Group, subject to Section 7.6, the lending of funds to other Persons
(including the MLP, the General Partner and its Affiliates), the repayment
of obligations of the MLP or any member of the Partnership Group and the
making of capital contributions to any member of the Partnership Group;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including instruments that limit the
liability of the Partnership under contractual arrangements to all or
particular assets of the Partnership, with the other party to the contract
to have no recourse against the General Partner or its assets other than
its interest
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in the Partnership, even if same results in the terms of the transaction
being less favorable to the Partnership than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including employees
having titles such as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants, consultants and
contractors and the determination of their compensation and other terms of
employment or hiring;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited or
general partnerships, joint ventures, corporations or other relationships
subject to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations
of the Partnership, including the bringing and defending of actions at law
or in equity and otherwise engaging in the conduct of litigation and the
incurring of legal expense and the settlement of claims and litigation; and
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law.
(b) Notwithstanding any other provision of this Agreement, the MLP
Agreement, the Delaware Act or any applicable law, rule or regulation, each of
the Partners and each other Person who may acquire an interest in the
Partnership hereby (i) approves, ratifies and confirms the execution, delivery
and performance by the parties thereto of the Partnership Agreement, the MLP
Agreement, the Underwriting Agreement, the Omnibus Agreement, the Contribution
and Conveyance Agreement and the other agreements and documents described in or
filed as exhibits to the Registration Statement that are related to the
transactions contemplated by the Registration Statement; (ii) agrees that the
General Partner (on its own or through any officer of the Partnership) is
authorized to execute, deliver and perform the agreements referred to in clause
(i) of this sentence and the other agreements, acts, transactions and matters
described in or contemplated by the Registration Statement on behalf of the
Partnership without any further act, approval or vote of the Partners or the
other Persons who may acquire an interest in the Partnership; and (iii) agrees
that the execution, delivery or performance by the General Partner, the MLP, any
Group Member or any Affiliate of any of them, of this Agreement or any agreement
authorized or permitted under this Agreement (including the exercise by the
General Partner or any Affiliate of the General Partner of the rights accorded
pursuant to Article XV), shall not constitute a breach by the General Partner of
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any duty that the General Partner may owe the Partnership or the Partners or any
other Persons under this Agreement (or any other agreements) or of any duty
stated or implied by law or equity.
Section 7.2 Certificate of Limited Partnership.
The General Partner has caused the Certificate of Limited Partnership to be
filed with the Secretary of State of the State of Delaware as required by the
Delaware Act and shall use all reasonable efforts to cause to be filed such
other certificates or documents as may be determined by the General Partner in
its sole discretion to be reasonable and necessary or appropriate for the
formation, continuation, qualification and operation of a limited partnership
(or a partnership or other entity in which the limited partners have limited
liability) in the State of Delaware or any other state in which the Partnership
may elect to do business or own property. To the extent that such action is
determined by the General Partner in its sole discretion to be reasonable and
necessary or appropriate, the General Partner shall file amendments to and
restatements of the Certificate of Limited Partnership and do all things to
maintain the Partnership as a limited partnership (or a partnership or other
entity in which the limited partners have limited liability) under the laws of
the State of Delaware or of any other state in which the Partnership may elect
to do business or own property. Subject to the terms of Section 3.4(a), the
General Partner shall not be required, before or after filing, to deliver or
mail a copy of the Certificate of Limited Partnership, any qualification
document or any amendment thereto to any Limited Partner or Assignee.
Section 7.3 Restrictions on General Partner's Authority.
(a) The General Partner may not, without written approval of the
specific act by the Limited Partners or by other written instrument executed and
delivered by the Limited Partners subsequent to the date of this Agreement, take
any action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) committing any act that would make it impossible
to carry on the ordinary business of the Partnership; (ii) possessing
Partnership property, or assigning any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admitting a Person as a Partner;
(iv) amending this Agreement in any manner or (v) transferring its General
Partner Interest.
(b) Except as provided in Articles XII and XIV, the General Partner
may not sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
or approve on behalf of the Partnership the sale, exchange or other disposition
of all or substantially all of the assets of the Partnership, without the
approval of the Limited Partners; provided however that this provision shall not
preclude or limit the General Partner's ability to mortgage, pledge, hypothecate
or grant a security interest in all or substantially all of the assets of the
Partnership and shall not apply to any forced sale of any or all of the assets
of the Partnership pursuant to the foreclosure of, or other realization upon,
any such encumbrance. Without the approval of at least a Unit Majority, the
General Partner shall not, on behalf of the MLP, (i) consent to any amendment to
this Agreement or, except as expressly permitted
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by Section 7.9(d) of the MLP Agreement, take any action permitted to be taken by
a Partner, in either case, that would have a material adverse effect on the MLP
as a Partner or (ii) except as permitted under Sections 4.6, 11.1 and 11.2 of
the MLP Agreement, elect or cause the MLP to elect a successor general partner
of the Partnership.
Section 7.4 Reimbursement of the General Partner.
(a) Except as provided in this Section 7.4 and elsewhere in this
Agreement or in the MLP Agreement, the General Partner shall not be compensated
for its services as General Partner, general partner of the MLP or as general
partner of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or
such other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person including Affiliates of the
General Partner to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Reimbursements pursuant to this Section 7.4
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7.
(c) Subject to Section 5.7, the General Partner, in its sole
discretion and without the approval of the Limited Partners (who shall have no
right to vote in respect thereof), may propose and adopt on behalf of the
Partnership employee benefit plans, employee programs and employee practices, or
cause the Partnership to issue Partnership securities, in connection with,
pursuant to any employee benefit plan, employee program or employee practice
maintained or sponsored by the General Partner or any of its Affiliates, in each
case for the benefit of employees of the General Partner any Group Member or any
Affiliate, or any of them, in respect of services performed, directly or
indirectly, for the benefit of the Partnership Group. Expenses incurred by the
General Partner in connection with any such plans, programs and practices shall
be reimbursed in accordance with Section 7.4(b). Any and all obligations of the
General Partner under any employee benefit plans, employee programs or employee
practices adopted by the General Partner as permitted by this Section 7.4(c)
shall constitute obligations of the General Partner hereunder and shall be
assumed by any successor General Partner approved pursuant to Section 11.1 or
11.2 or the transferee of or successor to all of the General Partner's General
Partner Interest pursuant to Section 4.2.
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Section 7.5 Outside Activities.
(a) After the Closing Date, the General Partner, for so long as it is
the General Partner of the Partnership, (i) agrees that its sole business will
be to act as the general partner of the Partnership, the general partner of the
MLP, and a general partner of any other partnership of which the Partnership or
the MLP is, directly or indirectly, a partner and to undertake activities that
are ancillary or related thereto (including being a limited partner in the MLP),
(ii) shall not engage in any business or activity or incur any debts or
liabilities except in connection with or incidental to (A) its performance as
general partner of the Partnership, the MLP or as general partner or one or more
Group Members or as described in or contemplated by the Registration Statement
or (B) the acquiring, owning or disposing of debt or equity securities in the
MLP or any Group Member and (iii) except to the extent permitted in the Omnibus
Agreement, shall not, and shall cause its Affiliates not to, engage in any
Restricted Activity.
(b) The Omnibus Agreement, to which the Partnership is a party, sets
forth certain restrictions on the ability of Plains Resources, Inc. to engage in
Restricted Activities.
(c) Except as specifically restricted by Section 7.5(a) and the
Omnibus Agreement, each Indemnitee (other than the General Partner) shall have
the right to engage in businesses of every type and description and other
activities for profit and to engage in and possess an interest in other business
ventures of any and every type or description, whether in businesses engaged in
or anticipated to be engaged in by the MLP or any Group Member, independently or
with others, including business interests and activities in direct competition
with the business and activities of the MLP or any Group Member, and none of the
same shall constitute a breach of this Agreement or any duty express or implied
by law to the MLP or any Group Member or any Partner or Assignee. Neither the
MLP nor any Group Member, any Limited Partner, nor any other Person shall have
any rights by virtue of this Agreement, the MLP Agreement or the relationship
established hereby or thereby in any business ventures of any Indemnitee.
(d) Subject to the terms of the Omnibus Agreement, Section 7.5(a), (b)
and (c) but otherwise notwithstanding anything to the contrary in this
Agreement, (i) the engaging in competitive activities by any Indemnitees (other
than the General Partner) in accordance with the provisions of this Section 7.5
is hereby approved by the Partnership and all Partners, (ii) it shall be deemed
not to be a breach of the General Partner's fiduciary duty or any other
obligation of any type whatsoever of the General Partner for the Indemnitees
(other than the General Partner) to engage in such business interests and
activities in preference to or to the exclusion of the Partnership and (iii)
except as set forth in the Omnibus Agreement, the General Partner and the
Indemnities shall have no obligation to present business opportunities to the
Partnership.
(e) The General Partner and any of its Affiliates may acquire Common
Units or other MLP Securities in addition to those acquired on the Closing Date
and, except as otherwise
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provided in this Agreement, shall be entitled to exercise all rights relating to
such Common Units or MLP Securities.
(f) The term "Affiliates" when used in Section 7.5(a) and Section
7.5(e) with respect to the General Partner shall not include any Group Member or
any Subsidiary of the MLP or any Group Member.
(g) Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this
Agreement purport or are interpreted to have the effect of restricting the
fiduciary duties that might otherwise, as a result of Delaware or other
applicable law, be owed by the General Partner to the Partnership and its
Limited Partners, or to constitute a waiver or consent by the Limited Partners
to any such restriction, such provisions shall be inapplicable and have no
effect in determining whether the General Partner has complied with its
fiduciary duties in connection with determinations made by it under this Section
7.5.
Section 7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the General
Partner.
(a) The General Partner or its Affiliates may lend to the MLP or any
Group Member, and the MLP or any Group Member may borrow from the General
Partner or any of its Affiliates, funds needed or desired by the MLP or the
Group Member for such periods of time and in such amounts as the General Partner
may determine; provided, however, that in any such case the lending party may
not charge the borrowing party interest at a rate greater than the rate that
would be charged the borrowing party or impose terms less favorable to the
borrowing party than would be charged or imposed on the borrowing party by
unrelated lenders on comparable loans made on an arm's-length basis (without
reference to the lending party's financial abilities or guarantees). The
borrowing party shall reimburse the lending party for any costs (other than any
additional interest costs) incurred by the lending party in connection with the
borrowing of such funds. For purposes of this Section 7.6(a) and Section 7.6(b),
the term "Group Member" shall include any Affiliate of a Group Member that is
controlled by the Group Member. No Group Member may lend funds to the General
Partner or any of its Affiliates (other than the MLP, a Subsidiary of the MLP or
a Subsidiary of another Group Member).
(b) The Partnership may lend or contribute to any Group Member, and
any Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.
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(c) The General Partner may itself, or may enter into an agreement
with any of its Affiliates to, render services to a Group Member or to the
General Partner in the discharge of its duties as general partner of the
Partnership. Any services rendered to a Group Member by the General Partner or
any of its Affiliates shall be on terms that are fair and reasonable to the
Partnership; provided, however, that the requirements of this Section 7.6(c)
shall be deemed satisfied as to (i) any transaction approved by Special
Approval, (ii) any transaction, the terms of which are no less favorable to the
Partnership Group than those generally being provided to or available from
unrelated third parties or (iii) any transaction that, taking into account the
totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership Group), is equitable to the Partnership Group. The provisions of
Section 7.4 shall apply to the rendering of services described in this Section
7.6(c).
(d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 7.6(e) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Sections 5.2 and 5.3, the Contribution and
Conveyance Agreement and any other transactions described in or contemplated by
the Registration Statement, (ii) any transaction approved by Special Approval,
(iii) any transaction, the terms of which are no less favorable to the
Partnership than those generally being provided to or available from unrelated
third parties, or (iv) any transaction that, taking into account the totality of
the relationships between the parties involved (including other transactions
that may be particularly favorable or advantageous to the Partnership), is
equitable to the Partnership.
(f) The General Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
Section 7.7 Indemnification.
(a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, all Indemnitees shall be
indemnified and held harmless by the
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Partnership from and against any and all losses, claims, damages, liabilities,
joint or several, expenses (including legal fees and expenses), judgments,
fines, penalties, interest, settlements or other amounts arising from any and
all claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, by reason of its status as
an Indemnitee; provided, that in each case the Indemnitee acted in good faith
and in a manner that such Indemnitee reasonably believed to be in, or (in the
case of a Person other than the General Partner) not opposed to, the best
interests of the Partnership and, with respect to any criminal proceeding, had
no reasonable cause to believe its conduct was unlawful; provided, further, no
indemnification pursuant to this Section 7.7 shall be available to the General
Partner with respect to its obligations incurred pursuant to the Underwriting
Agreement or the Contribution and Conveyance Agreement (other than obligations
incurred by the General Partner on behalf of the MLP or the Partnership). The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that the Indemnitee acted in a manner contrary to that
specified above. Any indemnification pursuant to this Section 7.7 shall be made
only out of the assets of the Partnership, it being agreed that the General
Partner shall not be personally liable for such indemnification and shall have
no obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal
fees and expenses) incurred by an Indemnitee who is indemnified pursuant to
Section 7.7(a) in defending any claim, demand, action, suit or proceeding shall,
from time to time, be advanced by the Partnership prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by the
Partnership of any undertaking by or on behalf of the Indemnitee to repay such
amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and
as to actions in any other capacity (including any capacity under the
Underwriting Agreement), and shall continue as to an Indemnitee who has ceased
to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the
General Partner or its Affiliates for the cost of) insurance, on behalf of the
General Partner, its Affiliates and such other Persons as the General Partner
shall determine, against any liability that may be asserted against or expense
that may be incurred by such Person in connection with the Partnership's
activities or such Person's activities on behalf of the Partnership, regardless
of whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement.
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(e) For purposes of this Section 7.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 7.7(a); and action taken
or omitted by it with respect to any employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the [Limited] Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligations of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.8 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, no Indemnitee shall be liable for monetary damages to the
Partnership, the Limited Partners, the Assignees or any other Persons who have
acquired interests in the Units or other Partnership Securities of the MLP, for
losses sustained or liabilities incurred as a result of any act or omission if
such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as General Partner set forth
in Section 7.1(a), the General Partner may exercise any of the powers granted to
it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents, and the General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
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(c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Limited Partners, the General Partner and any other Indemnitee acting
in connection with the Partnership's business or affairs shall not be liable to
the Partnership or to any Partner for its good faith reliance on the provisions
of this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership, the Limited Partners, the
General Partner, and the Partnership's and General Partner's directors, officers
and employees under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement, whenever a
potential conflict of interest exists or arises between the General Partner or
any of its Affiliates, on the one hand, and the Partnership, the MLP, any
Partner or any Assignee, on the other, any resolution or course of action by the
General Partner or its Affiliates in respect of such conflict of interest shall
be permitted and deemed approved by all Partners, and shall not constitute a
breach of this Agreement of the MLP Agreement, of any agreement contemplated
herein, or of any duty stated or implied by law or equity, if the resolution or
course of action is, or by operation of this Agreement is deemed to be, fair and
reasonable to the Partnership. The General Partner shall be authorized but not
required in connection with its resolution of such conflict of interest to seek
Special Approval of such resolution. Any conflict of interest and any resolution
of such conflict of interest shall be conclusively deemed fair and reasonable to
the Partnership if such conflict of interest or resolution is (i) approved by
Special Approval (as long as the material facts known to the General Partner or
any of its Affiliates regarding any proposed transaction were disclosed to the
Conflicts Committee at the time it gave its approval), (ii) on terms no less
favorable to the Partnership than those generally being provided to or available
from unrelated third parties or (iii) fair to the Partnership, taking into
account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership). The General Partner may also adopt a resolution or course
of action that has not received Special Approval. The General Partner (including
the Conflicts Committee in connection with Special Approval) shall be authorized
in connection with its determination of what is "fair and reasonable" to the
Partnership and in connection with its resolution of any conflict of interest to
consider (A) the relative interests of any party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such interest;
(B) any customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or
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principles; and (D) such additional factors as the General Partner (including
the Conflicts Committee) determines in its sole discretion to be relevant,
reasonable or appropriate under the circumstances. Nothing contained in this
Agreement, however, is intended to nor shall it be construed to require the
General Partner (including the Conflicts Committee) to consider the interests of
any Person other than the Partnership. In the absence of bad faith by the
General Partner, the resolution, action or terms so made, taken or provided by
the General Partner with respect to such matter shall not constitute a breach of
this Agreement or any other agreement contemplated herein or a breach of any
standard of care or duty imposed herein or therein or, to the extent permitted
by law, under the Delaware Act or any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or "necessary or advisable" or under a grant
of similar authority or latitude, except as otherwise provided herein, the
General Partner or such Affiliate shall be entitled to consider only such
interests and factors as it desires and shall have no duty or obligation to give
any consideration to any interest of, or factors affecting, the Partnership, any
Limited Partner or any Assignee, (ii) it may make such decision in its sole
discretion (regardless of whether there is a reference to "sole discretion" or
"discretion") unless another express standard is provided for, or (iii) in "good
faith" or under another express standard, the General Partner or such Affiliate
shall act under such express standard and shall not be subject to any other or
different standards imposed by this Agreement, the MLP Agreement, any other
agreement contemplated hereby or under the Delaware Act or any other law, rule
or regulation. In addition, any actions taken by the General Partner or such
Affiliate consistent with the standards of "reasonable discretion" set forth in
the definition of Available Cash shall not constitute a breach of any duty of
the General Partner to the Partnership or the Limited Partners. The General
Partner shall have no duty, express or implied, to sell or otherwise dispose of
any asset of the Partnership Group other than in the ordinary course of
business. No borrowing by any Group Member or the approval thereof by the
General Partner shall be deemed to constitute a breach of any duty of the
General Partner to the Partnership or the Limited Partners by reason of the fact
that the purpose or effect of such borrowing is directly or indirectly to (A)
enable distributions to the General Partner or its Affiliates to exceed 1% of
the total amount distributed to all members or (B) hasten the expiration of the
Subordination Period or the conversion of any Subordinated Units into Common
Units.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The MLP hereby authorizes the General Partner, on behalf of the
Partnership as a partner or member of a Group Member, to approve of actions by
the general partner of such Group Member similar to those actions permitted to
be taken by the General Partner pursuant to this Section 7.9.
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Section 7.10 Other Matters Concerning the General Partner.
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the General Partner reasonably believes to be within such Person's
professional or expert competence shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.
(d) Any standard of care and duty imposed by this Agreement or under
the Delaware Limited Liability Partnership Act or any applicable law, rule or
regulation shall be modified, waived or limited, to the extent permitted by law,
as required to permit the General Partner to act under this Agreement or any
other agreement contemplated by this Agreement and to make any decision pursuant
to the authority prescribed in this Agreement, so long as such action is
reasonably believed by the General Partner to be in, or not inconsistent with,
the best interests of the Partnership.
Section 7.11 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner and any officer of the General Partner authorized by the General Partner
to act on behalf of and in the name of the Partnership has full power and
authority to encumber, sell or otherwise use in any manner any and all assets of
the Partnership and to enter into any authorized contracts on behalf of the
Partnership, and such Person shall be entitled to deal with the General Partner
or any such officer as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner or any such officer in
connection with any such dealing. In no event shall any Person dealing with the
General Partner or any such officer or its representatives be obligated to
ascertain that the terms of the Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
any such officer or its representatives. Each and every certificate, document or
other instrument executed on behalf of the Partnership by the General Partner or
its representatives shall be conclusive evidence in favor of any
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and every Person relying thereon or claiming thereunder that (a) at the time of
the execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Partnership and (c) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting.
The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including books of account and records of
Partnership proceedings, may be kept on, or be in the form of, computer disks,
hard drives, punch cards, magnetic tape, photographs, micrographics or any other
information storage device; provided, that the books and records so maintained
are convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained, for financial reporting
purposes, on an accrual basis in accordance with U.S. GAAP.
Section 8.2 Fiscal Year.
The fiscal year of the Partnership shall be a fiscal year ending
December 31.
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information.
The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by the Partners for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. The classification, realization and recognition of income, gain, losses
and deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.
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Section 9.2 Tax Elections.
(a) The Partnership shall make the election under Section 754 of the
Code in accordance with applicable regulations thereunder, subject to the
reservation of the right to seek to revoke any such election upon the General
Partner's determination that such revocation is in the best interests of the
Limited Partners.
(b) The Partnership shall elect to deduct expenses incurred in
organizing the Partnership ratably over a sixty-month period as provided in
Section 709 of the Code.
(c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.
Section 9.3 Tax Controversies.
Subject to the provisions hereof, the General Partner is designated as the
"tax matters partner" (as defined in the Code) and is authorized and required to
represent the Partnership (at the Partnership's expense) in connection with all
examinations of the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.
Section 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required or elects to withhold
and pay over to any taxing authority any amount resulting from the allocation or
distribution of income to any Partner or Assignee (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld may at
the discretion of the General Partner be treated by the Partnership as a
distribution of cash pursuant to Section 6.3 in the amount of such withholding
from such Partner.
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ARTICLE X
ADMISSION OF PARTNERS
Section 10.1 Admission of Partners.
Upon the consummation of the transfers and conveyances described in
Section 5.2, the General Partner shall be the sole general partner of the
Partnership and the MLP shall be the sole limited partner of the Partnership.
Section 10.2 Admission of Substituted Limited Partner.
By transfer of a Partnership Interest in accordance with Article IV, the
transferor shall be deemed to have given the transferee the right to seek
admission as a Substituted Limited Partner subject to the conditions of, and in
the manner permitted under, this Agreement. A transferor of a Limited Partner
Interest shall, however, only have the authority to convey to a purchaser or
other transferee (a) the right to negotiate such Limited Partner Interest to a
purchaser or other transferee and (b) the right to request admission as a
Substituted Limited Partner to such purchaser or other transferee in respect of
the transferred Limited Partner Interests. Each transferee of a Limited Partner
Interest shall be an Assignee and be deemed to have applied to become a
Substituted Limited Partner with respect to the Interests so transferred to such
Person. Such Assignee shall become a Substituted Limited Partner (x) at such
time as the General Partner consents thereto, which consent may be given or
withheld in the General Partner's discretion, and (y) when any such admission is
shown on the books and records of the Partnership. If such consent is withheld,
such transferee shall remain an Assignee. An Assignee shall have an interest in
the Partnership equivalent to that of a Limited Partner with respect to
allocations and distributions, including liquidating distributions, of the
Partnership. With respect to voting rights attributable to Limited Partner
Interests that are held by Assignees, the General Partner shall be deemed to be
the Partner with respect thereto and shall, in exercising the voting rights in
respect of such Interests on any matter, vote such Limited Partner Interests at
the written direction of the Assignee. If no such written direction is received,
such Partnership Interests will not be voted. An Assignee shall have no other
rights of a Limited Partner.
Section 10.3 Admission of Additional Limited Partners.
(a) A Person (other than the General Partner, the MLP or a Substituted
Limited Partner) who makes a Capital Contribution to the Partnership in
accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including the power of attorney granted
in Section 2.6, and (ii) such other documents or instruments as may be required
in the discretion of the General Partner to effect such Person's admission as an
Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 10.3, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
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Section 10.4 Admission of Successor or Transferee General Partner.
A successor General Partner approved pursuant to Section 11.1 or 11.2 or
the transferee of or successor to all of the General Partner's Partnership
Interest pursuant to Section 4.2 who is proposed to be admitted as a successor
General Partner shall, subject to compliance with the terms of Section 11.3, if
applicable, be admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the predecessor or
transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer of
the General Partner's Partnership Interest pursuant to Section 4.2, provided,
however, that no such successor shall be admitted to the Partnership until
compliance with the terms of Section 4.2 has occurred and such successor has
executed and delivered such other documents or instruments as may be required to
effect such admission. Any such successor shall, subject to the terms hereof,
carry on the business of the members of the Partnership Group without
dissolution.
Section 10.5 Amendment of Agreement and Certificate of Limited Partnership.
To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act to
amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
Section 11.1 Withdrawal of the General Partner.
(a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal");
(i) The General Partner voluntarily withdraws from the Partnership by
giving written notice to the other Partners;
(ii) The General Partner transfers all of its rights as General
Partner pursuant to Section 4.2;
(iii) The General Partner is removed pursuant to Section 11.2;
(iv) The General Partner withdraws from, or is removed as the General
Partner of, the MLP;
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(v) The General Partner (A) makes a general assignment for the
benefit of creditors; (B) files a voluntary bankruptcy petition for relief
under Chapter 7 of the United States Bankruptcy Code; (C) files a petition
or answer seeking for itself a liquidation, dissolution or similar relief
(but not a reorganization) under any law; (D) files an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed against the General Partner in a proceeding of the type
described in clauses (A)-(C) of this Section 11.1(a)(v); or (E) seeks,
consents to or acquiesces in the appointment of a trustee (but not a debtor
in possession), receiver or liquidator of the General Partner or of all or
any substantial part of its properties;
(vi) A final and non-appealable order of relief under Chapter 7 of
the United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or against
the General Partner; or
(vii) (A) in the event the General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the General
Partner, or 90 days expire after the date of notice to the General Partner
of revocation of its charter without a reinstatement of its charter, under
the laws of its state of incorporation; (B) in the event the General
Partner is a partnership or limited liability company, the dissolution and
commencement of winding up of the General Partner; (C) in the event the
General Partner is acting in such capacity by virtue of being a trustee of
a trust, the termination of the trust; (D) in the event the General Partner
is a natural person, his death or adjudication of incompetency; and (E)
otherwise in the event of the termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv)(with respect to
withdrawal), (v), (vi) or (vii)(A), (B), (C) or (E) occurs, the withdrawing
General Partner shall give notice to the Limited Partners within 30 days after
such occurrence. The Partners hereby agree that only the Events of Withdrawal
described in this Section 11.1 shall result in the withdrawal of the General
Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on December 31, 2008, the General Partner voluntarily withdraws by giving
at least 90 days' advance notice of its intention to withdraw to the Limited
Partners; provided that prior to the effective date of such withdrawal, the
withdrawal is approved by the other Partners and the General Partner delivers to
the Partnership an Opinion of Counsel ("Withdrawal Opinion of Counsel") that
such withdrawal (following the selection of the successor General Partner) would
not result in the loss of the limited liability of any Partner or of the limited
partners of the MLP or cause the Partnership or the MLP to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for
federal income tax purposes (to the extent not previously treated as such); (ii)
at any time after 12:00 midnight, Eastern Standard Time, on
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December 31, 2008, the General Partner voluntarily withdraws by giving at least
90 days' advance notice to the Limited Partners, such withdrawal to take effect
on the date specified in such notice; (iii) at any time that the General Partner
ceases to be the General Partner pursuant to Section 11.1(a)(ii), (iii) or (iv).
If the General Partner gives a notice of withdrawal pursuant to Section
11.1(a)(i) hereof or Section 11.1(a)(i) of the MLP Agreement, the Limited
Partners or the MLP, as the case may be, may, prior to the effective date of
such withdrawal, elect a successor General Partner; provided, however, that such
successor shall be the same person, if any, that is elected by the limited
partners of the MLP pursuant to Section 11.1 of the MLP Agreement as the
successor to the general partner of the MLP. If, prior to the effective date of
the General Partner's withdrawal, a successor is not selected by the other
Partners or the limited partners of the MLP, as the case may be, as provided
herein or the Partnership does not receive a Withdrawal Opinion of Counsel, the
Partnership shall be dissolved in accordance with Section 12.1. Any successor
General Partner elected in accordance with the terms of this Section 11.1 shall
be subject to the provisions of Section 10.3.
Section 11.2 Removal of the General Partner.
The General Partner shall be removed if the General Partner is removed as
the general partner of the MLP pursuant to Section 11.2 of the MLP Agreement.
Such removal shall be effective concurrently with the effectiveness of the
removal of the General Partner as the general partner of the MLP pursuant to the
terms of the MLP Agreement. If a successor general partner for the MLP is
elected in connection with the removal of the General Partner, such successor
general partner for the MLP shall, upon admission pursuant to Article X,
automatically become the successor General Partner of the Partnership. The
admission of any such successor General Partner to the Partnership shall be
subject to the provisions of Section 10.3.
Section 11.3 Interest of Departing Partner.
(a) The Partnership Interest of the Departing Partner departing as a
result of withdrawal or removal pursuant to Section 11.1 or 11.2 shall (unless
it is otherwise required to be converted into Common Units pursuant to Section
11.3(b) of the MLP Agreement) be purchased by the successor to the Departing
Partner for cash in the manner specified in the MLP Agreement. Such purchase
(or conversion into Common Units, as applicable) shall be a condition to the
admission to the Partnership of the successor as the General Partner. Any
successor General Partner shall indemnify the Departing Partner as to all debts
and liabilities of the Partnership arising on or after the effective date of the
withdrawal or removal of the Departing Partner.
(b) The Departing Partner shall be entitled to receive all
reimbursements due such Departing Partner pursuant to Section 7.4, including any
employee-related liabilities (including severance liabilities), incurred in
connection with the termination of any employees employed by such Departing
Partner for the benefit of the Partnership.
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Section 11.4 Withdrawal of a Limited Partner.
Without the prior written consent of the General Partner, which may be
granted or withheld in its sole discretion, and except as provided in Section
10.1, no Limited Partner shall have the right to withdraw from the Partnership.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution.
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided in
Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected
and an Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and
such successor is admitted to the Partnership pursuant to Section 10.3;
(c) an election to dissolve the Partnership by the General Partner
that is approved by all of the Limited Partners;
(d) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act;
(e) the sale of all or substantially all of the assets and properties
of the Partnership Group; or
(f) the dissolution of the MLP.
Section 12.2 Continuation of the Business of the Partnership After
Dissolution.
Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event
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of Withdrawal as defined in Section 11.1(a)(iv), (v) or (vi) of the MLP
Agreement, then, to the maximum extent permitted by law, within 180 days
thereafter, all of the Limited Partners may elect to reconstitute the
Partnership and continue its business on the same terms and conditions set forth
in this Agreement by forming a new limited partnership on terms identical to
those set forth in this Agreement and having as a general partner a Person
approved by a majority in interest of the Limited Partners. In addition, upon
dissolution of the Partnership pursuant to Section 12.1(f), if the MLP is
reconstituted pursuant to Section 12.2 of the MLP Agreement, the reconstituted
MLP may, within 180 days after such event of dissolution, acting alone,
regardless of whether there are any other Limited Partners, elect to
reconstitute the Partnership in accordance with the immediately preceding
sentence. Upon any such election by the Limited Partners or the MLP, as the case
may be, all Partners shall be bound thereby and shall be deemed to have approved
same. Unless such an election is made within the applicable time period as set
forth above, the Partnership shall conduct only activities necessary to wind up
its affairs. If such an election is so made, then:
(a) the reconstituted Partnership shall continue until the end of the
term set forth in Section 2.7 unless earlier dissolved in accordance with this
Article XII;
(b) if the successor General Partner is not the former General
Partner, then the interest of the former General Partner shall be purchased by
the successor General Partner or converted into Common Units of the MLP as
provided in the MLP Agreement; and
(c) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as necessary, to
file, a new partnership agreement and certificate of limited partnership, and
the successor General Partner may for this purpose exercise the power of
attorney granted the General Partner pursuant to Section 2.6; provided, that the
right of the MLP to reconstitute and to continue the business of the Partnership
shall not exist and may not be exercised unless the Partnership has received an
Opinion of Counsel that (x) the exercise of the right would not result in the
loss of limited liability of the Limited Partners or any limited partner of the
MLP and (y) neither the Partnership, the reconstituted limited partnership, the
MLP nor any Group Member would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax purposes
upon the exercise of such right to continue.
Section 12.3 Liquidator.
Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner) shall be entitled
to receive such compensation for its services as may be approved by a majority
of the Limited Partners. The Liquidator (if other than the General Partner)
shall agree not to resign at any time without 15 days' prior notice and may be
removed at any time, with or without cause, by notice of removal approved by a
majority in interest of the Limited Partners. Upon dissolution, removal or
resignation of the Liquidator, a successor and substitute Liquidator (who shall
have and succeed to
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all rights, powers and duties of the original Liquidator) shall within 30 days
thereafter be approved by at least a majority in interest of the Limited
Partners. The right to approve a successor or substitute Liquidator in the
manner provided herein shall be deemed to refer also to any such successor or
substitute Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XII, the Liquidator approved in the manner
provided herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
General Partner under the terms of this Agreement (but subject to all of the
applicable limitations, contractual and otherwise, upon the exercise of such
powers, other than the limitation on sale set forth in Section 7.3(b)) to the
extent necessary or desirable in the good faith judgment of the Liquidator to
carry out the duties and functions of the Liquidator hereunder for and during
such period of time as shall be reasonably required in the good faith judgment
of the Liquidator to complete the winding up and liquidation of the Partnership
as provided for herein.
Section 12.4 Liquidation.
The Liquidator shall proceed to dispose of the assets of the Partnership,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Partners, subject to Section 17-804 of the Delaware Act and the following:
(a) Disposition of Assets. The assets may be disposed of by public
or private sale or by distribution in kind to one or more Partners on such terms
as the Liquidator and such Partner or Partners may agree. If any property is
distributed in kind, the Partner receiving the property shall be deemed for
purposes of Section 12.4(c) to have received cash equal to its fair market
value; and contemporaneously therewith, appropriate cash distributions must be
made to the other Partners. The Liquidator may, in its absolute discretion,
defer liquidation or distribution of the Partnership's assets for a reasonable
time if it determines that an immediate sale or distribution of all or some of
the Partnership's assets would be impractical or would cause undue loss to the
Partners. The Liquidator may, in its absolute discretion, distribute the
Partnership's assets, in whole or in part, in kind if it determines that a sale
would be impractical or would cause undue loss to the Partners.
(b) Discharge of Liabilities. Liabilities of the Partnership include
amounts owed to Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is contingent, conditional
or unmatured or is otherwise not yet due and payable, the Liquidator shall
either settle such claim for such amount as it thinks appropriate or establish a
reserve of cash or other assets to provide for its payment. When paid, any
unused portion of the reserve shall be distributed as additional liquidation
proceeds.
(c) Liquidation Distributions. All property and all cash in excess
of that required to discharge liabilities as provided in Section 12.4(b) shall
be distributed to the Partners in accordance with, and to the extent of, the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments (other than those made by
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reason of distributions pursuant to this Section 12.4(c)) for the taxable year
of the Partnership during which the liquidation of the Partnership occurs (with
such date of occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such occurrence).
Section 12.5 Cancellation of Certificate of Limited Partnership.
Upon the completion of the distribution of Partnership cash and property as
provided in Section 12.4 in connection with the liquidation of the Partnership,
the Partnership shall be terminated and the Certificate of Limited Partnership,
as well as all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware, shall be canceled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
Section 12.6 Return of Contributions.
The General Partner shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners, or any portion thereof, it being expressly understood that any such
return shall be made solely from Partnership assets.
Section 12.7 Waiver of Partition.
To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.
Section 12.8 Capital Account Restoration.
No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT
Section 13.1 Amendment to be Adopted Solely by the General Partner.
Each Partner agrees that the General Partner, without the approval of any
Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:
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(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership in which the Partners have limited
liability under the laws of any state or to ensure that neither the Partnership
nor the MLP will be treated as an association taxable as a corporation or
otherwise taxed as an entity for federal income tax purposes;
(d) a change that, in the discretion of the General Partner, (i) does
not adversely affect the Limited Partners in any material respect, (ii) is
necessary or advisable to (A) satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation of any federal
or state agency or judicial authority or contained in any federal or state
statute (including the Delaware Act) or (B) facilitate the trading of limited
partner interests of the MLP (including the division of any class or classes of
outstanding limited partner interests of the MLP into different classes to
facilitate uniformity of tax consequences within such classes of limited partner
interests of the MLP) or comply with any rule, regulation, guideline or
requirement of any National Securities Exchange on which such limited partner
interests are or will be listed for trading, compliance with any of which the
General Partner determines in its discretion to be in the best interests of the
MLP and the limited partners of the MLP, (iii) is required to effect the intent
expressed in the Registration Statement or the intent of the provisions of this
Agreement or is otherwise contemplated by this Agreement or (iv) is required to
conform the provisions of this Agreement with the provisions of the MLP
Agreement as the provisions of the MLP Agreement may be amended, supplemented or
restated from time to time;
(e) a change in the fiscal year or taxable year of the Partnership and
any changes that, in the discretion of the General Partner, are necessary or
advisable as a result of a change in the fiscal year or taxable year of the
Partnership including, if the General Partner shall so determine, a change in
the definition of "Quarter" and the dates on which distributions are to be made
by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership, or the General Partner or its directors, officers,
trustees or agents from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;
53
<PAGE>
(g) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;
(h) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(i) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately the
formation by the Partnership of, or investment by the Partnership in, any
corporation, partnership, joint venture, limited liability company or other
entity, in connection with the conduct by the Partnership of activities
permitted by the terms of Section 2.4;
(j) a merger or conveyance pursuant to Section 14.3(d); or
(k) any other amendments substantially similar to the foregoing.
Section 13.2 Amendment Procedures.
Except with respect to amendments of he type described in Section 13.1, all
amendments to this Agreement shall be made in accordance with the following
requirements: Amendments to this Agreement may be proposed only by or with the
consent of the General Partner which consent may be given or withheld in its
sole discretion. A proposed amendment shall be effective upon its approval by
the Limited Partner.
ARTICLE XIV
MERGER
Section 14.1 Authority.
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article XIV.
Section 14.2 Procedure for Merger or Consolidation.
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its
54
<PAGE>
discretion, to consent to the merger or consolidation, the General Partner shall
approve the Merger Agreement, which shall set forth:
(a) The names and jurisdictions of formation or organization of each
of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation (the
"Surviving Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partner interests, rights, securities or obligations of the
Surviving Business Entity; and (i) if any general or limited partner interests,
securities or rights of any constituent business entity are not to be exchanged
or converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities represented by certificates, upon the
surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;
(e) A statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or agreement
of limited partnership or other similar charter or governing document) of the
Surviving Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 14.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be later than the date of the
filing of the certificate of merger, the effective time shall be fixed no later
than the time of the filing of the certificate of merger and stated therein);
and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.
55
<PAGE>
Section 14.3 Approval by Limited Partners of Merger or Consolidation.
(a) Except as provided in Section 14.3(d), the General Partner, upon
its approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of the Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall
be approved upon receiving the affirmative vote or consent of the Limited
Partners.
(c) Except as provided in Section 14.3(d), after such approval by vote
or consent of the Limited Partners, and at any time prior to the filing of the
certificate of merger pursuant to Section 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in
this Agreement, the General Partner is permitted, in its discretion, without
Limited Partner approval, to merge the Partnership or any Group Member into, or
convey all of the Partnership's assets to, another limited liability entity
which shall be newly formed and shall have no assets, liabilities or operations
at the time of such Merger other than those it receives from the Partnership or
other Group Member if (i) the General Partner has received an Opinion of Counsel
that the merger or conveyance, as the case may be, would not result in the loss
of the limited liability of any Limited Partner or any limited partner in the
MLP or cause the Partnership or the MLP to be treated as an association taxable
as a corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously treated as such), (ii) the sole purpose
of such merger or conveyance is to effect a mere change in the legal form of the
Partnership into another limited liability entity and (iii) the governing
instruments of the new entity provide the Limited Partners and the General
Partner with the same rights and obligations as are herein contained.
Section 14.4 Certificate of Merger.
Upon the required approval by the General Partner and the Limited Partners
of a Merger Agreement, a certificate of merger shall be executed and filed with
the Secretary of State of the State of Delaware in conformity with the
requirements of the Delaware Limited Liability Partnership Act.
Section 14.5 Effect of Merger.
(a) At the effective time of the certificate of merger:
(i) all of the rights, privileges and powers of each of the business
entities that has merged or consolidated, and all property, real, personal
and mixed, and all debts due to any
56
<PAGE>
of those business entities and all other things and causes of action
belonging to each of those business entities, shall be vested in the
Surviving Business Entity and after the merger or consolidation shall be
the property of the Surviving Business Entity to the extent they were of
each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in
any of those constituent business entities shall not revert and is not in
any way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests
in property of any of those constituent business entities shall be
preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity and may be enforced
against it to the same extent as if the debts, liabilities and duties had
been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall
not be deemed to result in a transfer or assignment of assets or liabilities
from one entity to another.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notices.
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
communication to the Partner at the address described below. Any notice to the
Partnership shall be deemed given if received by the General Partner at the
principal office of the Partnership designated pursuant to Section 2.3. The
General Partner may rely and shall be protected in relying on any notice or
other document from a Partner, Assignee or other Person if believed by it to be
genuine.
Section 15.2 Further Action.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
57
<PAGE>
Section 15.3 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.4 Integration.
This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.
Section 15.5 Creditors.
None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.
Section 15.6 Waiver.
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach of any other covenant, duty, agreement or condition.
Section 15.7 Counterparts.
This Agreement may be executed in counterparts, all of which together shall
constitute an agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto, independently of the signature of any other party.
Section 15.8 Applicable Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.
Section 15.9 Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
58
<PAGE>
Section 15.10 Consent of Partners.
Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be bound
by the results of such action.
[Rest of page Intentionally Left Blank]
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
PLAINS ALL AMERICAN, INC.
By:
-------------------------------------
Name:
-----------------------------------
Its:
-----------------------------------
LIMITED PARTNER:
PLAINS ALL AMERICAN PIPELINE, L.P.
By:
-------------------------------------
Name:
-----------------------------------
Its:
-----------------------------------
60
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EXHIBIT 3.4
CERTIFICATE OF LIMITED PARTNERSHIP
OF
PLAINS ALL AMERICAN PIPELINE, L.P.
The undersigned represents that it has formed a limited partnership
pursuant to the Delaware Revised Uniform Limited Partnership Act (the "Act") and
that the undersigned has executed this Certificate in compliance with the
requirements of the Act. The undersigned further states:
1. The name of the limited partnership is PLAINS ALL AMERICAN PIPELINE,
L.P. (the "Partnership").
2. The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent of the
Partnership required to be maintained by Section 17-104 of the Act at
such address are as follows:
Name and Address
of Registered Agent Address of Registered Office
------------------------------- -------------------------------
Corporation Service Company 1013 Centre Road
1013 Centre Road Wilmington, Delaware 19805-1297
Wilmington, Delaware 19805-1297
3. The name and business address of the General Partner is as follows:
General Partner Address
------------------------- -----------------------------
Plains All American, Inc. 500 Dallas, Suite 700
Houston, Texas 77002
WHEREFORE, the undersigned has executed this Certificate as of the 16th day
of September, 1998.
PLAINS ALL AMERICAN, INC.,
as General Partner
By: /s/ Michael R. Patterson
-----------------------------
Name: Michael R. Patterson
--------------------------
Title: Vice President
-------------------------
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF LIMITED PARTNERSHIP
OF
PLAINS MARKETING, L.P.
The undersigned represents that it has formed a limited partnership
pursuant to the Delaware Revised Uniform Limited Partnership Act (the "Act") and
that the undersigned has executed this Certificate in compliance with the
requirements of the Act. The undersigned further states:
1. The name of the limited partnership is PLAINS MARKETING, L.P. (the
"Partnership").
2. The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent of the
Partnership required to be maintained by Section 17-104 of the Act at such
address are as follows:
Name and Address
of Registered Agent Address of Registered Office
------------------------------- ----------------------------
Corporation Service Company 1013 Centre Road
1013 Centre Road Wilmington, DE 19805-1297
Wilmington, Delaware 19805-1297
3. The name and business address of the General Partner is as follows:
General Partner Address
------------------------ ---------------------
Plains All American Inc. 500 Dallas, Suite 700
Houston, Texas 77002
WHEREFORE, the undersigned has executed this Certificate as of the th day of
October, 1998.
PLAINS ALL AMERICAN INC.
as General Partner
By: ______________________
Name: Michael R. Patterson
Title: Vice President
<PAGE>
EXHIBIT 3.6
CERTIFICATE OF LIMITED PARTNERSHIP
OF
ALL AMERICAN, L.P.
1. The name of the limited partnership is All American, L.P.
2. The address of the registered office and the name and address of the
registered agent for service of process is as follows:
Michael R. Patterson
500 Dallas, Suite 700
Houston, Texas 77002
3. The address of the principal office in the United States where records
of the limited partnership are to be kept or made available is as
follows:
500 Dallas, Suite 700
Houston, Texas 77002
4. The name, mailing address and the street address of the business of
the sole general partner is as follows:
Plains All American Inc.
500 Dallas, Suite 700
Houston, Texas 77002
5. The limited partnership is to be formed as of the time of the filing
of this Certificate of Limited Partnership with the Secretary of State
of Texas.
6. This limited partnership is being organized pursuant to a plan of
conversion. The name, address, prior form of organization, date of
incorporation and the jurisdiction of incorporation of the converting
entity are as follows:
Name Prior Form of Date of Jurisdiction of
and Address Organization Incorporation Incorporation
- ---------------------------- ------------- ------------- ---------------
All American Corporation 6/22/83 Texas
Pipeline Company
500 Dallas, Suite 700
Houston, Texas 77002
<PAGE>
EXHIBIT 5.1
November 3, 1998
Plains All American Pipeline, L.P.
500 Dallas
Suite 700
Houston, Texas 77002
Gentlemen:
We have acted as counsel to Plains All American Pipeline, L.P., a
Delaware limited partnership (the "Partnership"), and Plains All American Inc.,
a Delaware corporation and the general partner of the Partnership, in connection
with the registration under the Securities Act of 1933, as amended (the "Act"),
of the offering and sale of up to an aggregate of 14,700,000 common units
representing limited partner interests in the Partnership (the "Common Units").
As the basis for the opinion hereinafter expressed, we have examined
such statutes, regulations, corporate records and documents, certificates of
corporate and public officials, and other instruments as we have deemed
necessary or advisable for the purposes of this opinion. In such examination we
have assumed the authenticity of all documents submitted to us as originals and
the conformity with the original documents of all documents submitted to us as
copies.
Based on the foregoing and on such legal considerations as we deem
relevant, we are of the opinion that:
1. The Partnership has been duly formed and is validly existing as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act.
2. The Common Units will, when issued and paid for as described in the
Partnership's Registration Statement on Form S-1 (File No. 333-64107) relating
to the Common Units, as amended (the "Registration Statement"), be duly
authorized, validly issued, fully paid and nonassessable, except as such
nonassessability may be affected by the matters described in the prospectus
included in the Registration Statement (the "Prospectus") under the caption "The
Partnership Agreement--Limited Liability."
<PAGE>
Plains All American Pipeline, L.P.
November 3, 1998
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Validity of
the Common Units" in the Prospectus.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
1198/1213/2727
<PAGE>
EXHIBIT 8.1
November 3, 1998
Plains All American Pipeline, L.P.
500 Dallas
Suite 700
Houston, Texas 77002
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have acted as special counsel in connection with the Registration
Statement on Form S-1, Registration No.: 333-64107 (the "Registration
Statement") of Plains All American Pipeline, L.P. (the "Partnership"), relating
to the registration of the offering and sale (the "Offering") of 12,782,609
common units (14,700,000 common units if the underwriters' overallotment option
is exercised in full) representing limited partner interests in the Partnership
(the "Common Units"). In connection therewith, we have participated in the
preparation of the discussion set forth under the caption "Tax Considerations"
(the "Discussion") in the Registration Statement. Capitalized terms used and
not otherwise defined herein are used as defined in the Registration Statement.
The Discussion, subject to the qualifications stated therein,
constitutes our opinion as to the material United States federal income tax
consequences for purchasers of Common Units pursuant to the Offering.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Discussion. The
issuance of such consent does not concede that we are an "expert" for the
purposes of the Securities Act of 1933.
Very truly yours,
/s/ ANDREWS & KURTH L.L.P.
Andrews & Kurth L.L.P.
1117/1216
<PAGE>
EXHIBIT 10.1
===========================================================================
CREDIT AGREEMENT
_______________________________________________________
ALL AMERICAN, L.P.,
as Borrower,
PLAINS MARKETING, L.P.
as Guarantor,
and
PLAINS ALL AMERICAN PIPELINE, L.P.,
as Guarantor,
ING (U.S.) CAPITAL CORPORATION,
as Administrative Agent,
ING BARING FURMAN SELZ LLC,
as Syndication Agent,
BANCBOSTON ROBERTSON STEPHENS INC.,
as Documentation Agent,
and CERTAIN FINANCIAL INSTITUTIONS,
as Lenders
_______________________________________________________
$50,000,000 Revolving Credit Facility
$175,000,000 Term Loan
November ____, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
CREDIT AGREEMENT................................................................. 1
ARTICLE I - Definitions and References........................................... 1
Section 1.1. Defined Terms................................................. 1
Section 1.2. Exhibits and Schedules; Additional Definitions................ 19
Section 1.3. Amendment of Defined Instruments.............................. 19
Section 1.4. References and Titles......................................... 19
Section 1.5. Calculations and Determinations............................... 19
ARTICLE II - The Loans........................................................... 19
Section 2.1. Commitments to Lend; Notes.................................... 19
Section 2.2. Requests for Revolver Loans................................... 21
Section 2.3. Continuations and Conversions of Existing Loans............... 22
Section 2.4. Use of Proceeds............................................... 23
Section 2.5. Interest Rates and Fees....................................... 23
Section 2.6. Optional Prepayments.......................................... 24
Section 2.7. Mandatory Prepayments......................................... 25
Section 2.8. Letters of Credit............................................. 26
Section 2.9. Requesting Letters of Credit.................................. 26
Section 2.10. Reimbursement and Participations.............................. 27
Section 2.11. Letter of Credit Fees......................................... 28
Section 2.12. No Duty to Inquire............................................ 28
Section 2.13. LC Collateral................................................. 29
ARTICLE III - Payments to Lenders................................................ 31
Section 3.1. General Procedures............................................ 31
Section 3.2. Capital Reimbursement......................................... 32
Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit....... 32
Section 3.4. Notice; Change of Applicable Lending Office................... 33
Section 3.5. Availability.................................................. 33
Section 3.6. Funding Losses................................................ 34
Section 3.7. Reimbursable Taxes............................................ 34
ARTICLE IV - Conditions Precedent to Lending..................................... 37
Section 4.1. Documents to be Delivered..................................... 37
Section 4.2. Additional Conditions to Initial Credit....................... 38
Section 4.3. Additional Conditions Precedent............................... 39
ARTICLE V - Representations and Warranties....................................... 40
Section 5.1. No Default.................................................... 40
Section 5.2. Organization and Good Standing................................ 40
Section 5.3. Authorization................................................. 41
</TABLE>
i
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<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.4. No Conflicts or Consents...................................... 41
Section 5.5. Enforceable Obligations....................................... 41
Section 5.6. Initial Financial Statements.................................. 41
Section 5.7. Other Obligations and Restrictions............................ 41
Section 5.8. Full Disclosure............................................... 42
Section 5.9. Litigation.................................................... 42
Section 5.10. Labor Disputes and Acts of God................................ 42
Section 5.11. ERISA Plans and Liabilities................................... 42
Section 5.12. Compliance with Laws.......................................... 43
Section 5.13. Environmental Laws............................................ 43
Section 5.14. Names and Places of Business.................................. 45
Section 5.15. Borrower's Subsidiaries....................................... 45
Section 5.16. Title to Properties; Licenses................................. 45
Section 5.17. Government Regulation......................................... 45
Section 5.18. Insider....................................................... 45
Section 5.19. Solvency...................................................... 46
Section 5.20. Credit Arrangements........................................... 46
ARTICLE VI - Affirmative Covenants............................................... 46
Section 6.1. Payment and Performance....................................... 46
Section 6.2. Books, Financial Statements and Reports....................... 46
Section 6.3. Other Information and Inspections............................. 48
Section 6.4. Notice of Material Events and Change of Address............... 49
Section 6.5. Maintenance of Properties..................................... 50
Section 6.6. Maintenance of Existence and Qualifications................... 50
Section 6.7. Payment of Trade Liabilities, Taxes, etc...................... 50
Section 6.8. Insurance..................................................... 50
Section 6.9. Performance on Borrower's Behalf.............................. 51
Section 6.10. Interest...................................................... 51
Section 6.11. Compliance with Agreements and Law............................ 51
Section 6.12. Environmental Matters; Environmental Reviews.................. 51
Section 6.13. Evidence of Compliance........................................ 52
Section 6.14. Agreement to Deliver Security Documents....................... 52
Section 6.15. Perfection and Protection of Security Interests and Liens..... 52
Section 6.16. Bank Accounts; Offset......................................... 52
Section 6.17. Guaranties of Subsidiaries.................................... 53
Section 6.18. Interest Rate Hedging Agreements.............................. 53
ARTICLE VII - Negative Covenants of Borrower..................................... 54
Section 7.1. Indebtedness.................................................. 54
Section 7.2. Limitation on Liens........................................... 55
Section 7.3. Hedging Contracts............................................. 57
Section 7.4. Limitation on Mergers, Issuances of Securities................ 57
Section 7.5. Limitation on Sales of Property............................... 58
Section 7.6. Limitation on Dividends and Redemptions....................... 59
</TABLE>
ii
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<TABLE>
<CAPTION>
<S> <C> <C>
Section 7.7. Limitation on Investments and New Businesses.................. 59
Section 7.8. Limitation on Credit Extensions............................... 59
Section 7.9. Transactions with Affiliates.................................. 59
Section 7.10. Prohibited Contracts.......................................... 59
Section 7.11. Current Ratio................................................. 60
Section 7.12. Debt Coverage Ratio........................................... 60
Section 7.13. Interest Coverage Ratio....................................... 60
Section 7.14. Fixed Charge Coverage Ratio................................... 60
Section 7.15. Debt to Capital Ratio......................................... 60
ARTICLE VIII - Events of Default and Remedies.................................... 60
Section 8.1. Events of Default............................................. 61
Section 8.2. Remedies...................................................... 63
ARTICLE IX - Administrative Agent................................................ 64
Section 9.1. Appointment and Authority..................................... 64
Section 9.2. Exculpation, Administrative Agent's Reliance, Etc............. 64
Section 9.3. Credit Decisions.............................................. 65
Section 9.4. INDEMNIFICATION............................................... 65
Section 9.5. Rights as Lender.............................................. 66
Section 9.6. Sharing of Set-Offs and Other Payments........................ 66
Section 9.7. Investments................................................... 67
Section 9.8. Benefit of Article IX......................................... 67
Section 9.9. Resignation................................................... 67
Section 9.10. Other Agents.................................................. 67
ARTICLE X - Miscellaneous........................................................ 68
Section 10.1. Waivers and Amendments; Acknowledgments....................... 68
Section 10.2. Survival of Agreements; Cumulative Nature..................... 69
Section 10.3. Notices....................................................... 70
Section 10.4. Payment of Expenses; Indemnity................................ 70
Section 10.5. Joint and Several Liability; Parties in Interest; Assignments. 72
Section 10.6. Confidentiality............................................... 74
Section 10.7. GOVERNING LAW; SUBMISSION TO PROCESS.......................... 75
Section 10.8. Limitation on Interest........................................ 76
Section 10.9. Termination; Limited Survival................................. 76
Section 10.10. Severability.................................................. 77
Section 10.11. Counterparts.................................................. 77
Section 10.12. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC................... 77
</TABLE>
iii
<PAGE>
Schedules and Exhibits:
- ----------------------
Schedule 1 - Lender Schedule
Schedule 2 - Disclosure Schedule
Schedule 3 - Security Schedule
Schedule 4 - Insurance Schedule
Schedule 5 - Pro Forma EBITDA
Schedule 6 - Offering Documents
Exhibit A-1 - Revolver Note
Exhibit A-2 - Term Note
Exhibit B - Borrowing Notice
Exhibit C - Continuation/Conversion Notice
Exhibit D - Certificate Accompanying Financial Statements
Exhibit E-1 - Opinion of In-House Counsel for Restricted Persons
Exhibit E-2 - Opinion of Counsel for Restricted Persons
Exhibit E-3 - Opinion of Counsel for Restricted Persons
Exhibit F - Environmental Compliance Certificate
Exhibit G - Letter of Credit Application and Agreement
Exhibit H - Assignment and Acceptance Agreement
Exhibit I - Intercreditor Agreement
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of November ____, 1998, by and among ALL
AMERICAN, L.P., a Delaware limited partnership ("All American" or "Borrower"),
PLAINS MARKETING, L.P., a Delaware limited partnership ("Operating"), PLAINS ALL
AMERICAN PIPELINE, L.P. ("Plains MLP"), a Delaware limited partnership, ING
(U.S.) CAPITAL CORPORATION, as administrative agent (in such capacity,
"Administrative Agent"), ING BARING FURMAN SELZ LLC, as syndication agent (in
such capacity, "Syndication Agent") and BANCBOSTON ROBERTSON STEPHENS INC., as
documentation agent (in such capacity, "Documentation Agent") and the Lenders
referred to below. In consideration of the mutual covenants and agreements
contained herein the parties hereto agree as follows:
ARTICLE I - Definitions and References
Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given to such term in this Section 1.1 or in
the sections and subsections referred to below:
"Adjusted Eurodollar Rate" means, with respect to each particular
Eurodollar Loan and the related Interest Period, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1% determined by Administrative
Agent to be equal to the quotient obtained by dividing (i) the rate reported, on
the date two Business Days prior to the first day of such Interest Period, on
Dow Jones Market Service (formerly Telerate Access Service) Page 3750 (British
Bankers Association Settlement Rate) as the London Interbank Offered Rate for
dollar deposits having a term comparable to such Interest Period and in an
amount of $1,000,000 or more (or, if such Page shall cease to be publicly
available or if the information contained on such Page, in Administrative
Agent's sole judgment, shall cease to accurately reflect such London Interbank
Offered Rate, as reported by any publicly available source of similar market
data selected by Administrative Agent that, in Administrative Agent's sole
judgment, accurately reflects such London Interbank Offered Rate) by (ii) 1
minus the Reserve Requirement for such Eurodollar Loan for such Interest Period.
The Adjusted Eurodollar Rate for any Eurodollar Loan shall change whenever the
Reserve Requirement changes.
"Administrative Agent" means ING (U.S.) Capital Corporation, as
Administrative Agent hereunder, and its successors in such capacity.
"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power
(a) to vote 5% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners; or
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(b) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Affiliate Agreements" means [that certain marketing agreement of even date
herewith among Operating, Resources and certain Subsidiaries of Resources and
that certain Omnibus Agreement of even date herewith between Plains MLP and
Resources.]
"Agreement" means this Amended and Restated Credit Agreement.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of Base Rate Loans and such
Lender's Eurodollar Lending Office in the case of Eurodollar Loans.
"Applicable Leverage Level" means the level set forth below that
corresponds to the ratio of (i) Consolidated Indebtedness of Plains MLP and its
Subsidiaries to (ii) the Consolidated EBITDA for the applicable period of four
Fiscal Quarters (the "Leverage Ratio"):
===============================================================
Applicable
Leverage Level Leverage Ratio
-------------- --------------
Level I greater than or equal to 4.0 to 1.0
Level II greater than or equal to 3.0 to 1.0
but less than 4.0 to 1.0
Level III greater than or equal to 2.0 to 1.0
but less than 3.0 to 1.0
Level IV less than 2.0 to 1.0
================================================================
The Leverage Ratio will be determined quarterly by Administrative Agent within
two (2) Business Days after Administrative Agent's receipt of Plains MLP's
Consolidated financial statements for the immediate preceding Fiscal Quarter
based upon: (i) Consolidated Indebtedness as of the end of such Fiscal Quarter,
and (ii) the Consolidated EBITDA for the four Fiscal Quarters ending with such
Fiscal Quarter. The Applicable Leverage Level shall become effective upon such
determination of the Leverage Ratio by Administrative Agent and shall remain
effective until the next such determination by Administrative Agent of the
Leverage Ratio. From the date hereof until the date the Administrative Agent
has determined the Leverage Ratio based on the December 31, 1998 Fiscal Quarter,
the Applicable Leverage Level shall be Level [II].
"Applicable Rating Level" means, for any day, the level set forth below
that corresponds to the higher of the ratings publicly announced by Moody's or
S&P, as applicable
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on that day, to the Term Loans; provided that if ratings announced by Moody's
and S&P differ by more than two (2) levels on such day, then the Applicable
Rating Level shall be based upon the level which is one level lower than the
higher.
=================================
Applicable
Rating Level Moody's S&P
---------------------------------
Level A * Baa3 * BBB-
---------------------------------
Level B ** Baa3 ** BBB-
=================================
"*" means greater than or equal to and "**" means less than. If neither Moody's
or S&P shall have in effect a rating for the Term Loans, then the Applicable
Rating Level shall be deemed to be Level B. If the rating system of either
rating agency shall change, or if a rating agency shall cease to be in the
business of rating corporate debt obligations, Plains MLP and the Revolver
Lenders shall negotiate in good faith to amend this definition to reflect such
changed rating system or the unavailability of ratings from such rating agency,
but until such an agreement shall be reached, the Applicable Rating Level shall
be based only upon the rating by the remaining rating agency.
"Available Cash" has the meaning given such term as of the date of this
Agreement in the Amended and Restated Agreement of Limited Partnership of Plains
All American Pipeline, L.P. dated as of _____________, 1998.
"Base Rate" means, for any day, the higher of (a) the Reference Rate and
(b) the Federal Funds Rate plus one-half percent (0.5%) per annum. For purposes
of this definition, "Reference Rate" means the arithmetic average of the rates
of interest publicly announced by The Chase Manhattan Bank, Citibank, N.A. and
Morgan Guaranty Trust Company of New York (or their respective successors) as
their respective prime commercial lending rates (or, as to any such bank that
does not announce such a rate, such bank's 'base' or other rate determined by
Administrative Agent to be the equivalent rate announced by such bank), except
that, if any such bank shall, for any period, cease to announce publicly its
prime commercial lending (or equivalent) rate, Administrative Agent shall,
during such period, determine the "Base Rate" based upon the prime commercial
lending (or equivalent) rates announced publicly by the other such banks.
"Base Rate Loan" means a Loan which does not bear interest based upon the
Adjusted Eurodollar Rate.
"Borrower" means All American, L.P., a Delaware limited partnership.
"Borrowing" means a borrowing of new Revolver Loans of a single Type
pursuant to Section 2.2 or a Continuation or Conversion of all or a portion of
an existing Loan (whether alone or as a combination with a new Loan) into a
single Type (and, in the case of Eurodollar Loans, with the same Interest
Period) pursuant to Section 2.3.
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<PAGE>
"Borrowing Notice" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in New York, New York.
Any Business Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Administrative Agent, significant transactions in dollars are
carried out in the London interbank eurocurrency market.
"Capital Lease" means a lease with respect to which the lessee is required
concurrently to recognize the acquisition of an asset and the incurrence of a
liability in accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Person and a Capital
Lease, the amount of the obligation of such Person as the lessee under such
Capital Lease which would, in accordance with GAAP, appear as a liability on a
balance sheet of such Person.
"Cash Equivalents" means Investments in:
(a) marketable obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America or
an instrumentality or agency thereof and entitled to the full faith and credit
of the United States of America;
(b) demand deposits and time deposits (including certificates of deposit)
maturing within 12 months from the date of deposit thereof, (i) with any office
of any Lender or (ii) with a domestic office of any national or state bank or
trust company which is organized under the Laws of the United States of America
or any state therein, which has capital, surplus and undivided profits of at
least $500,000,000, and whose long term certificates of deposit are rated at
least Aa3 by Moody's or AA- by S&P;
(c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in subsection (a) above entered
into with (i) any Lender or (ii) any other commercial bank meeting the
specifications of subsection (b) above;
(d) open market commercial paper, maturing within 270 days after
acquisition thereof, which are rated at least P-1 by Moody's or A-1 by S&P; and
(e) money market or other mutual funds substantially all of whose assets
comprise securities of the types described in subsections (a) through (d) above.
"Change of Control" means the occurrence of any of the following events:
(i) an event or series of events by which any Person or other entity or group of
Persons or other entities acting in concert as a partnership or other group (a
"Group of Persons") shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, merger, consolidation or
otherwise, have become the beneficial owner (within the meaning of Rule
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<PAGE>
13d-3 under the Securities Exchange Act of 1934, as amended) of 40% or more of
the combined voting power of the then outstanding voting stock of Resources,
(ii) during any period of two consecutive years (A) the members of the board of
directors of Resources (the "Board") as of January 1, 1998, (B) any director
elected thereafter in any annual meeting of the stockholders of Resources upon
the recommendation of the Board, and (C) any other member of the Board who will
be recommended or elected to succeed those Persons described in subclauses (A)
and (B) of this clause (ii) by a majority of such Persons who are then members
of the Board, cease for any reason to constitute collectively a majority of the
Board then in office, (iii) the direct or indirect sale, lease, exchange or
other transfer of all or substantially all of the Consolidated assets of
Resources and its Subsidiaries, to any Person or Group of Persons, or (iv)
Resources, either directly or through a wholly owned Subsidiary of Resources,
shall cease to be the legal and beneficial owner (as defined above) of more than
50% of the voting percent of the outstanding voting stock of General Partner, or
General Partner shall cease to be the sole legal and beneficial owner (as
defined above) of all of the general partnership interests (including all
securities which are convertible into general partnership interests), of Plains
MLP, All American, or Borrower, (v) any Person or Group of Persons other than
Resources or any Subsidiary of Resources shall be the beneficial owner (as
defined above) of 50% or more of the combined voting power of the then total
partnership interests in Plains MLP, or (vi) Resources and its wholly owned
Subsidiaries taken as a whole shall hold legal and beneficial ownership of
issued and outstanding partnership interests of Plains MLP representing less
than 5% of the total outstanding partnership interests of Plains MLP.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, together with all rules and regulations promulgated with respect thereto.
"Collateral" means all property of any kind which is subject to a Lien in
favor of Lenders (or in favor of Administrative Agent for the benefit of
Lenders) or which, under the terms of any Security Document, is purported to be
subject to such a Lien, in each case granted or created to secure all or part of
the Obligations.
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.
"Consolidated EBITDA" means, for any four-Fiscal Quarter period, the sum of
(1) the Consolidated Net Income of Plains MLP and its Subsidiaries during such
period, plus (2) all interest expense which was deducted in determining such
Consolidated Net Income for such period, plus (3) all income taxes (including
any franchise taxes to the extent based upon net income) which were deducted in
determining such Consolidated Net Income, plus (4) all depreciation,
amortization (including amortization of good will and debt issue costs) and
other non-cash charges (including any provision for the reduction in the
carrying value of assets recorded in accordance with GAAP) which were deducted
in determining such Consolidated
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<PAGE>
Net Income, minus (5) all non-cash items of income which were included in
determining such Consolidated Net Income. For the Fiscal Quarters preceding the
date hereof, Consolidated EBITDA shall be mean the pro forma Consolidated EBITDA
reflected on Schedule 5 for such Fiscal Quarter.
"Consolidated Indebtedness" means all Indebtedness of Plains MLP and,
without duplication, all Indebtedness any of its Subsidiaries after eliminating
(i) all intercompany items between Plains MLP and its Subsidiaries required to
be eliminated in the course of the preparation of Consolidated financial
statements in accordance with GAAP and (ii) any Liability related to any
unrealized gains or losses from a mark to market of any Hedging Contracts.
"Consolidated Net Income" means, for any period, Plains MLP's and its
Subsidiaries' gross revenues for such period, including any cash dividends or
distributions actually received from any other Person during such period, minus
Plains MLP's and its Subsidiaries' expenses and other proper charges against
income (including taxes on income, to the extent imposed), determined on a
Consolidated basis after eliminating earnings or losses attributable to
outstanding minority interests and excluding the net earnings of any Person
other than a Subsidiary in which Plains MLP or any of its Subsidiaries has an
ownership interest. Consolidated Net Income shall not include any gain or loss
from the sale of assets or any extraordinary gains or losses.
"Consolidated Net Worth" means the remainder of all Consolidated assets, as
determined in accordance with GAAP, of Plains MLP and its Subsidiaries minus the
sum of (a) Plains MLP's Consolidated liabilities, as determined in accordance
with GAAP, and (b) all outstanding Minority Interests. The effect of any
increase or decrease in net worth in any period as a result of any unrealized
gains or losses from a mark to market of any Hedging Contracts not reflected in
the determination of net income but reflected in the determination of
comprehensive income shall be excluded in determining Consolidated Net Worth.
"Minority Interests" means the book value of any equity interests in any of
Plains MLP's Subsidiaries (exclusive of the [1.00%] general partnership
interests held by the General Partner which equity interests are owned by
Persons other than Plains MLP or one of its wholly owned Subsidiaries.
"Continuation/Conversion Notice" means a written or telephonic request, or
a written confirmation, made by Borrower which meets the requirements of Section
2.3.
"Continue", "Continuation", and "Continued" shall refer to the continuation
pursuant to Section 2.3 hereof of a Eurodollar Loan as a Eurodollar Loan from
one Interest Period to the next Interest Period.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 2.3 or Article III of one Type of Loan into another Type of
Loan.
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<PAGE>
"Default" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"Default Rate" means, at the time in question, (i) three and three-fourths
percent (3.75%) per annum plus the Adjusted Eurodollar Rate then in effect for
any Eurodollar Loan (up to the end of the applicable Interest Period) or (ii)
two percent (2%) per annum plus the Base Rate for each Base Rate Loan; provided,
however, the Default Rate shall never exceed the Highest Lawful Rate
"Default Rate Period" means (i) any period during which an Event of
Default, other than pursuant to Section 8.1 (a) or (b), is continuing, provided
that such period shall not begin until notice of the commencement of the Default
Rate has been given to Borrower by Administrative Agent upon the instruction by
Majority Lenders and (ii) any period during which any Event of Default pursuant
to Section 8.1 (a) or (b) is continuing unless Borrower has been notified
otherwise by Administrative Agent upon the instruction by Majority Lenders.
"Disclosure Schedule" means Schedule 2 hereto.
"Domestic Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Domestic Lending Office" in the Lender Schedule
hereto, or such other office as such Lender may from time to time specify to
Borrower and Administrative Agent; with respect to LC Issuer, the office,
branch, or agency through which it issues Letters of Credit; and, with respect
to Administrative Agent, the office, branch, or agency through which it
administers this Agreement.
"Eligible Transferee" means a Person which either (a) is a Lender, or (b)
is consented to as an Eligible Transferee by Administrative Agent and, so long
as no Default or Event of Default is continuing, by Borrower, which consents in
each case will not be unreasonably withheld (provided that no Person organized
outside the United States may be an Eligible Transferee if Borrower would be
required to pay withholding taxes on interest or principal owed to such Person).
"Environmental Laws" means any and all Laws relating to the environment or
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Affiliate" means each Restricted Person and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common
7
<PAGE>
control that, together with such Restricted Person, are treated as a single
employer under Section 414 of the Code.
"ERISA Plan" means any employee pension benefit plan subject to Title IV of
ERISA maintained by any ERISA Affiliate with respect to which any Restricted
Person has a fixed or contingent liability.
"Eurodollar Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Eurodollar Lending Office" on the Lender
Schedule hereto (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to Borrower and Administrative Agent.
"Eurodollar Loan" means a Loan that bears interest at a rate based upon the
Adjusted Eurodollar Rate.
"Event of Default" has the meaning given to such term in Section 8.1.
"Existing Agreement" means that certain Credit Agreement among General
Partner, Administrative Agent, Documentation Agent, and Syndication Agent and
other financial institutions dated as of July 30, 1998, as amended, restated or
supplemented to the date hereof.
"Facility Usage" means, at the time in question, the aggregate amount of
outstanding Revolver Loans and LC Obligations at such time.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of one percent) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if the day for which such rate is to
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate quoted to Administrative Agent on such day on such transactions as
determined by Administrative Agent.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Plains MLP and its
Consolidated Subsidiaries, are applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the audited Initial Financial Statements. If any change
8
<PAGE>
in any accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor) in order for such principle or practice
to continue as a generally accepted accounting principle or practice, all
reports and financial statements required hereunder with respect to Plains MLP
or with respect to Plains MLP and its Consolidated Subsidiaries may be prepared
in accordance with such change, but all calculations and determinations to be
made hereunder may be made in accordance with such change only after notice of
such change is given to each Lender and Majority Lenders agree to such change
insofar as it affects the accounting of Plains MLP or of Plains MLP and its
Consolidated Subsidiaries.
"General Partner" means Plains All American Inc., a Delaware corporation.
"Guarantors" means Plains MLP and all of its Subsidiaries (including
Operating but excluding Borrower) and any other Person who has guaranteed some
or all of the Obligations and who has been accepted by Administrative Agent as a
Guarantor or any Subsidiary of Plains MLP which now or hereafter executes and
delivers a guaranty to Administrative Agent pursuant to Section 6.17.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
"Hedging Contract" means (a) any agreement providing for options, swaps,
floors, caps, collars, forward sales or forward purchases involving interest
rates, commodities or commodity prices, equities, currencies, bonds, or indexes
based on any of the foregoing, (b) any option, futures or forward contract
traded on an exchange, and (c) any other derivative agreement or other similar
agreement or arrangement. [Add provision excluding normal purchase, sale and
exchange contracts by Operating.]
"Highest Lawful Rate" means, with respect to each Lender Party to whom
Obligations are owed, the maximum nonusurious rate of interest that such Lender
Party is permitted under applicable Law to contract for, take, charge, or
receive with respect to such Obligations. All determinations herein of the
Highest Lawful Rate, or of any interest rate determined by reference to the
Highest Lawful Rate, shall be made separately for each Lender Party as
appropriate to assure that the Loan Documents are not construed to obligate any
Person to pay interest to any Lender Party at a rate in excess of the Highest
Lawful Rate applicable to such Lender Party.
"Incentive and Option Plans" means the Plains All American Inc. 1998 Long-
Term Incentive Plan as in effect on the date hereof and the Plains All American
Inc. Management Incentive Plan as in effect on the date hereof.
"Indebtedness" of any Person means its Liabilities (without duplication) in
any of the following categories:
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(a) Liabilities for borrowed money,
(b) Liabilities constituting an obligation to pay the deferred purchase
price of property or services,
(c) Liabilities evidenced by a bond, debenture, note or similar
instrument,
(d) Liabilities (other than reserves for taxes and reserves for contingent
obligations) which (i) would under GAAP be shown on such Person's balance sheet
as a liability and (ii are payable more than one year from the date of creation
or incurrence thereof,
(e) Liabilities arising under Hedging Contracts (on a net basis to the
extent netting is provided for in the applicable Hedging Contract),
(f) Liabilities constituting principal under Capital Leases,
(g) Liabilities arising under conditional sales or other title retention
agreements,
(h) Liabilities owing under direct or indirect guaranties of Liabilities
of any other Person or otherwise constituting obligations to purchase or acquire
or to otherwise protect or insure a creditor against loss in respect of
Liabilities of any other Person (such as obligations under working capital
maintenance agreements, agreements to keep-well, or agreements to purchase
Liabilities, assets, goods, securities or services), but excluding endorsements
in the ordinary course of business of negotiable instruments in the course of
collection,
(i) Liabilities consisting of an obligation to purchase or redeem
securities or other property, if such Liabilities arises out of or in connection
with the sale or issuance of the same or similar securities or property (for
example, repurchase agreements, mandatorily redeemable preferred stock and
sale/leaseback agreements),
(j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Liabilities with respect to banker's acceptances, or
(l) Liabilities with respect to obligations to deliver goods or services
in consideration of advance payments therefor;
provided, however, that the "Indebtedness" of any Person shall not include
Liabilities that were incurred in the ordinary course of business by such Person
on ordinary trade terms to vendors, suppliers, or other Persons providing goods
and services for use by such Person in the ordinary course of its business,
unless and until such Liabilities are outstanding more than 120 days after the
date the respective goods are delivered or the respective services are rendered,
other than Liabilities contested in good faith by appropriate proceedings, if
required,
10
<PAGE>
and for which adequate reserves are maintained on the books of such Person in
accordance with GAAP.
"Initial Financial Statements" means the audited pro forma consolidated
financial statements of Plains MLP as of September 30, 1998.
"Insurance Schedule" means Schedule 4 attached hereto.
"Interest Expense" means, with respect to any period, the sum (without
duplication) of the following (in each case, eliminating all offsetting debits
and credits between Plains MLP and its Subsidiaries and all other items required
to be eliminated in the course of the preparation of consolidated financial
statements of Plains MLP and its Subsidiaries in accordance with GAAP): (a) all
interest and commitment fees in respect of Indebtedness of Plains MLP or any of
its Subsidiaries (including imputed interest on Capital Lease Obligations) which
are accrued during such period and whether expensed in such period or
capitalized; plus (b) all fees, expenses and charges in respect of letters of
credit issued for the account of Plains MLP or any of its Subsidiaries, which
are accrued during such period and whether expensed in such period or
capitalized.
"Interest Payment Date" means (a) with respect to each Base Rate Loan, the
last day of each March, June, September and December, and (b) with respect to
each Eurodollar Loan, the last day of the Interest Period that is applicable
thereto and, if such Interest Period is six, or twelve months in length, the
dates specified by Administrative Agent which are approximately three, six, and
nine months (as appropriate) after such Interest Period begins; provided that
the last Business Day of each calendar month shall also be an Interest Payment
Date for each such Loan so long as any Event of Default exists under Section 8.1
(a) or (b).
"Interest Period" means, with respect to each particular Eurodollar Loan in
a Borrowing, the period specified in the Borrowing Notice or
Continuation/Conversion Notice applicable thereto, beginning on and including
the date specified in such Borrowing Notice or Continuation/Conversion Notice
(which must be a Business Day), and ending one, two, three, six or twelve months
(if twelve months is available for each Lender) thereafter, as Borrower may
elect in such notice; provided that: (a) any Interest Period which would
otherwise end on a day which is not a Business Day shall be extended to the next
succeeding Business Day unless such Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
Business Day; (b) any Interest Period which begins on the last Business Day in a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day in a calendar month; and (c) notwithstanding the foregoing, no
Interest Period may be selected for a Revolver Loan that would end after the
Revolver Maturity Date and no Interest Period may be selected for a Term Loan
that would end after the Term Maturity Date.
"Investment" means any investment made, directly or indirectly in any
Person, whether by acquisition of shares of capital stock, indebtedness or other
obligations or securities or by
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loan, advance, capital contribution or otherwise, and whether made in cash, by
the transfer of property or by any other means.
"Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"LC Application" means any application for a Letter of Credit hereafter
made by Borrower to LC Issuer.
"LC Collateral" has the meaning given to such term in Section 2.13(a).
"LC Issuer" means BankBoston, N.A., in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity.
Administrative Agent may, with the consent of Borrower and the Lender in
question, appoint any Lender hereunder as an LC Issuer in place of or in
addition to BankBoston, N.A.
"LC Obligations" means, at the time in question, the sum of all Matured LC
Obligations plus the maximum amounts which LC Issuer might then or thereafter be
called upon to advance under all Letters of Credit then outstanding.
"Lease Rentals" means, with respect to any period, the sum of the rental
and other obligations required to be paid during such period by Plains MLP or
any Subsidiary of Plains MLP as lessee under all leases of real or personal
property (other than Capital Leases), excluding any amount required to be paid
by the lessee (whether or not therein designated as rental or additional rental)
on account of maintenance and repairs, insurance, taxes, assessments, water
rates and similar charges, provisions that, if at the date of determination, any
such rental or other obligations are contingent or not otherwise definitely
determinable by terms of the related lease, the amount of such obligations (i)
shall be assumed to be equal to the amount of such obligations for the period of
12 consecutive calendar months immediately preceding the date of determination
or (ii) if the related lease was not in effect during such preceding 12-month
period, shall be the amount estimated by a senior financial officer of the
General Partner on a reasonable basis and in good faith.
"Lender Parties" means Administrative Agent, Syndication Agent,
Documentation Agent, LC Issuer, and all Lenders.
"Lender Schedule" means Schedule 1 hereto.
"Lenders" means each signatory hereto (other than Borrower and any
Restricted Person that is a party hereto), including ING (U.S.) Capital
Corporation in its capacity as a Lender hereunder rather than as Administrative
Agent, and the successors of each such party as holder of a Note.
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"Letter of Credit" means any letter of credit issued by LC Issuer hereunder
at the application of Borrower.
"Letter of Credit Fee Rate" means, on any day, the rate per annum set forth
below based on the Applicable Leverage Level on such date.
=========================================================
Applicable Leverage Level Applicable Rating Level
- ---------------------------------------------------------
Level A Level B
- ---------------------------------------------------------
Level I 1.50% 1.75%
- ---------------------------------------------------------
Level II 1.25% 1.50%
--------------------------------------------------------
Level III 1.00% 1.25%
- ---------------------------------------------------------
Level IV .75% 1.00%
=========================================================
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Liabilities owed to it or any other arrangement
with such creditor which provides for the payment of such Liabilities out of
such property or assets or which allows such creditor to have such Liabilities
satisfied out of such property or assets prior to the general creditors of any
owner thereof, including any lien, mortgage, security interest, pledge, deposit,
production payment, rights of a vendor under any title retention or conditional
sale agreement or lease substantially equivalent thereto, tax lien, mechanic's
or materialman's lien, or any other charge or encumbrance for security purposes,
whether arising by Law or agreement or otherwise, but excluding any right of
offset which arises without agreement in the ordinary course of business.
"Lien" also means any filed financing statement, any registration of a pledge
(such as with an issuer of uncertificated securities), or any other arrangement
or action which would serve to perfect a Lien described in the preceding
sentence, regardless of whether such financing statement is filed, such
registration is made, or such arrangement or action is undertaken before or
after such Lien exists.
"Loans" means all Revolver Loans and Term Loans.
"Loan Documents" means this Agreement, the Notes, the Security Documents,
the Letters of Credit, the LC Applications, the Hedging Contracts described in
Section 2.14, and all other agreements, certificates, documents, instruments and
writings at any time delivered in connection herewith or therewith (exclusive of
term sheets and commitment letters).
"Majority Lenders" means Lenders whose aggregate Percentage Shares equal or
exceed sixty-six and two-thirds percent (66 2/3%).
13
<PAGE>
"Material Adverse Change" means a material and adverse change, from the
state of affairs presented in the Initial Financial Statements or as represented
or warranted in any Loan Document, to (a) Plains MLP's Consolidated financial
condition, (b) Plains MLP's Consolidated operations, properties or prospects,
considered as a whole, (c) Borrower's ability to timely pay the Obligations, or
(d) the enforceability of the material terms of any Loan Document.
"Matured LC Obligations" means all amounts paid by LC Issuer on drafts or
demands for payment drawn or made under or purported to be under any Letter of
Credit and all other amounts due and owing to LC Issuer under any LC Application
for any Letter of Credit, to the extent the same have not been repaid to LC
Issuer (with the proceeds of Loans or otherwise).
"Maximum Drawing Amount" means at the time in question the sum of the
maximum amounts which LC Issuer might then or thereafter be called upon to
advance under all Letters of Credit then outstanding.
"Moody's" means Moody's Investor Service, Inc., or its successor.
"Notes" means all Revolver Notes and all Term Notes.
"Obligations" means all Liabilities from time to time owing by any
Restricted Person to any Lender Party under or pursuant to any of the Loan
Documents, including all LC Obligations. "Obligation" means any part of the
Obligations.
"Offering" means the public issuance of limited partnership interests of
Plains MLP as described in the Prospectus dated _____, 1998.
"Offering Documents" means the documents listed on Schedule 6 hereto.
"Open Position" permitted to be under a Hedging Contract for a particular
month means the aggregate volume of crude oil on which Restricted Persons have
commodity price risk, which may include, without limitation, (i) the volume of
crude oil owned for which Restricted Persons do not have an allocated contract
for sale at a fixed price and (ii) the volume of crude oil under any contract
for purchase for which Restricted Persons do not have an allocated contract for
sale on the same pricing basis (i.e. at a fixed price for sale above the fixed
price for purchase of such crude oil or at a margin above an index price for
sale equivalent to the index price for purchase) [subject to further revision].
"Operating" means Plains Marketing, L.P., a Delaware limited partnership.
"Operating Credit Agreement" means that certain Credit Agreement of even
date herewith among Operating, as Borrower, All American and Plains MLP as
Guarantors, and the Agents and Lenders named therein.
14
<PAGE>
"Percentage Share" means, with respect to any Lender, the percentage
obtained by dividing (i) the sum of the unpaid principal balance of such
Lender's Term Loans at the time in question plus such Lender's Revolver
Commitment, by (ii) the sum of the aggregate unpaid principal balance of all
Term Loans at such time plus the total Revolver Commitment.
"Permitted Acquisitions" means the acquisition of 100% of the capital stock
or other equity interest in a Person (exclusive of general partnership interests
held by General Partner or another wholly owned Subsidiary of Resources not in
excess of a 1% economic interest and exclusive of director qualifying shares and
other equity interests required to be held by an Affiliate to comply with a
requirement of Law) or the acquisition of the business, assets or operations of
a Person, provided that (i) prior to and after giving effect to such acquisition
no Default or Event of Default shall have occurred and be continuing; (ii) all
representations and warranties shall be true and correct as if restated
immediately following the consummation of such acquisition; and (iii)
substantially all of the business, assets and operations so acquired, or of the
Person so acquired, consists of crude oil and/or gas marketing, gathering,
transportation, storage and terminaling.
"Permitted Investments" means (a) Cash Equivalents, (b) Investments
described in the Disclosure Schedule, (c) Investments by Plains MLP or any of
its Subsidiaries in any wholly owned Subsidiary of Plains MLP which is a
Guarantor and (d) Permitted Acquisitions.
"Permitted Lien" has the meaning given to such term in Section 7.2.
"Person" means an individual, corporation, partnership, limited liability
company, association, joint stock company, trust or trustee thereof, estate or
executor thereof, unincorporated organization or joint venture, Tribunal, or any
other legally recognizable entity.
"Plains MLP" means Plains All American Pipeline, L.P., a Delaware limited
partnership.
"Rating Agency" means either S&P or Moody's.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect.
"Reserve Requirement" means, at any time, the maximum rate at which
reserves (including any marginal, special, supplemental, or emergency reserves)
are required to be maintained under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency liabilities" (as such
term is used in Regulation D). Without limiting the effect of the foregoing,
the Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks with respect to (a) any category of liabilities
which includes deposits by reference to which the Adjusted Eurodollar Rate is to
be determined, or (b) any category of extensions of credit or other assets which
include Eurodollar Loans.
15
<PAGE>
"Resources" means Plains Resources Inc., a Delaware corporation.
"Restricted Person" means any of Plains MLP and each Subsidiary of Plains
MLP, including but not limited to Borrower, Operating and each Subsidiary of
Borrower and/or Operating.
"Revolver Commitment" means $50,000,000. Each Lender's Revolver Commitment
shall be the amount set forth on the Lender Schedule.
"Revolver Commitment Period" means the period from and including the date
hereof until the Revolver Maturity Date (or, if earlier, the day on which the
obligation of Lenders to make Loans hereunder and the obligation of LC Issuer to
issue Letters of Credit hereunder has terminated or the day on which the
Revolver Notes first become due and payable in full).
"Revolver Eurodollar Rate Margin" means the percent per annum set forth
below based on the Applicable Leverage Level in effect on such date.
=======================================================
Applicable Leverage Level Applicable Rating Level
-------------------------------------------------------
Level A Level B
-------------------------------------------------------
Level I 1.50% 1.75%
-------------------------------------------------------
Level II 1.25% 1.50%
-------------------------------------------------------
Level III 1.00% 1.25%
-------------------------------------------------------
Level IV .75% 1.00%
=======================================================
Changes in the applicable Revolver Eurodollar Rate Margin will occur
automatically without prior notice as changes in the Applicable Leverage Level
occur. Administrative Agent will give notice promptly to Borrower and the
Revolver Lenders of changes in the Revolver Eurodollar Rate Margin.
"Revolver Lender" means each holder of a Revolver Note.
"Revolver Loan" has the meaning given such term in Section 2.1(a).
"Revolver Maturity Date" means November ____, 2000.
"Revolver Note" has the meaning given such term in Section 2.1(a).
"Revolver Percentage Share" means, with respect to any Revolver Lender, the
Revolver Percentage Share set forth opposite such Revolver Lender's name on the
Lender Schedule.
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<PAGE>
"S&P" means Standard & Poor's Ratings Group (a division of McGraw Hill,
Inc.) or its successor.
"Security Documents" means the instruments listed in the Security Schedule
and all other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by any Restricted Person to Administrative Agent in connection with
this Agreement or any transaction contemplated hereby to secure or guarantee the
payment of any part of the Obligations or the performance of any Restricted
Person's other duties and obligations under the Loan Documents.
"Security Schedule" means Schedule 3 hereto.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, limited liability company, joint venture, or other
business or corporate entity, enterprise or organization which is directly or
indirectly (through one or more intermediaries) controlled or owned more than
fifty percent by such Person.
"Term Lender" means each holder of a Term Note.
"Term Loan" has the meaning given such term in Section 2.1(b).
"Term Loan Base Rate Margin" means on each day during the applicable period
set forth below the percent per annum set forth below based on the Applicable
Leverage Level in effect on such date and for such period:
<TABLE>
<CAPTION>
=======================================================================================
Applicable Period
- ---------------------------------------------------------------------------------------
Applicable November __, 1998 November __, 2002 November __, 2004
Leverage Level to November __, 2002 to November __, 2004 to November __ 2005
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Level I .25% .75% 1.00%
- ---------------------------------------------------------------------------------------
Level II 0 .50% .75%
- ---------------------------------------------------------------------------------------
Level III 0 .25% .50%
- ---------------------------------------------------------------------------------------
Level IV 0 0 .25%
=======================================================================================
</TABLE>
Changes in the applicable Term Loan Base Rate Margin will occur automatically
without prior notice as changes in the Applicable Leverage Level occur.
Administrative Agent will give notice promptly to Borrower and the Term Lenders
of changes in the Term Loan Base Rate Margin.
"Term Loan Eurodollar Rate Margin" means on each day during the applicable
period set forth below, the percent per annum set forth below based on the
Applicable Leverage Level in effect on such date and for such period:
17
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================
Applicable Period
- ---------------------------------------------------------------------------------------
Applicable November __, 1998 November __, 2002 November __, 2004
Leverage Level to November __, 2002 to November __, 2004 to November __ 2005
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Level I 2.00% 2.50% 2.75%
- ---------------------------------------------------------------------------------------
Level II 1.75% 2.25% 2.50%
- ---------------------------------------------------------------------------------------
Level III 1.50% 2.00% 2.25%
- ---------------------------------------------------------------------------------------
Level IV 1.25% 1.75% 2.00%
=======================================================================================
</TABLE>
Changes in the applicable Term Loan Eurodollar Rate Margin will occur
automatically without prior notice as changes in the Applicable Leverage Level
occur. Administrative Agent will give notice promptly to Borrower and the Term
Lenders of changes in the Term Loan Eurodollar Rate Margin.
"Term Loan Maturity Date" means November ____, 2005.
"Term Note" has the meaning given such term in Section 2.1(b).
"Termination Event" means (a) the occurrence with respect to any ERISA Plan
of (i) a reportable event described in Sections 4043(c)(5) or (6) of ERISA or
(ii) any other reportable event described in Section 4043(c) of ERISA other than
a reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation pursuant to a waiver by such corporation under
Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an
ERISA Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent
to terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under
Section 4042 of ERISA, or (e) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any ERISA Plan.
"Tribunal" means any government, any arbitration panel, any court or any
governmental department, commission, board, bureau, agency or instrumentality of
the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or municipality,
whether now or hereafter constituted or existing.
"Type" means, with respect to any Loans, the characterization of such Loans
as either Base Rate Loans or Eurodollar Loans.
Section 1.2. Exhibits and Schedules; Additional Definitions. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby
18
<PAGE>
made to the Security Schedule for the meaning of certain terms defined therein
and used but not defined herein, which definitions are incorporated herein by
reference.
Section 1.3. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement to
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement," "this instrument," "herein," "hereof," "hereby," "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation." Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. Calculations and Determinations. All calculations under the
Loan Documents of interest chargeable with respect to Eurodollar Loans and of
fees shall be made on the basis of actual days elapsed (including the first day
but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 365 or
366 days, as appropriate. Each determination by a Lender Party of amounts to be
paid under Article III or any other matters which are to be determined hereunder
by a Lender Party (such as any Eurodollar Rate, Adjusted Eurodollar Rate,
Business Day, Interest Period, or Reserve Requirement) shall, in the absence of
manifest error, be conclusive and binding. Unless otherwise expressly provided
herein or unless Majority Lenders otherwise consent all financial statements and
reports furnished to any Lender Party hereunder shall be prepared and all
financial computations and determinations pursuant hereto shall be made in
accordance with GAAP.
ARTICLE II - The Loans and Letters of Credit
Section 2.1. Commitments to Lend; Notes.
19
<PAGE>
(a) Revolver Loans. Subject to the terms and conditions hereof, each
Revolver Lender agrees to make loans to Borrower (herein called such Lender's
"Revolver Loans") upon Borrower's request from time to time during the Revolver
Commitment Period, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all
Revolver Lenders are requested to make Revolver Loans of the same Type in
accordance with their respective Revolver Percentage Shares and as part of the
same Borrowing, (b) after giving effect to such Revolver Loans, the Facility
Usage does not exceed the Revolver Commitment determined as of the date on which
the requested Revolver Loans are to be made and (c) after giving effect to such
Revolver Loans the Revolver Loans by each Revolver Lender plus the existing LC
Obligations of such Revolver Lender does not exceed such Lender's Revolver
Commitment. The aggregate amount of all Revolver Loans in any Borrowing must be
equal to $2,000,000 or any higher integral multiple of $250,000. The obligation
of Borrower to repay to each Revolver Lender the aggregate amount of all
Revolver Loans made by such Revolver Lender, together with interest accruing in
connection therewith, shall be evidenced by a single promissory note (herein
called such Lender's "Revolver Note") made by Borrower payable to the order of
such Revolver Lender in the form of Exhibit A-1 with appropriate insertions.
The amount of principal owing on any Revolver Lender's Revolver Note at any
given time shall be the aggregate amount of all Revolver Loans theretofore made
by such Revolver Lender minus all payments of principal theretofore received by
such Revolver Lender on such Revolver Note. Interest on each Revolver Note
shall accrue and be due and payable as provided herein and therein. Each
Revolver Note shall be due and payable as provided herein and therein, and shall
be due and payable in full on the Revolver Maturity Date. Subject to the terms
and conditions of this Agreement, Borrower may borrow, repay, and reborrow under
this Section 2.1(a). Borrower may have no more than seven Borrowings of
Eurodollar Loans outstanding at any time.
(b) Term Loans. Subject to the terms and conditions hereof, each Term
Lender agrees to make a single advance to Borrower (herein called such Lender's
"Term Loan") upon Borrower's request on or before November ____, 1998, provided
that (a) such Term Loan does not exceed such Term Lender's Term Loan amount set
forth on the Lender Schedule and (b) the aggregate amount of all Term Loans does
not exceed $175,000,000. Portions of each Lender's Term Loan may from time to
time be designated as a Base Rate Loan or Eurodollar Loan as provided herein.
The obligation of Borrower to repay to each Term Lender the amount of the Term
Loan made by such Term Lender, together with interest accruing in connection
therewith, shall be evidenced by a single promissory note (herein called such
Term Lender's "Term Note") made by Borrower payable to the order of such Term
Lender in the form of Exhibit A-2 with appropriate insertions. The amount of
principal owing on any Term Lender's Term Note at any given time shall be the
amount of such Term Lender's Term Loan minus all payments of principal
theretofore received by such Term Lender on such Term Note. Interest on each
Term Note shall accrue and be due and payable as provided herein and therein.
Each Term Note shall be due and payable as provided herein and therein, and
shall be due and payable in full on the Term Loan Maturity Date. No portion of
any Term Loan which has been repaid may be reborrowed.
20
<PAGE>
Section 2.2. Requests for Revolver Loans. Borrower must give to
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of any requested Borrowing of Revolver Loans to be funded by Revolver
Lenders. Each such notice constitutes a "Borrowing Notice" hereunder and must:
(a) specify (i) the aggregate amount of any such Borrowing of new Base
Rate Loans and the date on which such Base Rate Loans are to be advanced,
or (ii) the aggregate amount of any such Borrowing of new Eurodollar Loans,
the date on which such Eurodollar Loans are to be advanced (which shall be
the first day of the Interest Period which is to apply thereto), and the
length of the applicable Interest Period; and
(b) be received by Administrative Agent not later than 11:00 a.m., New
York, New York time, on (i) the day on which any such Base Rate Loans are
to be made, or (ii) the third Business Day preceding the day on which any
such Eurodollar Loans are to be made.
(c) If any requested Borrowing of Revolver Loans is to be utilized by
Borrower for working capital purposes ("Working Capital Borrowing"),
Borrower shall specify in the Borrowing Notice that such Borrowing is a
Working Capital Borrowing. In addition, any repayment of a Working Capital
Borrowing shall be so identified to the Administrative Agent at the time of
such repayment.
Each such written request or confirmation must be made in the form and substance
of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each
such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required to
be set out in such written confirmation. Upon receipt of any such Borrowing
Notice, Administrative Agent shall give each Revolver Lender prompt notice of
the terms thereof. If all conditions precedent to such new Revolver Loans have
been met, each Revolver Lender will on the date requested promptly remit to
Administrative Agent at Administrative Agent's office in New York, New York the
amount of such Revolver Lender's new Revolver Loan in immediately available
funds, and upon receipt of such funds, unless to its actual knowledge any
conditions precedent to such Revolver Loans have been neither met nor waived as
provided herein, Administrative Agent shall promptly make such Revolver Loans
available to Borrower. Unless Administrative Agent shall have received prompt
notice from a Revolver Lender that such Revolver Lender will not make available
to Administrative Agent such Revolver Lender's new Revolver Loan, Administrative
Agent may in its discretion assume that such Revolver Lender has made such
Revolver Loan available to Administrative Agent in accordance with this section,
and Administrative Agent may if it chooses, in reliance upon such assumption,
make such Revolver Loan available to Borrower. If and to the extent such
Revolver Lender shall not so make its new Revolver Loan available to
Administrative Agent, such Lender and Borrower severally agree to pay or repay
to Administrative Agent within three days after demand the amount of such
Revolver Loan together with interest thereon, for each day from the date such
amount was made available to Borrower until the date such amount is paid or
repaid to Administrative Agent, with interest at (i) the Federal Funds Rate, if
such Lender is making such payment and (ii) the interest rate applicable at the
time to the other new Revolver Loans made on such date, if Borrower is making
such repayment. If neither such Revolver Lender nor Borrower pays or repays to
Administrative Agent such amount within such three-day period, Administrative
Agent shall, be entitled to recover from Borrower, on demand in lieu of the
interest provided for in the preceding sentence, interest thereon at the Default
Rate, calculated from the date such amount was made available to Borrower. The
failure of any Revolver Lender to make any new
21
<PAGE>
Revolver Loan to be made by it hereunder shall not relieve any other Revolver
Lender of its obligation hereunder, if any, to make its new Revolver Loan, but
no Revolver Lender shall be responsible for the failure of any other Revolver
Lender to make any new Revolver Loan to be made by such other Revolver Lender.
Section 2.3. Continuations and Conversions of Existing Loans. Borrower
may make the following elections with respect to Revolver Loans or Term Loans
already outstanding: to Convert, in whole or in part, Base Rate Loans to
Eurodollar Loans, to Convert, in whole or in part, Eurodollar Loans to Base Rate
Loans on the last day of the Interest Period applicable thereto, and to
Continue, in whole or in part, Eurodollar Loans beyond the expiration of such
Interest Period by designating a new Interest Period to take effect at the time
of such expiration. In making such elections, Borrower may combine existing
Loans made pursuant to separate Borrowings into one new Borrowing or divide
existing Loans made pursuant to one Borrowing into separate new Borrowings,
provided that (i) Borrower may have no more than seven Borrowings of Eurodollar
Loans outstanding at any time and (ii) no combinations may be made between
Borrowings constituting Revolver Loans on the one hand and Borrowings
constituting Term Loans on the other hand. To make any such election, Borrower
must give to Administrative Agent written notice (or telephonic notice promptly
confirmed in writing) of any such Conversion or Continuation of existing Loans,
with a separate notice given for each new Borrowing. Each such notice
constitutes a "Continuation/Conversion Notice" hereunder and must:
(a) specify the existing Loans which are to be Continued or Converted;
(b) specify (i) the aggregate amount of any Borrowing of Base Rate
Loans into which such existing Loans are to be Continued or Converted and
the date on which such Continuation or Conversion is to occur, or (ii) the
aggregate amount of any Borrowing of Eurodollar Loans into which such
existing Loans are to be Continued or Converted, the date on which such
Continuation or Conversion is to occur (which shall be the first day of the
Interest Period which is to apply to such Eurodollar Loans), and the length
of the applicable Interest Period; and
(c) be received by Administrative Agent not later than 11:00 a.m., New
York, New York time, on (i) the day on which any such Continuation or
Conversion to Base Rate Loans is to occur, or (ii) the third Business Day
preceding the day on which any such Continuation or Conversion to
Eurodollar Loans is to occur.
Each such written request or confirmation must be made in the form and substance
of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Continuation/Conversion Notice, Administrative Agent shall give each Lender
prompt notice of the terms thereof. Each Continuation/Conversion Notice shall
be irrevocable and binding on Borrower. During the continuance of any Default,
Borrower may not make any election to Convert existing Loans into Eurodollar
Loans or Continue
22
<PAGE>
existing Loans as Eurodollar Loans beyond the expiration of their respective and
corresponding Interest Period then in effect. If (due to the existence of a
Default or for any other reason) Borrower fails to timely and properly give any
Continuation/Conversion Notice with respect to a Borrowing of existing
Eurodollar Loans at least three days prior to the end of the Interest Period
applicable thereto, such Eurodollar Loans, to the extent not prepaid at the end
of such Interest Period, shall automatically be Converted into Base Rate Loans
at the end of such Interest Period. No new funds shall be repaid by Borrower or
advanced by any Lender in connection with any Continuation or Conversion of
existing Loans pursuant to this section, and no such Continuation or Conversion
shall be deemed to be a new advance of funds for any purpose; such Continuations
and Conversions merely constitute a change in the interest rate applicable to
already outstanding Loans.
Section 2.4. Use of Proceeds. Borrower shall use (i) all Term Loans to
repay up to $175,000,000 of the unpaid principal balance of the term loans
outstanding under the Existing Agreement as of the date hereof and (ii) all
Revolver Loans to finance capital expenditures, to pay reimbursement obligations
of Letters of Credit, to provide working capital for operations and for other
general business purposes; provided, however, that no Revolver Loan shall be
used to repay any Indebtedness under the Existing Agreement. Borrower shall use
all Letters of Credit for its and its Subsidiaries' general corporate purposes.
In no event shall the funds from any Loan or any Letter of Credit be used
directly or indirectly by any Person for personal, family, household or
agricultural purposes or for the purpose, whether immediate, incidental or
ultimate, of purchasing, acquiring or carrying any "margin stock" (as such term
is defined in Regulation U promulgated by the Board of Governors of the Federal
Reserve System) or to extend credit to others directly or indirectly for the
purpose of purchasing or carrying any such margin stock. Borrower represents
and warrants that Borrower is not engaged principally, or as one of Borrower's
important activities, in the business of extending credit to others for the
purpose of purchasing or carrying such margin stock.
Section 2.5. Interest Rates and Fees.
(a) Revolver Interest Rates. Each Revolver Loan shall bear interest as
follows: (i) unless the Default Rate shall apply, (A) each Base Rate Loan shall
bear interest on each day outstanding at the Base Rate in effect on such day,
and (B) each Eurodollar Loan shall bear interest on each day during the related
Interest Period at the related Adjusted Eurodollar Rate plus the Revolver
Eurodollar Rate Margin in effect on such day, and (ii) during a Default Rate
Period, all Revolver Loans shall bear interest on each day outstanding at the
Default Rate. If an Event of Default based upon Section 8.1(a), Section 8.1(b)
or, with respect to Borrower, based upon Section 8.1(i)(i), (i)(ii) or (i)(iii)
exists and the Revolver Loans are not bearing interest at the Default Rate, the
past due principal and past due interest shall bear interest on each day
outstanding at the Default Rate. The interest rate shall change whenever the
applicable Base Rate, the Adjusted Eurodollar Rate or the Revolver Eurodollar
Rate Margin changes. In no event shall the interest rate on any Revolver Loan
exceed the Highest Lawful Rate.
23
<PAGE>
(b) Term Loan Interest Rates. Each Term Loan shall bear interest as
follows: (i) unless the Default Rate shall apply, (A) each Base Rate Loan
shall bear interest on each day outstanding at the Base Rate plus the Term Loan
Base Rate Margin in effect on such day, and (B) each Eurodollar Loan shall bear
interest on each day during the related Interest Period at the related Adjusted
Eurodollar Rate plus the Term Loan Eurodollar Rate Margin in effect on such day
and (ii) during a Default Rate Period, all Term Loans shall bear interest on
each day outstanding at the Default Rate. If an Event of Default based upon
Section 8.1(a) or Section 8.1(b) or, with respect to Borrower, based upon
Section 8.1(i)(i), (i)(ii) or (i)(iii) exists and the Term Loans are not bearing
interest at the Default Rate, the past due principal and past due interest shall
bear interest on each day outstanding at the Default Rate. The interest rate
shall change whenever the applicable Base Rate, Term Loan Base Rate Margin,
Adjusted Eurodollar Rate, or Term Loan Eurodollar Rate Margin changes. In no
event shall the interest rate on any Term Loan exceed the Highest Lawful Rate.
(c) Revolver Commitment Fees. In consideration of each Revolver Lender's
commitment to make Revolver Loans, Borrower will pay to Administrative Agent for
the account of each Revolver Lender a commitment fee determined on a daily basis
by applying a rate of one-half of one percent (.50%) per annum to such Revolver
Lender's Revolver Percentage Share of the unused portion of the Revolver
Commitment on each day during the Revolver Commitment Period, determined for
each such day by deducting from the amount of the Revolver Commitment at the end
of such day the Facility Usage. This commitment fee shall be due and payable in
arrears on the last day of each Fiscal Quarter and at the end of the Revolver
Commitment Period. Borrower shall have the right from time to time to
permanently reduce the Revolver Commitment, provided that (i) notice of such
reduction is given not less than 2 Business Days prior to such reduction, (ii)
the resulting Revolver Commitment is not less than the Facility Usage and (iii)
each partial reduction shall be in an amount at least equal to $500,000 and in
multiples of $100,000 in excess thereof.
(d) Administrative Agent's Fees. In addition to all other amounts due to
Administrative Agent under the Loan Documents, Borrower will pay fees to
Administrative Agent as described in a letter agreement dated _______________,
1998, between Administrative Agent and Borrower.
Section 2.6. Optional Prepayments.
(a) Revolver Loans. Borrower may, upon five Business Days' notice to
Administrative Agent (and Administrative Agent will promptly give notice to the
other Lenders) from time to time and without premium or penalty prepay the
Revolver Loans, in whole or in part, so long as the aggregate amounts of all
partial prepayments of principal on the Revolver Loans equals $1,000,000 or any
higher integral multiple of $250,000, and so long as Borrower does not make any
prepayments which would reduce the unpaid principal balance of the Revolver
Loans to less than $100,000 without first either (i) terminating this Agreement
or (ii) providing assurance satisfactory to Administrative Agent in its
discretion that Revolver Lenders' legal rights under the Loan Documents are in
no way affected by such
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reduction. Upon receipt of any such notice, Administrative Agent shall give each
Revolver Lender prompt notice of the terms thereof.
(b) Term Loans. Borrower may, upon five Business Days' notice to each Term
Lender from time to time and without premium or penalty prepay the Term Loans,
in whole or in part, so long as the aggregate of amounts of all partial
prepayments of principal on the Term Loans equals $5,000,000 or any higher
integral multiple of $1,000,000.
(c) Interest on Prepayment. Each prepayment of principal under Section
2.6(a) or 2.6(b) shall be accompanied by all interest then accrued and unpaid on
the principal so prepaid. Any principal or interest prepaid pursuant to Section
2.6(a) or 2.6(b) shall be in addition to, and not in lieu of, all payments
otherwise required to be paid under the Loan Documents at the time of such
prepayment.
Section 2.7. Mandatory Prepayments.
(a) Without limiting the requirements of Section 7.5 hereof regarding the
consent of Majority Lenders to sales of property by Restricted Persons which are
not permitted by Section 7.5, the proceeds of any sale of property (net of all
reasonable costs and expenses, but excluding proceeds consisting of tangible
property to be used in the business of Restricted Persons) by any Restricted
Person (other than a sale of property permitted under Section 7.5 hereof) shall
be placed in a collateral account under the control of Administrative Agent in a
manner satisfactory to Administrative Agent immediately upon such Restricted
Person's receipt of such proceeds and maintained therein for a period of ninety
(90) days following the date of receipt thereof in cash (in this Section 2.7(a)
referred to as the "Collateral Period"). If any consideration consists of an
instrument or security, the Collateral Period shall, with respect to each amount
of cash received in respect thereof, continue until ninety (90) days following
such Restricted Person's receipt of such cash unless, pursuant to the following
sentence, an approved investment included such cash; any cash in a collateral
account may be invested in Cash Equivalents designated by Borrower. During each
Collateral Period, Borrower may propose to invest such proceeds in other
property subject to the approval of Majority Lenders, and shall thereafter
invest such proceeds in such property so approved by Majority Lenders. At the
end of each Collateral Period or, if an investment is so proposed and approved
during such Collateral Period, within one hundred-eighty (180) days after such
proposed investment has been so approved by Majority Lenders, any such proceeds
which have not been so invested by Borrower shall be applied pro rata to the
reduction of the outstanding principal balance of the Term Loans and the
Revolver Loans at such time, and the Revolver Commitment shall be reduced by an
amount equal to the prepayment applied to the Revolver Loans.
(b) If at any time the Facility Usage exceeds the Revolver Commitment
(whether due to a reduction in the Revolver Commitment in accordance with this
Agreement, or otherwise), Borrower shall immediately upon demand prepay the
principal of the Revolver Loans in an amount at least equal to such excess. Each
prepayment of principal under this section shall be accompanied by all interest
then accrued and unpaid on the principal so prepaid. Any principal or interest
prepaid pursuant to this section shall be in addition to, and
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not in lieu of, all payments otherwise required to be paid under the Loan
Documents at the time of such prepayment.
Section 2.8. Letters of Credit. Subject to the terms and conditions
hereof, Borrower may during the Revolver Commitment Period request LC Issuer to
issue, amend, or extend the expiration date of, one or more Letters of Credit,
provided that, after taking such Letter of Credit into account:
(a) the Facility Usage does not exceed the Revolver Commitment at such
time;
(b) the aggregate amount of LC Obligations at such time does not
exceed $10,000,000;
(c) the expiration date of such Letter of Credit is prior to the
earlier of (i) one (1) year after the date of issuance of such Letter of
Credit or (ii) the end of the Revolver Commitment Period;
(d) such Letter of Credit is to be used for general corporate purposes
of Borrower or any of its Subsidiaries and is not directly or indirectly
used to assure payment of or otherwise support any Indebtedness of any
Person, except Indebtedness of a Restricted Person;
(e) the issuance of such Letter of Credit will be in compliance with
all applicable governmental restrictions, policies, and guidelines and will
not subject LC Issuer to any cost which is not reimbursable under Article
III;
(f) the form and terms of such Letter of Credit are acceptable to LC
Issuer in its sole and absolute discretion; and
(g) all other conditions in this Agreement to the issuance of such
Letter of Credit have been satisfied.
LC Issuer will honor any such request if the foregoing conditions (a) through
(g) (in the following Section 2.9 called the "LC Conditions") have been met as
of the date of issuance, amendment, or extension of the expiration, of such
Letter of Credit.
Section 2.9. Requesting Letters of Credit. Borrower must make written
application for any Letter of Credit at least two Business Days before the date
on which Borrower desires for LC Issuer to issue such Letter of Credit. By
making any such written application, unless otherwise expressly stated therein,
Borrower shall be deemed to have represented and warranted that the LC
Conditions described in Section 2.8 will be met as of the date of issuance of
such Letter of Credit. Each such written application for a Letter of Credit
must be made in writing in the form and substance of Exhibit G, the terms and
provisions of which are hereby incorporated herein by reference (or in such
other form as may mutually be agreed
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upon by LC Issuer and Borrower). If all LC Conditions for a Letter of Credit
have been met as described in Section 2.8 on any Business Day before 11:00 a.m.,
New York, New York time, LC Issuer will issue such Letter of Credit on the same
Business Day at LC Issuer's office in Boston, Massachusetts. If the LC
Conditions are met as described in Section 2.8 on any Business Day on or after
11:00 a.m., New York, New York time, LC Issuer will issue such Letter of Credit
on the next succeeding Business Day at LC Issuer's office in Boston,
Massachusetts. If any provisions of any LC Application conflict with any
provisions of this Agreement, the provisions of this Agreement shall govern and
control.
Section 2.10. Reimbursement and Participations.
(a) Reimbursement by Borrower. Each Matured LC Obligation shall constitute
a loan by LC Issuer to Borrower. Borrower promises to pay to LC Issuer, or to
LC Issuer's order, on demand, the full amount of each Matured LC Obligation,
together with interest thereon (i) at the Base Rate to and including the second
Business Day after the Matured LC Obligation is incurred and (ii) at the
Default Rate on each day thereafter.
(b) Letter of Credit Advances. If the beneficiary of any Letter of Credit
makes a draft or other demand for payment thereunder then Borrower may, during
the interval between the making thereof and the honoring thereof by LC Issuer,
request Revolver Lenders to make Revolver Loans to Borrower in the amount of
such draft or demand, which Revolver Loans shall be made concurrently with LC
Issuer's payment of such draft or demand and shall be immediately used by LC
Issuer to repay the amount of the resulting Matured LC Obligation. Such a
request by Borrower shall be made in compliance with all of the provisions
hereof, provided that for the purposes of the first sentence of Section 2.1(a),
the amount of such Revolver Loans shall be considered, but the amount of the
Matured LC Obligation to be concurrently paid by such Revolver Loans shall not
be considered.
(c) Participation by Revolver Lenders. LC Issuer irrevocably agrees to
grant and hereby grants to each Revolver Lender, and -- to induce LC Issuer to
issue Letters of Credit hereunder -- each Revolver Lender irrevocably agrees to
accept and purchase and hereby accepts and purchases from LC Issuer, on the
terms and conditions hereinafter stated and for such Revolver Lender's own
account and risk an undivided interest equal to such Revolver Lender's Revolver
Percentage Share of LC Issuer's obligations and rights under each Letter of
Credit issued hereunder and the amount of each Matured LC Obligation paid by LC
Issuer thereunder. Each Revolver Lender unconditionally and irrevocably agrees
with LC Issuer that, if a Matured LC Obligation is paid under any Letter of
Credit for which LC Issuer is not reimbursed in full by Borrower in accordance
with the terms of this Agreement and the related LC Application (including any
reimbursement by means of concurrent Loans or by the application of LC
Collateral), such Revolver Lender shall (in all circumstances and without set-
off or counterclaim) pay to LC Issuer on demand, in immediately available funds
at LC Issuer's address for notices hereunder, such Lender's Revolver Percentage
Share of such Matured LC Obligation (or any portion thereof which has not been
reimbursed by Borrower). Each Revolver Lender's obligation to pay LC Issuer
pursuant to the terms of this subsection is irrevocable and unconditional. If
any amount required to be paid by any Revolver Lender to
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LC Issuer pursuant to this subsection is paid by such Revolver Lender to LC
Issuer within three Business Days after the date such payment is due, LC Issuer
shall in addition to such amount be entitled to recover from such Revolver
Lender, on demand, interest thereon calculated from such due date at the Federal
Funds Rate. If any amount required to be paid by any Revolver Lender to LC
Issuer pursuant to this subsection is not paid by such Revolver Lender to LC
Issuer within three Business Days after the date such payment is due, LC Issuer
shall in addition to such amount be entitled to recover from such Revolver
Lender, on demand, interest thereon calculated from such due date at the Base
Rate.
(d) Distributions to Participants. Whenever LC Issuer has in accordance
with this section received from any Revolver Lender payment of such Lender's
Revolver Percentage Share of any Matured LC Obligation, if LC Issuer thereafter
receives any payment of such Matured LC Obligation or any payment of interest
thereon (whether directly from Borrower or by application of LC Collateral or
otherwise, and excluding only interest for any period prior to LC Issuer's
demand that such Revolver Lender make such payment of its Revolver Percentage
Share), LC Issuer will distribute to such Lender its Revolver Percentage Share
of the amounts so received by LC Issuer; provided, however, that if any such
payment received by LC Issuer must thereafter be returned by LC Issuer, such
Revolver Lender shall return to LC Issuer the portion thereof which LC Issuer
has previously distributed to it.
(e) Calculations. A written advice setting forth in reasonable detail the
amounts owing under this section, submitted by LC Issuer to Borrower or any
Revolver Lender from time to time, shall be conclusive, absent manifest error,
as to the amounts thereof.
Section 2.11. Letter of Credit Fees. In consideration of LC Issuer's
issuance of any Letter of Credit, Borrower agrees to pay (i) to Administrative
Agent for the account of each Revolver Lender in proportion to its Revolver
Percentage Share, a letter of credit fee equal to the Letter of Credit Fee Rate
applicable each day times the face amount of such Letter of Credit and (ii) to
such LC Issuer for its own account, a letter of credit fronting fee at a rate
equal to one-eighth percent (.125%) per annum times the face amount of such
Letter of Credit. Each such fee will be calculated on the face amount of each
Letter of Credit outstanding on each day at the above applicable rates and will
be payable quarterly in arrears. In addition, Borrower will pay to LC Issuer a
minimum administrative issuance fee of $100 for each Letter of Credit and such
other fees and charges customarily charged by the LC Issuer in respect of any
amendment or negotiation of any Letter of Credit in accordance with the LC
Issuer's published schedule of such charges effective as of the date of such
amendment or negotiation.
Section 2.12. No Duty to Inquire.
(a) Drafts and Demands. LC Issuer is authorized and instructed to accept
and pay drafts and demands for payment under any Letter of Credit without
requiring, and without responsibility for, any determination as to the existence
of any event giving rise to said draft, either at the time of acceptance or
payment or thereafter. LC Issuer is under no duty to determine the proper
identity of anyone presenting such a draft or making such a demand (whether by
tested telex or otherwise) as the officer, representative or agent of any
beneficiary
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under any Letter of Credit, and payment by LC Issuer to any such beneficiary
when requested by any such purported officer, representative or agent is hereby
authorized and approved. Borrower releases each Lender Party from, and agrees to
hold each Lender Party harmless and indemnified against, any liability or claim
in connection with or arising out of the subject matter of this section, WHICH
INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY
OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be
entitled to indemnification for that portion, if any, of any liability or claim
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment.
(b) Extension of Maturity. If the maturity of any Letter of Credit is
extended by its terms or by Law or governmental action, if any extension of the
maturity or time for presentation of drafts or any other modification of the
terms of any Letter of Credit is made at the request of Borrower, or if the
amount of any Letter of Credit is increased at the request of Borrower, this
Agreement shall be binding upon all Restricted Persons with respect to such
Letter of Credit as so extended, increased or otherwise modified, with respect
to drafts and property covered thereby, and with respect to any action taken by
LC Issuer, LC Issuer's correspondents, or any Lender Party in accordance with
such extension, increase or other modification.
(c) Transferees of Letters of Credit. If any Letter of Credit provides
that it is transferable, LC Issuer shall have no duty to determine the proper
identity of anyone appearing as transferee of such Letter of Credit, nor shall
LC Issuer be charged with responsibility of any nature or character for the
validity or correctness of any transfer or successive transfers, and payment by
LC Issuer to any purported transferee or transferees as determined by LC Issuer
is hereby authorized and approved, and Borrower releases each Lender Party from,
and agrees to hold each Lender Party harmless and indemnified against, any
liability or claim in connection with or arising out of the foregoing, WHICH
INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY
OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be
entitled to indemnification for that portion, if any, of any liability or claim
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment.
Section 2.13. LC Collateral.
(a) LC Obligations in Excess of Revolver Commitment. If, after the making
of all mandatory prepayments required under Section 2.7, the outstanding LC
Obligations will exceed the Revolver Commitment, then in addition to prepayment
of the entire principal balance of the Revolver Loans Borrower will immediately
pay to LC Issuer an amount equal to such excess. LC Issuer will hold such
amount as collateral security for the remaining LC
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Obligations (all such amounts held as collateral security for LC Obligations
being herein collectively called "LC Collateral") and the Revolver Loans, and
such collateral may be applied from time to time to pay Matured LC Obligations.
Neither this subsection nor the following subsection shall, however, limit or
impair any rights which LC Issuer may have under any other document or agreement
relating to any Letter of Credit, LC Collateral or LC Obligation, including any
LC Application, or any rights which any Lender Party may have to otherwise apply
any payments by Borrower and any LC Collateral under Section 3.1.
(b) Acceleration of LC Obligations. If the Obligations or any part thereof
become immediately due and payable pursuant to Section 8.1 then, unless all
Revolver Lenders otherwise specifically elect to the contrary (which election
may thereafter be retracted by any Revolver Lender at any time), all LC
Obligations shall become immediately due and payable without regard to whether
or not actual drawings or payments on the Letters of Credit have occurred, and
Borrower shall be obligated to pay to LC Issuer immediately an amount equal to
the aggregate LC Obligations which are then outstanding to be held as LC
Collateral.
(c) Investment of LC Collateral. Pending application thereof, all LC
Collateral shall be invested by LC Issuer in such Cash Equivalents as LC Issuer
may choose in its sole discretion. All interest on (and other proceeds of) such
Investments shall be reinvested or applied to Matured LC Obligations or the
Revolver Loans which are due and payable. When all Obligations have been
satisfied in full, including all LC Obligations, all Letters of Credit have
expired or been terminated, and all of Borrower's reimbursement obligations in
connection therewith have been satisfied in full, LC Issuer shall release any
remaining LC Collateral. Borrower hereby assigns and grants to LC Issuer for
the benefit of Revolver Lenders a continuing security interest in all LC
Collateral paid by it to LC Issuer, all Investments purchased with such LC
Collateral, and all proceeds thereof to secure its Matured LC Obligations and
its Obligations under this Agreement, each Note, and the other Loan Documents,
and Borrower agrees that such LC Collateral, Investments and proceeds shall be
subject to all of the terms and conditions of the Security Documents. Borrower
further agrees that LC Issuer shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code as adopted in the State of New
York with respect to such security interest and that an Event of Default under
this Agreement shall constitute a default for purposes of such security
interest.
(d) Payment of LC Collateral. When Borrower is required to provide LC
Collateral for any reason and fails to do so on the day when required, LC Issuer
or Administrative Agent may without notice to Borrower or any other Restricted
Person provide such LC Collateral (whether by application of proceeds of other
Collateral, by transfers from other accounts maintained with LC Issuer, or
otherwise) using any available funds of Borrower or any other Person also liable
to make such payments, and LC Issuer or Administrative Agent will give notice
thereof to Borrower promptly after such application or transfer. Any such
amounts which are required to be provided as LC Collateral and which are not
provided on the date required shall, for purposes of each Security Document, be
considered past due Obligations owing hereunder, and LC Issuer is hereby
authorized to exercise its respective rights under each Security Document to
obtain such amounts.
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Section 2.14. Hedging Contracts. All Hedging Contracts permitted
hereunder entered into with any one or more Lenders or their Affiliates shall be
deemed to be Obligations and be secured by all Collateral; subject, however, to
the provisions of Section 3.9 hereof.
ARTICLE III - Payments to Lenders
Section 3.1. General Procedures. Borrower will make each payment which
it owes under the Loan Documents to Administrative Agent for the account of the
Lender Party to whom such payment is owed in lawful money of the United States
of America, without set-off, deduction or counterclaim, and in immediately
available funds. Each such payment must be received by Administrative Agent not
later than noon, New York, New York time, on the date such payment becomes due
and payable. Any payment received by Administrative Agent after such time will
be deemed to have been made on the next following Business Day. Should any such
payment become due and payable on a day other than a Business Day, the maturity
of such payment shall be extended to the next succeeding Business Day, and, in
the case of a payment of principal or past due interest, interest shall accrue
and be payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due. Each payment under a Loan Document
shall be due and payable at the place provided therein and, if no specific place
of payment is provided, shall be due and payable at the place of payment of
Administrative Agent's Note. When Administrative Agent collects or receives
money on account of the Obligations, other than as provided in Section 3.9,
Administrative Agent shall distribute all money so collected or received, and
each Lender Party shall apply all such money so distributed, as follows:
(a) first, for the payment of all Obligations which are then due (and
if such money is insufficient to pay all such Obligations, first to any
reimbursements due Administrative Agent under Section 6.9 or 10.4 and then
to the partial payment of all other Obligations then due in proportion to
the amounts thereof, or as Lender Parties shall otherwise agree);
(b) then for the prepayment of amounts owing under the Loan Documents
(other than principal on the Notes) if so specified by Borrower;
(c) then for the prepayment of principal on the Notes, together with
accrued and unpaid interest on the principal so prepaid; and
(d) last, for the payment or prepayment of any other Obligations.
All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest in compliance with Sections
2.6 and 2.7. All distributions of amounts described in any of subsections (b),
(c) or (d) above shall be made by Administrative Agent pro rata to each Lender
Party then owed Obligations described in such subsection in proportion to all
amounts owed to all Lender Parties which are described in such subsection;
provided that
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if any Lender then owes payments to LC Issuer for the purchase of a
participation under Section 2.13(c) or to Administrative Agent under Section
9.4, any amounts otherwise distributable under this section to such Lender shall
be deemed to belong to LC Issuer, or Administrative Agent, respectively, to the
extent of such unpaid payments, and Administrative Agent shall apply such
amounts to make such unpaid payments rather than distribute such amounts to such
Lender.
Section 3.2. Capital Reimbursement. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any central bank or
other governmental authority (whether or not having the force of Law) affects or
would affect the amount of capital required or expected to be maintained by any
Lender Party or any corporation controlling any Lender Party, then, within five
Business Days after demand by such Lender Party, Borrower will pay to
Administrative Agent for the benefit of such Lender Party, from time to time as
specified by such Lender Party, such additional amount or amounts which such
Lender Party shall determine to be appropriate to compensate such Lender Party
or any corporation controlling such Lender Party in light of such circumstances,
to the extent that such Lender Party reasonably determines that the amount of
any such capital would be increased or the rate of return on any such capital
would be reduced by or in whole or in part based on the existence of the face
amount of such Lender Party's Loans, Letters of Credit, participations in
Letters of Credit or commitments under this Agreement.
Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit. If
any applicable Law (whether now in effect or hereinafter enacted or promulgated,
including Regulation D) or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of Law):
(a) shall change the basis of taxation of payments to any Lender Party
of any principal, interest, or other amounts attributable to any Eurodollar
Loan or Letter of Credit or otherwise due under this Agreement in respect
of any Eurodollar Loan or Letter of Credit (other than taxes imposed on, or
measured by, the overall net income of such Lender Party or any Applicable
Lending Office of such Lender Party by any jurisdiction in which such
Lender Party or any such Applicable Lending Office is located); or
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Eurodollar Loan or any Letter of Credit (excluding those for which such
Lender Party is fully compensated pursuant to adjustments made in the
definition of Eurodollar Rate) or against assets of, deposits with or for
the account of, or credit extended by, such Lender Party; or
(c) shall impose on any Lender Party or the interbank eurocurrency
deposit market any other condition affecting any Eurodollar Loan or Letter
of Credit, the result
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of which is to increase the cost to any Lender Party of funding or
maintaining any Eurodollar Loan or of issuing any Letter of Credit or to
reduce the amount of any sum receivable by any Lender Party in respect of
any Eurodollar Loan or Letter of Credit by an amount deemed by such Lender
Party to be material,
then such Lender Party shall promptly notify Administrative Agent and Borrower
in writing of the happening of such event and of the amount required to
compensate such Lender Party for such event (on an after-tax basis, taking into
account any taxes on such compensation), whereupon (i) Borrower shall, within
five Business Days after demand therefor by such Lender Party, pay such amount
to Administrative Agent for the account of such Lender Party and (ii) Borrower
may elect, by giving to Administrative Agent and such Lender Party not less than
three Business Days' notice, to Convert all (but not less than all) of any such
Eurodollar Loans into Base Rate Loans.
Section 3.4. Notice; Change of Applicable Lending Office. A Lender Party
shall notify Borrower of any event occurring after the date of this Agreement
that will entitle such Lender Party to compensation under Section 3.2, 3.3, or
3.5 hereof as promptly as practicable, but in any event within 90 days, after
such Lender Party obtains actual knowledge thereof; provided, that (i) if such
Lender Party fails to give such notice within 90 days after it obtains actual
knowledge of such an event, such Lender Party shall, with respect to
compensation payable pursuant to Section 3.2, 3.3, or 3.5 in respect of any
costs resulting from such event, only be entitled to payment under Section 3.2,
3.3, or 3.5 hereof for costs incurred from and after the date 90 days prior to
the date that such Lender Party does give such notice and (ii) such Lender Party
will designate a different Applicable Lending Office for the Loans affected by
such event if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the sole opinion of such Lender Party, be
disadvantageous to such Lender Party, except that such Lender Party shall have
no obligation to designate an Applicable Lending Office located in the United
States of America. Each Lender Party will furnish to Borrower a certificate
setting forth the basis and amount of each request by such Lender Party for
compensation under Section 3.2, 3.3, or 3.5 hereof.
Section 3.5. Availability. If (a) any change in applicable Laws, or in
the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for any
Lender Party to fund or maintain Eurodollar Loans or to issue or participate in
Letters of Credit, or shall materially restrict the authority of any Lender
Party to purchase or take offshore deposits of dollars (i.e., "eurodollars"), or
(b) any Lender Party determines that matching deposits appropriate to fund or
maintain any Eurodollar Loan are not available to it, or (c) any Lender Party
determines that the formula for calculating the Eurodollar Rate does not fairly
reflect the cost to such Lender Party of making or maintaining loans based on
such rate, then, upon notice by such Lender Party to Borrower and Administrative
Agent, Borrower's right to elect Eurodollar Loans from such Lender Party (or, if
applicable, to obtain Letters of Credit) shall be suspended to the extent and
for the duration of such illegality, impracticability or restriction and all
Eurodollar Loans of such Lender Party which are then outstanding or are then the
subject of any Borrowing Notice and which cannot lawfully or practicably be
maintained or
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funded shall immediately become or remain, or shall be funded as, Base Rate
Loans of such Lender Party. Borrower agrees to indemnify each Lender Party and
hold it harmless against all costs, expenses, claims, penalties, liabilities and
damages which may result from any such change in Law, interpretation or
administration. Such indemnification shall be on an after-tax basis, taking into
account any taxes imposed on the amounts paid as indemnity.
Section 3.6. Funding Losses. In addition to its other obligations
hereunder, Borrower will indemnify each Lender Party against, and reimburse each
Lender Party on demand for, any loss or expense incurred or sustained by such
Lender Party (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by a Lender
Party to fund or maintain Eurodollar Loans), as a result of (a) any payment or
prepayment (whether or not authorized or required hereunder) of all or a portion
of a Eurodollar Loan on a day other than the day on which the applicable
Interest Period ends, (b) any payment or prepayment, whether or not required
hereunder, of a Loan made after the delivery, but before the effective date, of
a Continuation/Conversion Notice, if such payment or prepayment prevents such
Continuation/Conversion Notice from becoming fully effective, (c) the failure of
any Loan to be made or of any Continuation/Conversion Notice to become effective
due to any condition precedent not being satisfied or due to any other action or
inaction of any Restricted Person, or (d) any Conversion (whether or not
authorized or required hereunder) of all or any portion of any Eurodollar Loan
into a Base Rate Loan or into a different Eurodollar Loan on a day other than
the day on which the applicable Interest Period ends. Such indemnification
shall be on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.
Section 3.7. Reimbursable Taxes. Borrower covenants and agrees that:
(a) Borrower will indemnify each Lender Party against and reimburse
each Lender Party for all present and future income, stamp and other taxes,
levies, costs and charges whatsoever imposed, assessed, levied or collected
on or in respect of this Agreement or any Eurodollar Loans or Letters of
Credit (whether or not legally or correctly imposed, assessed, levied or
collected), excluding, however, any taxes imposed on or measured by the
overall net income of Administrative Agent or such Lender Party or any
Applicable Lending Office of such Lender Party by any jurisdiction in which
such Lender Party or any such Applicable Lending Office is located (all
such non-excluded taxes, levies, costs and charges being collectively
called "Reimbursable Taxes" in this section). Such indemnification shall
be on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.
(b) All payments on account of the principal of, and interest on, each
Lender Party's Loans and Note, and all other amounts payable by Borrower to
any Lender Party hereunder, shall be made in full without set-off or
counterclaim and shall be made free and clear of and without deductions or
withholdings of any nature by reason of any Reimbursable Taxes, all of
which will be for the account of Borrower. In the event of Borrower being
compelled by Law to make any such deduction or withholding from any payment
to any Lender Party, Borrower shall pay on the due date
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of such payment, by way of additional interest, such additional amounts as
are needed to cause the amount receivable by such Lender Party after such
deduction or withholding to equal the amount which would have been
receivable in the absence of such deduction or withholding. If Borrower
should make any deduction or withholding as aforesaid, Borrower shall
within 60 days thereafter forward to such Lender Party an official receipt
or other official document evidencing payment of such deduction or
withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax with
respect to any Eurodollar Loan, Borrower may elect, by giving to
Administrative Agent and such Lender Party not less than three Business
Days' notice, to Convert all (but not less than all) of any such Eurodollar
Loan into a Base Rate Loan, but such election shall not diminish Borrower's
obligation to pay all Reimbursable Taxes.
(d) Notwithstanding the foregoing provisions of this section, Borrower
shall be entitled, to the extent it is required to do so by Law, to deduct
or withhold (and not to make any indemnification or reimbursement for)
income or other similar taxes imposed by the United States of America
(other than any portion thereof attributable to a change in federal income
tax Laws effected after the date hereof) from interest, fees or other
amounts payable hereunder for the account of any Lender Party, other than a
Lender Party (i) who is a U.S. person for Federal income tax purposes or
(ii) who has the Prescribed Forms on file with Administrative Agent (with
copies provided to Borrower) for the applicable year to the extent
deduction or withholding of such taxes is not required as a result of the
filing of such Prescribed Forms, provided that if Borrower shall so deduct
or withhold any such taxes, it shall provide a statement to Administrative
Agent and such Lender Party, setting forth the amount of such taxes so
deducted or withheld, the applicable rate and any other information or
documentation which such Lender Party may reasonably request for assisting
such Lender Party to obtain any allowable credits or deductions for the
taxes so deducted or withheld in the jurisdiction or jurisdictions in which
such Lender Party is subject to tax. As used in this section, "Prescribed
Forms" means such duly executed forms or statements, and in such number of
copies, which may, from time to time, be prescribed by Law and which,
pursuant to applicable provisions of (x) an income tax treaty between the
United States and the country of residence of the Lender Party providing
the forms or statements, (y) the Code, or (z) any applicable rules or
regulations thereunder, permit Borrower to make payments hereunder for the
account of such Lender Party free of such deduction or withholding of
income or similar taxes.
Section 3.8 Replacement of Lenders. If any Lender Party seeks
reimbursement for increased costs under Sections 3.2 through 3.7, then within
ninety days thereafter -- provided no Event of Default then exists -- Borrower
shall have the right (unless such Lender Party withdraws its request for
additional compensation) to replace such Lender Party by requiring such Lender
Party to assign its Loans and Notes and its commitments hereunder to an Eligible
Transferee reasonably acceptable to Administrative Agent and to Borrower,
provided that: (i) all Obligations of Borrower owing to such Lender Party being
replaced (including such
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increased costs, but excluding principal and accrued interest on the Notes being
assigned) shall be paid in full to such Lender Party concurrently with such
assignment, and (ii) the replacement Eligible Transferee shall purchase the Note
being assigned by paying to such Lender Party a price equal to the principal
amount thereof plus accrued and unpaid interest and accrued and unpaid
commitment fees thereon. In connection with any such assignment Borrower,
Administrative Agent, such Lender Party and the replacement Eligible Transferee
shall otherwise comply with Section 10.5. Notwithstanding the foregoing rights
of Borrower under this section, however, Borrower may not replace any Lender
Party which seeks reimbursement for increased costs under Section 3.2 through
3.7 unless Borrower is at the same time replacing all Lender Parties which are
then seeking such compensation.
Section 3.9. Application of Proceeds After Acceleration. If any Event of
Default shall have occurred and be continuing, and if the Obligations have
become due and payable, all cash collateral held by Administrative Agent under
this Agreement and the proceeds of any sale, disposition, or other realization
by Administrative Agent upon the Collateral (or any portion thereof) pursuant to
the Security Documents, shall be distributed in whole or in part by
Administrative Agent in the following order of priority, unless otherwise
directed by all of the Lenders:
First, to the Administrative Agent, in an amount equal to all
reimbursements to Administrative Agent due and payable as of the date of such
distribution;
Second, to the Lenders, ratably, in an amount equal to all accrued and
unpaid interest and fees owing to the Lenders under this Agreement due and
payable as of the date of such distribution; provided, however, that in case
such proceeds shall be insufficient to pay in full all such Obligations, then to
the payment thereof to the Lenders, ratably, in proportion to its percentage of
the sum of the aggregate amounts of all such Obligations;
Third, to the Lenders, ratably, in an amount equal to all Loans plus LC
Obligations; provided, however, that in the case such proceeds shall be
insufficient to pay in full all such Obligations, then to the payment thereof to
the Lenders, ratably, in proportion to its percentage of the sum of the
aggregate amounts of all such Obligations;
Fourth, to the Lenders, ratably, in an amount equal to all amounts owing to
the Lenders under all Obligations with respect to Hedging Contracts between any
Restricted Person and any Lender or an Affiliate; provided, however, that in
case such proceeds shall be insufficient to pay in full all such Obligations,
then to the payment thereof to the Lenders, ratably, in proportion to its
percentage of the sum of the aggregate amounts of all such Obligations;
Fifth, to the Lenders in an amount equal to all other Obligations;
provided, however, that in the case such proceeds shall be insufficient to pay
in full such Obligations, then to the payment thereof to the Lenders, ratably,
in proportion to its percentage of the sum of the aggregate amounts of all such
Obligations; and
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Sixth, to the extent of any surplus, to the Restricted Persons as their
respective interests may appear, except as may be provided otherwise by law;
it being understood that the Restricted Persons shall remain liable to the
extent of any deficiency between the amount of proceeds of the Collateral and
the aggregate sums referred to in clauses First through Fifth above.
ARTICLE IV - Conditions Precedent to Lending
Section 4.1. Documents to be Delivered. No Lender has any obligation to
make its first Loan, and LC Issuer has no obligation to issue the first Letter
of Credit unless Administrative Agent shall have received all of the following,
at Administrative Agent's office in New York, New York, duly executed and
delivered and in form, substance and date satisfactory to Administrative Agent:
(a) This Agreement and any other documents that Lenders are to execute
in connection herewith.
(b) Each Note.
(c) Each Security Document listed in the Security Schedule.
(d) Certain certificates including:
(i) An "Omnibus Certificate" of the secretary and of the
president of General Partner, which shall contain the names and
signatures of the officers of each Restricted Person authorized to
execute Loan Documents and which shall certify to the truth,
correctness and completeness of the following exhibits attached
thereto: (1) a copy of resolutions duly adopted by the Board of
Directors of General Partner and in full force and effect at the time
this Agreement is entered into, authorizing the execution of this
Agreement and the other Loan Documents delivered or to be delivered in
connection herewith and the consummation of the transactions
contemplated herein and therein, (2) a copy of the charter documents
of each Restricted Person and all amendments thereto, certified by the
appropriate official of such Restricted Person's state of
organization, and (3) a copy of any bylaws or agreement of limited
partnership of each Restricted Person; and
(ii) A certificate of the president and of the chief financial
officer of General Partner, regarding satisfaction of Section 4.2.
(e) A certificate (or certificates) of the due formation, valid
existence and good standing of each Restricted Person in its respective
state of organization, issued by the appropriate authorities of such
jurisdiction, and certificates of each Restricted Person's good standing
and due qualification to do business, issued by appropriate
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officials in any states in which such Restricted Person owns property
subject to Security Documents.
(f) Documents similar to those specified in subsections (d)(i) and (e)
of this section with respect to each Guarantor and the execution by it of
its guaranty of Borrower's Obligations.
(g) A favorable opinion of Michael Patterson, Esq., General Counsel
for Restricted Persons, substantially in the form set forth in Exhibit E-1,
Fulbright & Jaworski L.L.P., special Texas and New York counsel to
Restricted Persons, substantially in the form set forth in Exhibit E-2, and
Andrews & Kurth, special counsel to Restricted Persons, substantially in
the form of Exhibit E-3.
(h) The Initial Financial Statements.
(i) Certificates or binders evidencing Restricted Persons' insurance
in effect on the date hereof.
(j) Copies of such permits and approvals regarding the property and
business of Restricted Persons as Administrative Agent may request.
(k) A certificate signed by the chief executive officer of General
Partner in form and detail acceptable to Administrative Agent confirming
the insurance that is in effect as of the date hereof and certifying that
such insurance is customary for the businesses conducted by Restricted
Persons and is in compliance with the requirements of this Agreement.
(l) Payment of all commitment, facility, agency and other fees
required to be paid to any Lender pursuant to any Loan Documents or any
commitment agreement heretofore entered into.
(m) The Intercreditor Agreement with the lenders party to the
Operating Credit Agreement in the form of Exhibit I hereto.
Section 4.2. Additional Conditions to Initial Credit. No Lender has any
obligation to make its first Loan, and LC Issuer has no obligation to issue the
first Letter of Credit unless, prior to or contemporaneously with the initial
Loan or initial Letter of Credit issuance hereunder, the following conditions
precedent have been satisfied:
(a) The Offering and all of the transactions contemplated under the
Offering Documents shall have been consummated, in compliance with the
terms and conditions thereof and all representations and warranties made by
any party to the Offering Documents shall be true and correct.
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(b) Each Restricted Person shall have executed and delivered the
Operating Credit Agreement and all conditions precedent to the Operating
Credit Agreement shall have been satisfied.
(c) After giving effect to each of the transactions under the Offering
Documents, all representations and warranties made by any Restricted Person
in any Loan Document shall be true on and as of the date of such Loan or
the date of issuance of such Letter of Credit as if such representations
and warranties had been made as of the date of such Loan or the date of
issuance of such Letter of Credit.
(d) General Partner shall have (i) received sufficient funds from the
net proceeds of the Offering in order to fully repay that portion of the
outstanding principal balance of the term loans under the Existing
Agreement that exceeds $175,000,000 and to repay the revolving credit loans
under the Existing Credit Agreement in full, and (ii) made such repayment
of such term loans and such revolving credit loans.
(e) General Partner shall have delivered to Administrative Agent a
Consolidated balance sheet for Plains MLP and its Subsidiaries certified by
the chief financial officer of General Partner, reflecting compliance with
each event specified in Sections 7.11 through 7.16, inclusive.
(f) Plains MLP shall have a market capitalization of at least
$500,000,000, calculated based upon the total issued partnership units of
Plains MLP and the market price of the publicly held portion of such
partnership units of Plains MLP.
(g) Plains MLP shall have a minimum tangible net worth of
$225,000,000.
Section 4.3. Additional Conditions Precedent. No Lender has any
obligation to make any Loan (including its first), and LC Issuer has no
obligation to issue any Letter of Credit (including its first), unless the
following conditions precedent have been satisfied:
(a) All representations and warranties made by any Restricted Person
in any Loan Document shall be true on and as of the date of such Loan or
the date of issuance of such Letter of Credit as if such representations
and warranties had been made as of the date of such Loan or the date of
issuance of such Letter of Credit except to the extent that such
representation or warranty was made as of a specific date or updated,
modified or supplemented as of a subsequent date with the consent of
Majority Lenders.
(b) No Default shall exist at the date of such Loan or the date of
issuance of such Letter of Credit.
(c) No Material Adverse Change shall have occurred to, and no event or
circumstance shall have occurred that could cause a Material Adverse Change
to, Plains
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MLP's or Borrower's Consolidated financial condition or businesses since
the date of the Initial Financial Statements.
(d) Each Restricted Person shall have performed and complied with all
agreements and conditions required in the Loan Documents to be performed or
complied with by it on or prior to the date of such Loan or the date of
issuance of such Letter of Credit.
(e) The making of such Loan or the issuance of such Letter of Credit
shall not be prohibited by any Law and shall not subject any Lender or any
LC Issuer to any penalty or other onerous condition under or pursuant to
any such Law.
(f) Administrative Agent shall have received all documents and
instruments which Administrative Agent has then requested, in addition to
those described in Section 4.1 (including opinions of legal counsel for
Restricted Persons and Administrative Agent; corporate documents and
records; documents evidencing governmental authorizations, consents,
approvals, licenses and exemptions; and certificates of public officials
and of officers and representatives of Borrower and other Persons), as to
(i) the accuracy and validity of or compliance with all representations,
warranties and covenants made by any Restricted Person in this Agreement
and the other Loan Documents, (ii) the satisfaction of all conditions
contained herein or therein, and (iii) all other matters pertaining hereto
and thereto. All such additional documents and instruments shall be
satisfactory to Administrative Agent in form, substance and date.
ARTICLE V - Representations and Warranties
To confirm each Lender's understanding concerning Restricted Persons and
Restricted Persons' businesses, properties and obligations and to induce each
Lender to enter into this Agreement and to extend credit hereunder, Plains MLP
and Borrower represent and warrant to each Lender that:
Section 5.1. No Default. No Restricted Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
Section 5.2. Organization and Good Standing. Each Restricted Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Restricted Person is duly qualified, in good standing, and authorized to do
business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary except where the failure to
so qualify would not cause a Material Adverse Change. Each Restricted Person
has taken all actions and
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procedures customarily taken in order to enter, for the purpose of conducting
business or owning property, each jurisdiction outside the United States wherein
the character of the properties owned or held by it or the nature of the
business transacted by it makes such actions and procedures necessary except
where the failure to so qualify would not cause a Material Adverse Change.
Section 5.3. Authorization. Each Restricted Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.
Section 5.4. No Conflicts or Consents. The execution and delivery by the
various Restricted Persons of the Loan Documents and Offering Documents to which
each is a party, the performance by each of its obligations under such Loan
Documents and Offering Documents, and the consummation of the transactions
contemplated by the various Loan Documents and various Offering Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Restricted Person or any of its Affiliates, or
(3) any agreement, judgment, license, order or permit applicable to or binding
upon any Restricted Person or any of its Affiliates, (ii) result in the
acceleration of any Indebtedness owed by any Restricted Person or any of its
Affiliates, or (iii) result in or require the creation of any Lien upon any
assets or properties of any Restricted Person or any of its Affiliates except as
expressly contemplated in the Loan Documents. Except as expressly contemplated
in the Loan Documents or the Offering Documents, no consent, approval,
authorization or order of, and no notice to or filing with, any Tribunal or
third party is required in connection with the execution, delivery or
performance by any Restricted Person of any Loan Document or Offering Document
or to consummate any transactions contemplated by the Loan Documents and the
Offering Documents.
Section 5.5. Enforceable Obligations. This Agreement is, and the other
Loan Documents and the Offering Documents when duly executed and delivered will
be, legal, valid and binding obligations of each Restricted Person which is a
party hereto or thereto, enforceable in accordance with their terms except as
such enforcement may be limited by bankruptcy, insolvency or similar Laws of
general application relating to the enforcement of creditors' rights.
Section 5.6. Initial Financial Statements. Plains MLP has heretofore
delivered to each Lender true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present Plains
MLP's Consolidated financial position at the date thereof and the Consolidated
results of Plains MLP's operations and Consolidated cash flows for the period
thereof. Since the date of the annual Initial Financial Statements no Material
Adverse Change has occurred, except as reflected in the quarterly Initial
Financial Statements or in the Disclosure Schedule. All Initial Financial
Statements were prepared in accordance with GAAP.
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Section 5.7. Other Obligations and Restrictions. No Restricted Person
has any outstanding Liabilities of any kind (including contingent obligations,
tax assessments, and unusual forward or long-term commitments) which are, in the
aggregate, material to Plains MLP or material with respect to Plains MLP's
Consolidated financial condition and not shown in the Initial Financial
Statements or disclosed in the Disclosure Schedule. Except as shown in the
Initial Financial Statements or disclosed in the Disclosure Schedule, no
Restricted Person is subject to or restricted by any franchise, contract, deed,
charter restriction, or other instrument or restriction which could cause a
Material Adverse Change.
Section 5.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Restricted Person to any
Lender in connection with the negotiation of this Agreement or in connection
with any transaction contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading as of the date made or deemed made. All
written information furnished after the date hereof by or on behalf of any
Restricted Person to Administrative Agent or any Lender Party in connection with
this Agreement and the other Loan Documents and the transactions contemplated
hereby and thereby will be true, complete and accurate in every material respect
or based on reasonable estimates on the date as of which such information is
stated or certified. There is no fact known to any Restricted Person that has
not been disclosed to each Lender in writing which could cause a Material
Adverse Change.
Section 5.9. Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Restricted Person threatened, against any Restricted Person
before any Tribunal which could cause a Material Adverse Change, and (ii) there
are no outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Restricted Person or any Restricted Person's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
Section 5.10. Labor Disputes and Acts of God. Except as disclosed in the
Disclosure Schedule, neither the business nor the properties of any Restricted
Person has been affected by any fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy or other casualty (whether or not covered by insurance), which
could cause a Material Adverse Change.
Section 5.11. ERISA Plans and Liabilities. All currently existing ERISA
Plans are listed in the Disclosure Schedule. Except as disclosed in the Initial
Financial Statements or in the Disclosure Schedule, no Termination Event has
occurred with respect to any ERISA Plan and all ERISA Affiliates are in
compliance with ERISA in all material respects. No ERISA Affiliate is required
to contribute to, or has any other absolute or contingent liability in respect
of, any "multiemployer plan" as defined in Section 4001 of ERISA. Except as set
forth in the Disclosure Schedule: (i) no "accumulated funding deficiency" (as
defined in Section 412(a) of the Code) exists with respect to any ERISA Plan,
whether or not waived by the Secretary of the Treasury or his delegate, and (ii)
the current value of each ERISA Plan's benefits does not
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exceed the current value of such ERISA Plan's assets available for the payment
of such benefits by more than $500,000.
Section 5.12. Compliance with Laws. Except as set forth in the
Disclosure Schedule, each Restricted Person is conducting its businesses in
compliance with all applicable Laws, including Environmental Laws, and has all
permits, licenses and authorizations required in connection with the conduct of
its businesses, except to the extent failure to have any such permit, license or
authorization could not cause a Material Adverse Change. Each Restricted Person
is in compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Law, including applicable
Environmental Law, or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply could not cause a Material
Adverse Change. Without limiting the foregoing, each Restricted Person (i) has
filed and maintained all tariffs applicable to its business with each applicable
commission, (ii) and all such tariffs are in compliance with all Laws
administered or promulgated by each applicable commission and (iii) has imposed
charges on its customers in compliance with such tariffs, all contracts
applicable to its business and all applicable Laws. As used herein,
"commission" includes the Federal Energy Regulatory Commission, the Public
Utility Commission of the State of California and each other federal, state or
local governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any Restricted Person or its
properties.
Section 5.13. Environmental Laws. As used in this section: "CERCLA"
means the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, "CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System List of the Environmental
Protection Agency, and "Release" has the meaning given such term in 42 U.S.C.
(S) 9601(22). Without limiting the provisions of Section 5.12, and except as
set forth in the Disclosure Schedule:
(a) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed, and no investigation or review is pending or threatened by any
Tribunal or any other Person with respect to any of the following which in the
aggregate could cause a Material Adverse Change: (i) any alleged generation,
treatment, storage, recycling, transportation, disposal, or Release of any
Hazardous Materials, either by any Restricted Person or on any property owned by
any Restricted Person, (ii) any remedial action which might be needed to respond
to any such alleged generation, treatment, storage, recycling, transportation,
disposal, or Release, or (iii) any alleged failure by any Restricted Person to
have any permit, license or authorization required in connection with the
conduct of its business or with respect to any such generation, treatment,
storage, recycling, transportation, disposal, or Release.
(b) No Restricted Person otherwise has any known material contingent
liability in connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials.
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(c) No Restricted Person has handled any Hazardous Materials, other than as
a generator, on any properties now or previously owned or leased by any
Restricted Person to an extent that such handling has caused, or could cause, a
Material Adverse Change.
(d) Except to the extent that the following in the aggregate has not caused
and could not cause a Material Adverse Change:
(i) no PCBs are or have been present at any properties now or
previously owned or leased by any Restricted Person;
(ii) no asbestos is or has been present at any properties now or
previously owned or leased by any Restricted Person;
(iii) there are no underground storage tanks for Hazardous Materials,
active or abandoned, at any properties now or previously owned or leased by
any Restricted Person; and
(iv) no Hazardous Materials have been Released at, on or under any
properties now or previously owned or leased by any Restricted Person.
(e) No Restricted Person has transported or arranged for the transportation
of any Hazardous Material to any location which is listed on the National
Priorities List under CERCLA, any location listed for possible inclusion on the
National Priorities List by the Environmental Protection Agency in CERCLIS, nor,
except to the extent that has not caused and could not cause a Material Adverse
Change, any location listed on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations which may
lead to claims against any Restricted Person for clean-up costs, remedial work,
damages to natural resources or for personal injury claims, including, but not
limited to, claims under CERCLA.
(f) No property now or previously owned or leased by any Restricted Person
is listed or proposed for listing on the National Priority list promulgated
pursuant to CERCLA, in CERCLIS, nor, except to the extent that has not caused
and could not cause a Material Adverse Change, on any similar state list of
sites requiring investigation or clean-up.
(g) There are no Liens arising under or pursuant to any Environmental Laws
on any of the real properties or properties owned or leased by any Restricted
Person, and no government actions of which Borrower is aware have been taken or
are in process which could subject any of such properties to such Liens; nor
would any Restricted Person be required to place any notice or restriction
relating to the presence of Hazardous Materials at any properties owned by it in
any deed to such properties.
(h) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses for ground water or soil contamination relating
to the Release of Hazardous Materials conducted by or which are in the
possession of any Restricted Person in relation to
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any properties or facility now or previously owned or leased by any Restricted
Person which have not been made available to Administrative Agent.
Section 5.14. Names and Places of Business. No Restricted Person has,
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule, the chief executive office and
principal place of business of each Restricted Person are (and for the preceding
five years have been) located at the address of Borrower set out in Section
10.3. Except as indicated in the Disclosure Schedule, no Restricted Person has
any other office or place of business.
Section 5.15. Borrower's Subsidiaries. Borrower does not presently have
any Subsidiary or own any stock in any other corporation or association except
those listed in the Disclosure Schedule. Neither Borrower nor any Restricted
Person is a member of any general or limited partnership, joint venture or
association of any type whatsoever except those listed in the Disclosure
Schedule. Borrower owns, directly or indirectly, the equity interest in each of
its Subsidiaries which is indicated in the Disclosure Schedule.
Section 5.16. Title to Properties; Licenses. Each Restricted Person has
good and defensible title to all of its material properties and assets, free and
clear of all Liens other than Permitted Liens and of all impediments to the use
of such properties and assets in such Restricted Person's business. Each
Restricted Person possesses all licenses, permits, franchises, patents,
copyrights, trademarks and trade names, and other intellectual property (or
otherwise possesses the right to use such intellectual property without
violation of the rights of any other Person) which are necessary to carry out
its business as presently conducted and as presently proposed to be conducted
hereafter, and no Restricted Person is in violation in any material respect of
the terms under which it possesses such intellectual property or the right to
use such intellectual property.
Section 5.17. Government Regulation. Neither Borrower nor any other
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Investment Company Act of 1940 (as any
of the preceding acts have been amended) or any other Law which regulates the
incurring by such Person of Indebtedness, including Laws relating to common
contract carriers or the sale of electricity, gas, steam, water or other public
utility services. Neither Borrower nor any other Restricted Person is subject
to regulation under the Federal Power Act which would violate, result in a
default of, or prohibit the effectiveness or the performance of any of the
provisions of the Loan Documents.
Section 5.18. Insider. No Restricted Person, nor any Person having
"control" (as that term is defined in 12 U.S.C. (S) 375b(9) or in regulations
promulgated pursuant thereto) of any Restricted Person, is a "director" or an
"executive officer" or "principal shareholder" (as those terms are defined in 12
U.S.C. (S) 375b(8) or (9) or in regulations promulgated pursuant thereto) of any
Lender, of a bank holding company of which any Lender is a Subsidiary or of any
Subsidiary of a bank holding company of which any Lender is a Subsidiary.
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Section 5.19. Solvency. Upon giving effect to the issuance of the Notes,
the execution of the Loan Documents by Borrower and each Guarantor and the
consummation of the transactions contemplated hereby, Borrower and each
Guarantor will be solvent (as such term is used in applicable bankruptcy,
liquidation, receivership, insolvency or similar Laws).
Section 5.20. Credit Arrangements. The Disclosure Schedule contains a
complete and correct list, as of the date of this Agreement, of each credit
agreement, loan agreement, indenture, purchase agreement, guaranty or other
arrangement providing for or otherwise relating to any Indebtedness or any
extension of credit (or commitment for any extension of credit) to, or guaranty
by, any Restricted Person, or to which any Restricted Person is subject, other
than the Loan Documents, and the aggregate principal or face amount outstanding
or which may become outstanding under each such arrangement is correctly
described in the Disclosure Schedule. No Restricted Person is subject to any
restriction under any credit agreement, loan agreement, indenture, purchase
agreement, guaranty or other arrangement providing for or otherwise relating to
any Indebtedness or any extension of credit (or commitment for any extension of
credit) to, or guaranty by, any Affiliate.
ARTICLE VI - Affirmative Covenants
To conform with the terms and conditions under which each Lender is willing
to have credit outstanding to Borrower, and to induce each Lender to enter into
this Agreement and extend credit hereunder, Plains MLP and Borrower covenant and
agree that until the full and final payment of the Obligations and the
termination of this Agreement, unless Majority Lenders, or all Lenders as
required under Section 10.1, have previously agreed otherwise:
Section 6.1. Payment and Performance. Each Restricted Person will pay
all amounts due under the Loan Documents, to which it is a party, in accordance
with the terms thereof and will observe, perform and comply with every covenant,
term and condition expressed in the Loan Documents to which it is a party.
Section 6.2. Books, Financial Statements and Reports. Each Restricted
Person will at all times maintain full and accurate books of account and
records. Plains MLP will maintain and will cause its Subsidiaries to maintain a
standard system of accounting, will maintain its Fiscal Year, and will furnish
the following statements and reports to Administrative Agent, in such number of
counterparts as Administrative Agent may request, at Restricted Persons'
expense:
(a) As soon as available, and in any event within ninety (90) days
after the end of each Fiscal Year (i) complete Consolidated financial
statements of Plains MLP together with all notes thereto, prepared in
reasonable detail in accordance with GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards, by
Price Waterhouse Coopers, or other independent certified public accountants
selected by General Partner and acceptable to Majority Lenders, stating
that such Consolidated financial statements have been so prepared and (ii)
supporting
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unaudited consolidating balance sheets and statements of income of each
other Restricted Person. These financial statements shall contain a
Consolidated and consolidating balance sheet as of the end of such Fiscal
Year and Consolidated and consolidating statements of earnings for such
Fiscal Year, each setting forth in comparative form the corresponding
figures for the preceding Fiscal Year. In addition, within ninety (90) days
after the end of each Fiscal Year Plains MLP will furnish a certificate
signed by such accountants (i) stating that they have read this Agreement,
(ii) containing calculations showing compliance (or non-compliance) at the
end of such Fiscal Year with the requirements of Sections 7.11 through
7.15, inclusive, and (iii) further stating that in making their examination
and reporting on the Consolidated financial statements described above they
obtained no knowledge of any Default existing at the end of such Fiscal
Year, or, if they did so conclude that a Default existed, specifying its
nature and period of existence.
(b) As soon as available, and in any event within forty-five (45) days
after the end of each of the first three Fiscal Quarters of each Fiscal
Year, (i) Plains MLP's Consolidated balance sheet as of the end of such
Fiscal Quarter and Consolidated statements of Plains MLP's earnings and
cash flows for such Fiscal Quarter and for the period from the beginning of
the then current Fiscal Year to the end of such Fiscal Quarter, and (ii)
supporting consolidating balance sheets and statements of income of each
other Restricted Person, all in reasonable detail and prepared in
accordance with GAAP, subject to changes resulting from normal year-end
adjustments; and as soon as available, and in any event within forty-five
(45) days after the end of the last Fiscal Quarter of each Fiscal Year,
Plains MLP's unaudited Consolidated balance sheet as of the end of such
Fiscal Quarter and income statement for such Fiscal Quarter and for the
period from the beginning of the current Fiscal Year to the end of such
Fiscal Quarter. In addition Plains MLP will, together with each such set
of financial statements and each set of financial statements furnished
under subsection (a) of this section, furnish a certificate in the form of
Exhibit D signed by the chief financial officer of General Partner stating
that such financial statements are accurate and complete in all material
respects (subject to normal year-end adjustments), stating that he has
reviewed the Loan Documents, containing calculations showing compliance (or
non-compliance) at the end of such Fiscal Quarter with the requirements of
Sections 7.11through 7.15, inclusive and stating that no Default exists at
the end of such Fiscal Quarter or at the time of such certificate or
specifying the nature and period of existence of any such Default.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by Plains MLP to its
unit holders and all registration statements, periodic reports and other
statements and schedules filed by Plains MLP with any securities exchange,
the Securities and Exchange Commission or any similar governmental
authority.
(d) As soon as available, and in any event within ninety (90) days
after the end of each Fiscal Year, a five-year business and financial plan
for Plains MLP (in form reasonably satisfactory to Administrative Agent),
prepared by a senior financial
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officer thereof, setting forth for the first year thereof, quarterly
financial projections and budgets for Plains MLP, and thereafter yearly
financial projections and budgets for the next four Fiscal Years.
(e) As soon as available, and in any event within forty-five (45) days
after the end of each month, throughput volume reports setting forth in
detail pipeline volumes of crude oil delivered by Restricted Persons for
such month in connection with, and transportation fees charged and margins
realized by the Restricted Persons for such month delivered through all
pipeline facilities of Plains MLP and its Subsidiaries.
(f) As soon as available, and in any event within forty-five (45) days
after the end of each Fiscal Quarter, a report setting forth volumes and
margins for all marketing activities of Restricted Persons.
(g) As soon as available, and in any event within thirty (30) days
after the end of each Fiscal Year, an environmental compliance certificate
signed by the president or chief executive officer of General Partner in
the form attached hereto as Exhibit F. Further, if requested by
Administrative Agent, Restricted Persons shall permit and cooperate with an
environmental and safety review made in connection with the operations of
Restricted Persons' properties one time during each Fiscal Year beginning
with the Fiscal Year 1999, by Pilko & Associates, Inc. or other consultants
selected by Administrative Agent which review shall, if requested by
Administrative Agent, be arranged and supervised by environmental legal
counsel for Administrative Agent, all at Restricted Persons' cost and
expense. The consultant shall render a verbal or written report, as
specified by Administrative Agent, based upon such review at Restricted
Persons' cost and expense and a copy thereof will be provided to Restricted
Persons.
(h) Concurrently with the annual renewal of Restricted Persons'
insurance policies, Restricted Persons shall at their own cost and expense,
if requested by Administrative Agent in writing, cause a certificate or
report to be issued by Administrative Agent's professional insurance
consultants or other insurance consultants satisfactory to Administrative
Agent certifying that Restricted Persons' insurance for the next succeeding
year after such renewal (or for such longer period for which such insurance
is in effect) complies with the provisions of this Agreement and the
Security Documents.
Section 6.3. Other Information and Inspections. In each case subject to
the last sentence of this Section 6.3, each Restricted Person will furnish to
each Lender any information which Administrative Agent or any Lender may from
time to time request concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with Restricted Persons' businesses and
operations. In each case subject to the last sentence of this Section 6.3, each
Restricted Person will permit representatives appointed by Administrative Agent
(including independent accountants, auditors, agents, attorneys,
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appraisers and any other Persons) to visit and inspect during normal business
hours any of such Restricted Person's property, including its books of account,
other books and records, and any facilities or other business assets, and to
make extra copies therefrom and photocopies and photographs thereof, and to
write down and record any information such representatives obtain, and each
Restricted Person shall permit Administrative Agent or its representatives to
investigate and verify the accuracy of the information furnished to
Administrative Agent or any Lender in connection with the Loan Documents and to
discuss all such matters with its officers, employees and, upon prior notice to
Borrower, its representatives. Each of the foregoing inspections shall be made
subject to compliance with applicable safety standards and the same conditions
applicable to any Restricted Person in respect of property of that Restricted
Person on the premises of Persons other than a Restricted Person or an Affiliate
of a Restricted Person, and all information, books and records furnished or
requested to be furnished, or of which copies, photocopies or photographs are
made or requested to be made, all information to be investigated or verified and
all discussions conducted with any officer, employee or representative of any
Restricted Person shall be subject to any applicable attorney-client privilege
exceptions which the Restricted Person determines is reasonably necessary and
compliance with conditions to disclosures under non-disclosure agreements
between any Restricted Person and Persons other than a Restricted Person or an
Affiliate of a Restricted Person and the express undertaking of each Person
acting at the direction of or on behalf of any Lender Party to be bound by the
confidentiality provisions of Section 10.6 of this Agreement.
Section 6.4. Notice of Material Events and Change of Address. Each
Restricted Person will notify each Lender Party, not later than five (5)
Business Days after any executive officer of Restricted Persons has knowledge
thereof, stating that such notice is being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any Indebtedness owed by any
Restricted Person or of any default by any Restricted Person under any
indenture, mortgage, agreement, contract or other instrument to which any
of them is a party or by which any of them or any of their properties is
bound, if such acceleration or default could cause a Material Adverse
Change,
(d) the occurrence of any Termination Event,
(e) any claim of $1,000,000 or more, any notice of potential liability
under any Environmental Laws which might be reasonably likely to exceed
such amount, or any other material adverse claim asserted against any
Restricted Person or with respect to any Restricted Person's properties
taken as a whole, and
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(f) the filing of any suit or proceeding against any Restricted Person
in which an adverse decision could cause a Material Adverse Change.
Upon the occurrence of any of the foregoing Restricted Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default or Termination Event, to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Restricted Persons will
also notify Administrative Agent and Administrative Agent's counsel in writing
at least twenty Business Days prior to the date that any Restricted Person
changes its name or the location of its chief executive office or principal
place of business or the place where it keeps its books and records concerning
the Collateral, furnishing with such notice any necessary financing statement
amendments or requesting Administrative Agent and its counsel to prepare the
same.
Section 6.5. Maintenance of Properties. Each Restricted Person will
maintain, preserve, protect, and keep all Collateral and all other property used
or useful in the conduct of its business in good condition (ordinary wear and
tear excepted) and in compliance with all applicable Laws, and will from time to
time make all repairs, renewals and replacements needed to enable the business
and operations carried on in connection therewith to be promptly and
advantageously conducted at all times.
Section 6.6. Maintenance of Existence and Qualifications. Each
Restricted Person will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable Law, except where the
failure so to qualify will not cause a Material Adverse Change.
Section 6.7. Payment of Trade Liabilities, Taxes, etc. Each Restricted
Person will (a) timely file all required tax returns (including any extensions);
(b) timely pay all taxes, assessments, and other governmental charges or levies
imposed upon it or upon its income, profits or property; (c) within one hundred
twenty (120) days after the date such goods are delivered or such services are
rendered, pay all Liabilities owed by it on ordinary trade terms to vendors,
suppliers and other Persons providing goods and services used by it in the
ordinary course of its business; (d) pay and discharge when due all other
Liabilities now or hereafter owed by it; and (e) maintain appropriate accruals
and reserves for all of the foregoing in accordance with GAAP. Each Restricted
Person may, however, delay paying or discharging any of the foregoing so long as
it is in good faith contesting the validity thereof by appropriate proceedings,
if necessary, and has set aside on its books adequate reserves therefor which
are required by GAAP.
Section 6.8. Insurance. Each Restricted Person shall at all times
maintain insurance for its property in accordance with the Insurance Schedule,
which insurance shall be by financially sound and reputable insurers. Borrower
will maintain any additional insurance coverage as described in the respective
Security Documents. Upon demand by Administrative Agent any insurance policies
covering Collateral shall be endorsed (a) to provide for payment of losses to
Administrative Agent as its interests may appear, (b) to provide that such
policies
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may not be canceled or reduced or affected in any material manner for any reason
without fifteen days prior notice to Administrative Agent, and (c) to provide
for any other matters specified in any applicable Security Document or which
Administrative Agent may reasonably require. Each Restricted Person shall at all
times maintain insurance against its liability for injury to persons or property
in accordance with the Insurance Schedule, which insurance shall be by
financially sound and reputable insurers. Without limiting the foregoing, each
Restricted Person shall at all time maintain liability insurance in accordance
with the Insurance Schedule.
Section 6.9. Performance on Borrower's Behalf. If any Restricted Person
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Administrative Agent may
pay the same after notice of such payment by Administrative Agent is given to
Borrower. Borrower shall immediately reimburse Administrative Agent for any
such payments and each amount paid by Administrative Agent shall constitute an
Obligation owed hereunder which is due and payable on the date such amount is
paid by Administrative Agent.
Section 6.10. Interest. Borrower hereby promises to each Lender to pay
interest at the Default Rate on all Obligations (including Obligations to pay
fees or to reimburse or indemnify any Lender) which Borrower has in this
Agreement promised to pay to such Lender and which are not paid when due. Such
interest shall accrue from the date such Obligations become due until they are
paid.
Section 6.11. Compliance with Agreements and Law. Each Restricted Person
will perform all material obligations it is required to perform under the terms
of each indenture, mortgage, deed of trust, security agreement, lease, and
franchise, and each material agreement, contract or other instrument or
obligation to which it is a party or by which it or any of its properties is
bound. Each Restricted Person will conduct its business and affairs in
compliance with all Laws applicable thereto.
Section 6.12. Environmental Matters; Environmental Reviews.
(a) Each Restricted Person will comply in all material respects with all
Environmental Laws now or hereafter applicable to such Restricted Person as well
as all contractual obligations and agreements with respect to environmental
remediation or other environmental matters, and shall obtain, at or prior to the
time required by applicable Environmental Laws, all environmental, health and
safety permits, licenses and other authorizations necessary for its operations
and will maintain such authorizations in full force and effect.
(b) Each Restricted Person will promptly furnish to Administrative Agent
all written notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by any Restricted Person or
General Partner, or of which it has notice, pending or threatened against any
Restricted Person, the potential liability of which exceeds $1,000,000 or would
cause a Material Adverse Change if resolved adversely against
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any Restricted Person, by any governmental authority with respect to any alleged
violation of or non-compliance with any Environmental Laws or any permits,
licenses or authorizations in connection with its ownership or use of its
properties or the operation of its business.
(c) Each Restricted Person will promptly furnish to Administrative Agent
all requests for information, notices of claim, demand letters, and other
notifications, received by any Restricted Person or General Partner in
connection with its ownership or use of its properties or the conduct of its
business, relating to potential responsibility with respect to any investigation
or clean-up of Hazardous Material at any location, the potential liability of
which exceeds $1,000,000 or would cause a Material Adverse Change if resolved
adversely against any Restricted Person.
Section 6.13. Evidence of Compliance. Subject to the last sentence of
Section 6.3, each Restricted Person will furnish to each Lender at such
Restricted Person's expense all evidence which Administrative Agent from time to
time reasonably requests in writing as to the accuracy and validity of or
compliance with all representations, warranties and covenants made by any
Restricted Person in the Loan Documents, the satisfaction of all conditions
contained therein, and all other matters pertaining thereto.
Section 6.14. Agreement to Deliver Security Documents. Restricted
Persons will deliver to further secure the Obligations whenever requested by
Administrative Agent in its sole and absolute discretion, deeds of trust,
mortgages, chattel mortgages, security agreements, financing statements and
other Security Documents in form and substance satisfactory to Administrative
Agent for the purpose of granting, confirming, and perfecting first and prior
liens or security interests in any real or personal property now owned or
hereafter acquired by any Restricted Person.
Section 6.15. Perfection and Protection of Security Interests and Liens.
Each Restricted Person will from time to time deliver to Administrative Agent
any financing statements, continuation statements, extension agreements and
other documents, properly completed and executed (and acknowledged when
required) by Restricted Persons in form and substance satisfactory to
Administrative Agent, which Administrative Agent requests for the purpose of
perfecting, confirming, or protecting any Liens or other rights in Collateral
securing any Obligations.
Section 6.16. Bank Accounts; Offset. To secure the repayment of the
Obligations, each Restricted Person hereby grants to each Lender a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of any Lender at common Law, under the
Loan Documents, or otherwise, and each of which shall be upon and against (a)
any and all moneys, securities or other property (and the proceeds therefrom) of
such Restricted Person now or hereafter held or received by or in transit to any
Lender from or for the account of such Restricted Person, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, (b) any and
all deposits (general or special, time or demand, provisional or final) of such
Restricted Person with any Lender, and (c) any other credits and claims of such
Restricted Person at any time existing against any Lender, including
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claims under certificates of deposit. At any time and from time to time during
the continuance of any Event of Default, each Lender is hereby authorized to
foreclose upon, or to offset against the Obligations then due and payable (in
either case without notice to any Restricted Person), any and all items herein
above referred to. The remedies of foreclosure and offset are separate and
cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
Section 6.17. Guaranties of Subsidiaries. Each Subsidiary of Plains MLP
now existing or created, acquired or coming into existence after the date hereof
shall, promptly upon request by Administrative Agent, execute and deliver to
Administrative Agent an absolute and unconditional guaranty of the timely
repayment of the Obligations and the due and punctual performance of the
obligations of Borrower hereunder, which guaranty shall be satisfactory to
Administrative Agent in form and substance. Each Subsidiary of Plains MLP
existing on the date hereof shall duly execute and deliver such a guaranty prior
to the making of any Loan hereunder. Plains MLP will cause each of its
Subsidiaries to deliver to Administrative Agent, simultaneously with its
delivery of such a guaranty, written evidence satisfactory to Administrative
Agent and its counsel that such Subsidiary has taken all corporate or
partnership action necessary to duly approve and authorize its execution,
delivery and performance of such guaranty and any other documents which it is
required to execute.
Section 6.18. Interest Rate Hedging Agreements. Borrower shall at all
times maintain interest rate Hedging Contracts which are: (a) for combined
durations as of any day of not less than 24 months following such time, (b) in
combined notional amounts not less than fifty percent (50%) of the outstanding
principal balance of the Term Loans, (c) in compliance with Section 7.3, and (d)
otherwise on terms acceptable to Administrative Agent in its sole discretion.
Section 6.19. Compliance with Agreements. Each Restricted Person shall
observe, perform or comply with any agreement with any Person or any term or
condition of any instrument, if such agreement or instrument is materially
significant to such Restricted Person or to Restricted Persons on a Consolidated
basis or materially significant to any Guarantor, and such failure is not
remedied within the applicable period of grace (if any) provided in such
agreement or instrument.
Section 6.20. Year 2000.
(a) Restricted Persons (i) no later than December 31, 1998 shall have
completed the analysis of the operations of Restricted Persons and their
Affiliates that could be adversely affected by failure to become Year 2000
compliant (that is, that computer applications, imbedded microchips and other
systems will be able to perform date-sensitive functions prior to and after
December 31, 1999) and developed a plan for Restricted Persons and their
Affiliates for becoming Year 2000 compliant in a timely manner, and (ii) shall
at all times after development of such plan implement such plan in all material
respects, in a timely manner, and in accordance with the schedule of such plan.
Contemporaneously with the delivery of each compliance certificate under Section
6.2 (a) or (b) on and after December 31,
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1998, Each Restricted Person shall certify that it reasonably believes that
Restricted Persons and their Affiliates will become Year 2000 compliant for
their operations on a timely basis except to the extent that a failure to do so
could not reasonably be expected to cause a Material Adverse Change.
(b) Contemporaneously with the delivery of each compliance certificate
under Section 6.2 (a) or (b) on and after December 31, 1998, Plains MLP shall
certify that it reasonably believes any suppliers and vendors that are material
to the operations of Plains MLP or its Subsidiaries and Affiliates will be Year
2000 compliant for their own computer applications except to the extent that a
failure to do so could not reasonably be expected to cause a Material Adverse
Change.
Section 6.21. Rents. By the terms of the various Security Documents,
certain Restricted Persons are and will be assigning to Administrative Agent,
for the benefit of Lender Parties, all of the "Rents" (as defined therein)
accruing to the property covered thereby. Notwithstanding any such assignments,
so long as no Default has occurred and is continuing, (i) such Restricted
Persons may continue to receive and collect from the payors of such Rents all
such Rents, subject, however, to the Liens created under the Security Documents,
which Liens are hereby affirmed and ratified, and free and clear of such Liens,
use the proceeds of the Rents, and (ii) the Administrative Agent will not notify
the obligors of such Rents or take any other action to cause proceeds thereof to
be remitted to the Administrative Agent. Upon the occurrence of a Default,
Administrative Agent may exercise all rights and remedies granted under the
Security Documents, including the right to obtain possession of all Rents then
held by such Restricted Persons or to receive directly from the payors of such
Rents all other Rents until such time as such Default is no longer continuing.
If the Administrative Agent shall receive any Rent proceeds from any payor at
any time other than during the continuance of a Default, then it shall notify
Borrower thereof and (i) upon request and pursuant to the instructions of
Borrower, it shall, if no Default is then continuing, remit such proceeds to the
Borrower and (ii) at the request and expense of Borrower, execute and deliver a
letter to such payors confirming Restricted Persons' right to receive and
collect Rents until otherwise notified by Administrative Agent. In no case
shall any failure, whether purposed or inadvertent, by Administrative Agent to
collect directly any such Rents constitute in any way a waiver, remission or
release of any of its rights under the Security Documents, nor shall any release
of any Rents by Administrative Agent to such Restricted Persons constitute a
waiver, remission, or release of any other Rents or of any rights of
Administrative Agent to collect other Rents thereafter.
Section 6.22. Annual Repayment of Working Capital Borrowings. At least once
each calendar year, Borrower shall repay Working Capital Borrowings in an amount
sufficient to reduce the aggregate outstanding Working Capital Borrowings to an
amount which does not exceed $8 million for a period of 15 consecutive calendar
days.
ARTICLE VII - Negative Covenants
To conform with the terms and conditions under which each Lender is willing
to have credit outstanding to Borrower, and to induce each Lender to enter into
this Agreement and make the Loans, Plains MLP and Borrower covenant and agree
that until the full and final payment of the Obligations and the termination of
this Agreement, unless Majority Lenders, or all Lenders as required under
Section 10.1, have previously agreed otherwise:
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Section 7.1. Indebtedness. No Restricted Person will in any manner owe
or be liable for Indebtedness except:
(a) the Obligations;
(b) Indebtedness arising under Hedging Contracts permitted under Section
7.3;
(c) Indebtedness of any Restricted Person owing to another Restricted
Person;
(d) Liabilities with respect to obligations to deliver crude oil or to
render terminaling or storage services in consideration for advance payments to
a Restricted Person provided such delivery or rendering, as applicable, is to be
made within 60 days after such payment;
(e) Operating leases, provided that the annual rentals and other
obligations thereunder in the aggregate in respect of all Related Persons do not
exceed $_________;
(f) Indebtedness under the Operating Credit Agreement;
(g) guaranties by Plains MLP of trade payables of Operating incurred and
paid in the ordinary course of business on ordinary trade terms; and
(h) other Indebtedness not to exceed in the aggregate in respect of all
Related Persons the principal amount of $25,000,000 at any one time outstanding.
Section 7.2. Limitation on Liens. No Restricted Person will create,
assume or permit to exist any Lien upon any of the properties or assets which it
now owns or hereafter acquires, except the following ("Permitted Liens"):
(a) Liens created pursuant to this Agreement or the Security Documents and
Liens existing on the date of this Agreement and listed in the Disclosure
Schedule or Liens created pursuant to the Operating Credit Agreement, subject to
the terms of the Intercreditor Agreement referred to in Section 4.1(m).
(b) Liens imposed by any governmental authority for taxes, assessments or
charges not yet due or the validity of which is being contested in good faith
and by appropriate proceedings, if necessary, for which adequate reserves are
maintained on the books of any Restricted Person in accordance with GAAP;
(c) pledges or deposits under worker's compensation, unemployment insurance
or other social security legislation;
(d) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
landlord's, or other like Liens (including without limitation, Liens on property
of Operating in the possession of storage facilities, pipelines or barges)
arising in the ordinary course of business
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for amounts which are not more than 60 days past due or the validity of which is
being contested in good faith and by appropriate proceedings, if necessary, and
for which adequate reserves are maintained on the books of any Restricted Person
in accordance with GAAP;
(e) deposits of cash or securities to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(f) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business and encumbrances consisting of
zoning restrictions, easements, licenses, restrictions on the use of real
property or minor imperfections in title thereto which, in the aggregate, are
not material in amount, and which do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary conduct of
the business of any Restricted Person;
(g) Liens in respect of operating leases and Capital Leases permitted under
Section 7.1;
(h) Liens upon any property or assets acquired after the date hereof by a
Restricted Person, each of which either (i) existed on such property or asset
before the time of its acquisition and was not created in anticipation thereof,
or (ii) was created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
the cost of construction) of such property or asset; provided that no such Lien
shall extend to or cover any property or asset of a Restricted Person other than
the property or asset so acquired (or constructed) and the Indebtedness secured
thereby is permitted under Section 7.1(d) hereof; and any extension, renewal,
refinancing, refunding or replacement (or successive extensions, renewals,
refinancings, refundings or replacements), in whole or part, of the foregoing,
provided, however, that such Liens shall not cover or secure any additional
Indebtedness, obligations, property or asset;
(i) rights reserved to or vested in any governmental authority by the terms
of any right, power, franchise, grant, license or permit, or by any provision of
law, to revoke or terminate any such right, power, franchise, grant, license or
permit or to condemn or acquire by eminent domain or similar process;
(j) rights reserved to or vested by Law in any governmental authority to in
any manner, control or regulate in any manner any of the properties of any
Restricted Person or the use thereof or the rights and interests of any
Restricted Person therein, in any manner under any and all Laws;
(k) rights reserved to the grantors of any properties of any Restricted
Person, and the restrictions, conditions, restrictive covenants and limitations,
in respect thereto, pursuant to the terms, conditions and provisions of any
rights-of-way agreements, contracts or other agreements therewith;
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(l) Inchoate Liens in respect of pending litigation or with respect to a
judgment which has not resulted in an Event of Default under Section 8.1; and
(m) Liens on property of Operating permitted pursuant to the terms of the
Operating Credit Agreement.
Section 7.3. Hedging Contracts. No Restricted Person will be a party to
or in any manner be liable on any Hedging Contract, except:
(a) Hedging Contracts entered into by a Restricted Person with the purpose
and effect of fixing interest rates on a principal amount of indebtedness of
such Restricted Person that is accruing interest at a variable rate, provided
that (i) the aggregate notional amount of such contracts never exceeds one
hundred percent (100%) of the anticipated outstanding principal balance of the
indebtedness to be hedged by such contracts or an average of such principal
balances calculated using a generally accepted method of matching interest swap
contracts to declining principal balances, (ii) the floating rate index of each
such contract generally matches the index used to determine the floating rates
of interest on the corresponding indebtedness to be hedged by such contract and
(iii) each such contract is with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Lender or one
of its Affiliates) at the time the contract is made has long-term unsecured and
unenhanced debt obligations rated AA or Aa2 or better, respectively, by either
Rating Agency or is an investment grade-rated industry participant or otherwise
acceptable to Majority Lenders.
(b) Hedging Contracts entered into with the purpose and effect of fixing
prices on crude oil then owned by a Restricted Person or which a Restricted
Person is then obligated to purchase, provided that at all times: (i) no such
contract fixes a price for a term of more than [thirty-six (36)] months
[provision dealing with time spreads to be discussed]; (ii) with respect to
crude oil constituting the linefill carried in the All American Pipeline, the
aggregate amount of oil so hedged at any one time does not exceed 500,000
barrels, (iii) with respect to crude oil owned by Restricted Persons other than
linefill carried in the All American Pipeline, the aggregate amount of such
other crude oil so hedged at any one time does not exceed the aggregate Open
Position at such time, (iv) such contract is entered into for the purpose of
hedging the price risk on oil anticipated to be disposed of and for which no
other fixed sale price or other price fixing arrangement exists, and (v) each
such contract is either (A) with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Lender Party
or one of its Affiliates) at the time the contract is made has long-term
unsecured and unenhanced debt obligations rated AA or Aa2 or better,
respectively, by either Rating Agency or (B) entered into on the New York
Mercantile Exchange through a broker listed on the Disclosure Schedule or
otherwise approved by Majority Lenders [provision dealing with counterparty
credit rating on exchange for physicals contracts].
Section 7.4. Limitation on Mergers, Issuances of Securities. Except as
expressly provided in this section or otherwise disclosed on the Disclosure
Schedule, no Restricted Person will (a) enter into any transaction of merger or
consolidation or amalgamation, or
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liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), (b) acquire any business or property from, or capital stock of, or
be a party to any acquisition of, any Person except for purchases of inventory
and other property to be sold or used in the ordinary course of business and
Investments permitted under Section 7.7 hereof or (c) sell, transfer, lease,
exchange, alienate or otherwise dispose of, in one transaction or a series of
transactions, any part of its business or property, whether now owned or
hereafter acquired, except for sales or transfers not prohibited by under
Section 7.5 hereof. Any Person, other than Borrower, that is a Subsidiary of a
Restricted Person may, however, be merged into or consolidated with (i) another
Subsidiary of such Restricted Person, so long as a Guarantor is the surviving
business entity, or (ii) such Restricted Person, so long as such Restricted
Person is the surviving business entity. Plains MLP will not issue any
securities other than (i) limited partnership units and any options or warrants
giving the holders thereof only the right to acquire such units and (ii) general
or subordinate partnership interests issued to Resources or a wholly owned
Subsidiary of Resources. No Subsidiary of Plains MLP will issue any additional
shares of its capital stock or other securities or any options, warrants or
other rights to acquire such additional shares or other securities except a
direct Subsidiary of a Restricted Person may issue additional shares or other
securities to such Restricted Person. No Subsidiary of Borrower which is a
partnership will allow any diminution of Borrower's interest (direct or
indirect) therein.
Section 7.5. Limitation on Sales of Property. No Restricted Person will
sell, transfer, lease, exchange, alienate or dispose of any Collateral or any of
its material assets or properties or any material interest therein except:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;
(b) inventory (including pipeline linefill) which is sold in the ordinary
course of business on ordinary trade terms;
(c) in other property which is sold for fair consideration not in the
aggregate in excess of $10,000,000 in any Fiscal Year, the sale of which will
not materially impair or diminish the value of the Collateral or any Restricted
Person's financial condition, business or operations; and
(d) sales or transfers, subject to the Security Documents, by a Subsidiary
of a Restricted Person (other than Borrower) to such Restricted Person or to a
wholly-owned Subsidiary of such Restricted Person that is a Guarantor.
No Restricted Person will sell, transfer or otherwise dispose of capital stock
of or interest in any of its Subsidiaries except to Borrower, or to another
wholly-owned Subsidiary of Borrower. No Restricted Person will discount, sell,
pledge or assign any notes payable to it, accounts receivable or future income.
So long as no Default then exists, Administrative Agent will, at Borrower's
request and expense, execute a release, satisfactory to Borrower and
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Administrative Agent, of any Collateral so sold, transferred, leased, exchanged,
alienated or disposed of pursuant to the clause (a) or (c) of this Section.
Section 7.6. Limitation on Dividends and Redemptions. No Restricted
Person will declare or pay any dividends on, or make any other distribution in
respect of, any class of its capital stock or any partnership or other interest
in it, nor will any Restricted Person directly or indirectly make any capital
contribution to or purchase, redeem, acquire or retire any shares of the capital
stock of or partnership interests in any Restricted Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Restricted
Person, while the Revolver Loan is outstanding. Notwithstanding the foregoing,
(i) Subsidiaries of Plains MLP shall not be restricted from declaring and paying
dividends or making any other distribution to Plains MLP or any wholly owned
Subsidiary of Plains MLP, (ii) no Restricted Person shall be restricted from
making capital contributions to a wholly owned Subsidiary of such Restricted
Person that is a Guarantor, and (iii) so long as no Default or Event of Default
has occurred or is continuing or would result therefrom, Plains MLP shall not be
restricted from using Available Cash (other than amounts required to be applied
as otherwise required in any Loan Document) for the purpose of (A) paying
distributions in respect of its partnership units and (B) purchasing its
partnership units on the open market in connection with the Incentive and Option
Plans, provided that the aggregate amount of such purchases may not exceed
______________.
Section 7.7. Limitation on Investments and New Businesses. No Restricted
Person will (a) make any expenditure or commitment or incur any obligation or
enter into or engage in any transaction except in the ordinary course of
business, (b) engage directly or indirectly in any business or conduct any
operations except in connection with or incidental to its present businesses and
operations, (c) make any acquisitions of or capital contributions to or other
Investments in any Person, other than Permitted Investments and Permitted
Acquisitions, or (d) make any acquisitions of properties other than Permitted
Acquisitions.
Section 7.8. Limitation on Credit Extensions. Except for Permitted
Investments, no Restricted Person will extend credit, make advances or make
loans other than normal and prudent extensions of credit to customers buying
goods and services in the ordinary course of business or to another Restricted
Person in the ordinary course of business, which extensions shall not be for
longer periods than those extended by similar businesses operated in a normal
and prudent manner.
Section 7.9. Transactions with Affiliates. No Restricted Person will
engage in any material transaction with any of its Affiliates except: (a)
transactions among Plains MLP and its wholly owned Subsidiaries, (b)
transactions governed by the Affiliate Agreements, and (c) transactions entered
into in the ordinary course of business of such Restricted Person on terms which
are no less favorable to such Restricted Person than those which would have been
obtainable at the time in arm's-length transactions with Persons other than such
Affiliates.
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Section 7.10. Prohibited Contracts. Except as expressly provided for in
the Loan Documents, no Restricted Person will, directly or indirectly, enter
into, create, or otherwise allow to exist any contract or other consensual
restriction on the ability of any Subsidiary of Plains MLP, including but not
limited to Borrower and any Subsidiary of Borrower to: (a) pay dividends or
make other distributions to Borrower or Plains MLP, (b) redeem equity interests
held in it by Borrower or Plains MLP, (c) repay loans and other indebtedness
owing by it to Borrower or Plains MLP, or (d) transfer any of its assets to
Borrower or Plains MLP. No Restricted Person will enter into any "take-or-pay"
contract or other contract or arrangement for the purchase of goods or services
which obligates it to pay for such goods or service regardless of whether they
are delivered or furnished to it. No Restricted Persons will amend, modify or
release any of the Affiliate Agreements. No Restricted Person will amend or
permit any amendment to any contract or lease which releases, qualifies, limits,
makes contingent or otherwise detrimentally affects the rights and benefits of
Administrative Agent or any Lender under or acquired pursuant to any Security
Documents. No ERISA Affiliate will incur any obligation to contribute to any
"multiemployer plan" as defined in Section 4001 of ERISA that is subject to
Title IV of ERISA.
Section 7.11. Current Ratio. The ratio of (i) the sum of Plains MLP's
Consolidated current assets plus the excess, if any, of the Revolver Commitment
over the Revolver Usage to (ii) Plains MLP's Consolidated current liabilities
will never be less than 1.0 to 1.0. For purposes of this section, Plains MLP's
Consolidated current liabilities will be calculated without including (a) any
payments of principal on the Notes which are required to be repaid within one
year from the time of calculation and (b) all Liabilities arising under
permitted Hedging Contracts.
Section 7.12. Debt Coverage Ratio. At the end of any Fiscal Quarter, the
ratio of (a) Consolidated Indebtedness to (b) Consolidated EBITDA for the four
Fiscal Quarter period ending with such Fiscal Quarter will not be greater than
5.0 to 1.0.
Section 7.13. Interest Coverage Ratio. At the end of any Fiscal Quarter,
the ratio of (a) Consolidated EBITDA to (b) Interest Expense for the four-Fiscal
Quarter period ending with such Fiscal Quarter will not be less than 3.0 to 1.0.
Section 7.14. Fixed Charge Coverage Ratio. At the end of any Fiscal
Quarter, the ratio of (a) the sum of Consolidated EBITDA plus Consolidated Lease
Rentals to (b) the sum of Interest Expense plus Consolidated Lease Rentals plus
any principal payments due on any Indebtedness during the next four-Fiscal
Quarter period (exclusive of principal payments due on the Loans or on any
Indebtedness under the Operating Credit Agreement) plus capital expenditure
required to maintain the assets and properties of the Restricted Persons in
accordance with the covenants contained in each Loan Document, in each case for
the four-Fiscal Quarter period ending with such Fiscal Quarter will not be less
than 1.25 to 1 for any such period.
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Section 7.15. Debt to Capital Ratio. The ratio of (a) all Consolidated
Indebtedness to (b) the sum of Consolidated Indebtedness plus Consolidated Net
Worth will never be greater than .60 to 1.0 at any time.
ARTICLE VIII - Events of Default and Remedies
Section 8.1. Events of Default. Each of the following events constitutes
an Event of Default under this Agreement:
(a) Any Restricted Person fails to pay the principal component of any Loan
or any reimbursement obligation with respect to any Letter of Credit when due
and payable, whether at a date for the payment of a fixed installment or as a
contingent or other payment becomes due and payable or as a result of
acceleration or otherwise;
(b) Any Restricted Person fails to pay any Obligation (other than the
Obligations in subsection (a) above) when due and payable, whether at a date for
the payment of a fixed installment or as a contingent or other payment becomes
due and payable or as a result of acceleration or otherwise, within three
Business Days after the same becomes due;
(c) Any event defined as a "default" or "event of default" in any Loan
Document occurs, and the same is not remedied within the applicable period of
grace (if any) provided in such Loan Document;
(d) Any Restricted Person fails to duly observe, perform or comply with any
covenant, agreement or provision of Section 6.4 or Article VII;
(e) Any Restricted Person fails (other than as referred to in subsections
(a), (b), (c) or (d) above) to duly observe, perform or comply with any
covenant, agreement, condition or provision of any Loan Document to which it is
a party, and such failure remains unremedied for a period of thirty (30) days
after notice of such failure is given by Administrative Agent to Borrower;
(f) Any representation or warranty previously, presently or hereafter made
in writing by or on behalf of any Restricted Person in connection with any Loan
Document shall prove to have been false or incorrect in any material respect on
any date on or as of which made, or any Loan Document at any time ceases to be
valid, binding and enforceable as warranted in Section 5.5 for any reason other
than its release or subordination by Administrative Agent;
(g) Any Restricted Person shall default in the payment when due of any
principal of or interest on any of its other Indebtedness in excess of
$2,500,000 in the aggregate (other than Indebtedness the validity of which is
being contested in good faith by appropriate proceedings and for which adequate
reserves with respect thereto are maintained on the books
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of such Restricted Person in accordance with GAAP), or any event specified in
any note, agreement, indenture or other document evidencing or relating to any
such Indebtedness shall occur if the effect of such event is to cause, or (with
the giving of any notice or the lapse of time or both) to permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause, such Indebtedness to become due, or to be prepaid in full
(whether by redemption, purchase, offer to purchase or otherwise), prior to its
stated maturity;
(h) Either (i) any "accumulated funding deficiency" (as defined in Section
412(a) of the Code) in excess of $500,000 exists with respect to any ERISA Plan,
whether or not waived by the Secretary of the Treasury or his delegate, or (ii)
any Termination Event occurs with respect to any ERISA Plan and the then current
value of such ERISA Plan's benefit liabilities exceeds the then current value of
such ERISA Plan's assets available for the payment of such benefit liabilities
by more than $500,000 (or in the case of a Termination Event involving the
withdrawal of a substantial employer, the withdrawing employer's proportionate
share of such excess exceeds such amount);
(i) General Partner or any Restricted Person:
(i) has entered against it of a judgment, decree or order for relief
by a Tribunal of competent jurisdiction in an involuntary proceeding
commenced under any applicable bankruptcy, insolvency or other similar Law
of any jurisdiction now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended, or has any such proceeding
commenced against it, in each case, which remains undismissed for a period
of sixty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Law now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended; or applies for or consents
to the entry of an order for relief in an involuntary case under any such
Law; or makes a general assignment for the benefit of creditors; or is
generally unable to pay (or admits in writing its inability to so pay) its
debts as such debts become due; or takes corporate or other action to
authorize any of the foregoing; or
(iii) has entered against it the appointment of or taking possession
by a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets in a proceeding
brought against or initiated by it, and such appointment or taking
possession is neither made ineffective nor discharged within sixty days
after the making thereof, or such appointment or taking possession is at
any time consented to, requested by, or acquiesced to by it; or
(iv) has entered against it the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of any part of the Collateral of a value in excess of
$2,500,000 in a proceeding brought against or initiated by it, and such
appointment or taking possession is neither made
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ineffective nor discharged within sixty days after the making thereof, or
such appointment or taking possession is at any time consented to,
requested by, or acquiesced to by it; or
(v) has entered against it a final judgment for the payment of money
in excess of $1,000,000 (in each case not covered by insurance satisfactory
to Administrative Agent in its discretion), unless the same is stayed or
discharged within thirty days after the date of entry thereof or an appeal
or appropriate proceeding for review thereof is taken within such period
and a stay of execution pending such appeal is obtained; or
(vi) suffers a writ or warrant of attachment or any similar process to
be issued by any Tribunal against all or any substantial part of its assets
or any part of the Collateral of a value in excess of $2,500,000, and such
writ or warrant of attachment or any similar process is not stayed or
released within thirty days after the entry or levy thereof or after any
stay is vacated or set aside;
(j) General Partner shall default in the payment when due of any principal
of or interest on any of its Indebtedness in excess of $1,000,000 in the
aggregate, or any event specified in any note, agreement, indenture or other
document evidencing or relating to any such Indebtedness shall occur if the
effect of such event is to cause, or (with the giving of any notice or the lapse
of time or both) to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such
Indebtedness to become due, or to be prepaid in full (whether by redemption,
purchase, offer to purchase or otherwise), prior to its stated maturity; or
(k) Any Change in Control occurs.
Upon the occurrence of an Event of Default described in subsection (i)(i),
(i)(ii) or (i)(iii) of this section with respect to Borrower or Plains MLP, all
of the Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and nonpayment, protest,
notice of protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Restricted Person who at any time
ratifies or approves this Agreement. Upon any such acceleration, any obligation
of any Lender to make any further Loans and any obligation of LC Issuer to issue
Letters of Credit hereunder shall be permanently terminated. During the
continuance of any other Event of Default, Administrative Agent at any time and
from time to time may (and upon written instructions from Majority Lenders,
Administrative Agent shall), without notice to Borrower or any other Restricted
Person, do either or both of the following: (1) terminate any obligation of
Lenders to make Loans hereunder and any obligation of LC Issuer to issue Letters
of Credit hereunder, and (2) declare any or all of the Obligations immediately
due and payable, and all such Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of any
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kind, all of which are hereby expressly waived by Borrower and each Restricted
Person who at any time ratifies or approves this Agreement.
Section 8.2. Remedies. If any Default shall occur and be continuing,
each Lender Party may protect and enforce its rights under the Loan Documents by
any appropriate proceedings, including proceedings for specific performance of
any covenant or agreement contained in any Loan Document, and each Lender Party
may enforce the payment of any Obligations due it or enforce any other legal or
equitable right which it may have. All rights, remedies and powers conferred
upon Lender Parties under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at Law or in equity.
ARTICLE IX - Administrative Agent
Section 9.1. Appointment and Authority. Each Lender Party hereby
irrevocably authorizes Administrative Agent, and Administrative Agent hereby
undertakes, to receive payments of principal, interest and other amounts due
hereunder as specified herein and to take all other actions and to exercise such
powers under the Loan Documents as are specifically delegated to Administrative
Agent by the terms hereof or thereof, together with all other powers reasonably
incidental thereto. The relationship of Administrative Agent to the other
Lender Parties is only that of one commercial lender acting as administrative
agent for others, and nothing in the Loan Documents shall be construed to
constitute Administrative Agent a trustee or other fiduciary for any Lender
Party or any holder of any participation in a Note nor to impose on
Administrative Agent duties and obligations other than those expressly provided
for in the Loan Documents. With respect to any matters not expressly provided
for in the Loan Documents and any matters which the Loan Documents place within
the discretion of Administrative Agent, Administrative Agent shall not be
required to exercise any discretion or take any action, and it may request
instructions from Lenders with respect to any such matter, in which case it
shall be required to act or to refrain from acting (and shall be fully protected
and free from liability to all Lender Parties in so acting or refraining from
acting) upon the instructions of Majority Lenders (including itself), provided,
however, that Administrative Agent shall not be required to take any action
which exposes it to a risk of personal liability that it considers unreasonable
or which is contrary to the Loan Documents or to applicable Law. Upon receipt
by Administrative Agent from Borrower of any communication calling for action on
the part of Lenders or upon notice from Borrower or any Lender to Administrative
Agent of any Default or Event of Default, Administrative Agent shall promptly
notify each other Lender thereof.
Section 9.2. Exculpation, Administrative Agent's Reliance, Etc. Neither
Administrative Agent nor any of its directors, officers, agents, attorneys, or
employees shall be liable for any action taken or omitted to be taken by any of
them under or in connection with the Loan Documents, INCLUDING THEIR NEGLIGENCE
OF ANY KIND, except that each shall be liable for its own gross negligence or
willful misconduct. Without limiting the generality of the foregoing,
Administrative Agent (a) may treat the payee of any Note as the
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holder thereof until Administrative Agent receives written notice of the
assignment or transfer thereof in accordance with this Agreement, signed by such
payee and in form satisfactory to Administrative Agent; (b) may consult with
legal counsel (including counsel for Borrower), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
other Lender Party and shall not be responsible to any other Lender Party for
any statements, warranties or representations made in or in connection with the
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of the
Loan Documents on the part of any Restricted Person or to inspect the property
(including the books and records) of any Restricted Person; (e) shall not be
responsible to any other Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan Document or any
instrument or document furnished in connection therewith; (f) may rely upon the
representations and warranties of each Restricted Person or Lender Party in
exercising its powers hereunder; and (g) shall incur no liability under or in
respect of the Loan Documents by acting upon any notice, consent, certificate or
other instrument or writing (including any facsimile, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper Person or Persons.
Section 9.3. Credit Decisions. Each Lender Party acknowledges that it
has, independently and without reliance upon any other Lender Party, made its
own analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan Documents.
Each Lender Party also acknowledges that it will, independently and without
reliance upon any other Lender Party and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Documents.
SECTION 9.4. INDEMNIFICATION. EACH LENDER AGREES TO INDEMNIFY
ADMINISTRATIVE AGENT (TO THE EXTENT NOT REIMBURSED BY BORROWER WITHIN TEN (10)
DAYS AFTER DEMAND) FROM AND AGAINST SUCH LENDER'S PERCENTAGE SHARE OF ANY AND
ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES,
ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS
(INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF
ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES
AND COSTS") WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON,
INCURRED BY, OR ASSERTED AGAINST ADMINISTRATIVE AGENT GROWING OUT OF, RESULTING
FROM OR IN ANY OTHER WAY ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN
DOCUMENTS AND THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT THEREOF) AT
ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (WHETHER ARISING IN
CONTRACT OR IN TORT OR
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OTHERWISE AND INCLUDING ANY VIOLATION OR NONCOMPLIANCE WITH ANY ENVIRONMENTAL
LAWS BY ANY PERSON OR ANY LIABILITIES OR DUTIES OF ANY PERSON WITH RESPECT TO
HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY ADMINISTRATIVE AGENT, provided only that no
Lender shall be obligated under this section to indemnify Administrative Agent
for that portion, if any, of any liabilities and costs which is proximately
caused by Administrative Agent's own individual gross negligence or willful
misconduct, as determined in a final judgment. Cumulative of the foregoing,
each Lender agrees to reimburse Administrative Agent promptly upon demand for
such Lender's Percentage Share of any costs and expenses to be paid to
Administrative Agent by Borrower under Section 10.4(a) to the extent that
Administrative Agent is not timely reimbursed for such expenses by Borrower as
provided in such section. As used in this section the term "Administrative
Agent" shall refer not only to the Person designated as such in Section 1.1 but
also to each director, officer, agent, attorney, employee, representative and
Affiliate of such Person.
Section 9.5. Rights as Lender. In its capacity as a Lender,
Administrative Agent shall have the same rights and obligations as any Lender
and may exercise such rights as though it were not Administrative Agent.
Administrative Agent may accept deposits from, lend money to, act as trustee
under indentures of, and generally engage in any kind of business with any
Restricted Person or their Affiliates, all as if it were not Administrative
Agent hereunder and without any duty to account therefor to any other Lender.
Section 9.6. Sharing of Set-Offs and Other Payments. Each Lender Party
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Administrative Agent
under Section 3.1, causes such Lender Party to have received more than it would
have received had such payment been received by Administrative Agent and
distributed pursuant to Section 3.1, then (a) it shall be deemed to have
simultaneously purchased and shall be obligated to purchase interests in the
Obligations as necessary to cause all Lender Parties to share all payments as
provided for in Section 3.1, and (b) such other adjustments shall be made from
time to time as shall be equitable to ensure that Administrative Agent and all
Lender Parties share all payments of Obligations as provided in Section 3.1;
provided, however, that nothing herein contained shall in any way affect the
right of any Lender Party to obtain payment (whether by exercise of rights of
banker's lien, set-off or counterclaim or otherwise) of indebtedness other than
the Obligations. Borrower expressly consents to the foregoing arrangements and
agrees that any holder of any such interest or other
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participation in the Obligations, whether or not acquired pursuant to the
foregoing arrangements, may to the fullest extent permitted by Law and, subject
to the provisions of Section 6.16, exercise any and all rights of banker's lien,
set-off, or counterclaim as fully as if such holder were a holder of the
Obligations in the amount of such interest or other participation. If all or any
part of any funds transferred pursuant to this section is thereafter recovered
from the seller under this section which received the same, the purchase
provided for in this section shall be deemed to have been rescinded to the
extent of such recovery, together with interest, if any, if interest is required
pursuant to the order of a Tribunal to be paid on account of the possession of
such funds prior to such recovery.
Section 9.7. Investments. Whenever Administrative Agent in good faith
determines that it is uncertain about how to distribute to Lender Parties any
funds which it has received, or whenever Administrative Agent in good faith
determines that there is any dispute among Lender Parties about how such funds
should be distributed, Administrative Agent may choose to defer distribution of
the funds which are the subject of such uncertainty or dispute. If
Administrative Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Administrative Agent is otherwise required to
invest funds pending distribution to Lender Parties, Administrative Agent shall
invest such funds pending distribution; all interest on any such Investment
shall be distributed upon the distribution of such Investment and in the same
proportion and to the same Persons as such Investment. All moneys received by
Administrative Agent for distribution to Lender Parties (other than to the
Person who is Administrative Agent in its separate capacity as a Lender Party)
shall be held by Administrative Agent pending such distribution solely as
Administrative Agent for such Lender Parties, and Administrative Agent shall
have no equitable title to any portion thereof.
Section 9.8. Benefit of Article IX. The provisions of this Article are
intended solely for the benefit of Lender Parties, and no Restricted Person
shall be entitled to rely on any such provision or assert any such provision in
a claim or defense against any Lender (other than in relation to the reference
to Section 6.16 contained in Section 9.6 or the right to reasonably approve a
successor Administrative Agent under Section 9.9). Lender Parties may waive or
amend such provisions as they desire without any notice to or consent of
Borrower or any other Restricted Person.
Section 9.9. Resignation. Administrative Agent may resign at any time by
giving written notice thereof to Lenders and Borrower. Each such notice shall
set forth the date of such resignation. Upon any such resignation Majority
Lenders shall have the right to appoint a successor Administrative Agent,
subject to the approval of Borrower, which approval will not be unreasonably
withheld. A successor must be appointed for any retiring Administrative Agent,
and such Administrative Agent's resignation shall become effective when such
successor accepts such appointment. If, within thirty days after the date of
the retiring Administrative Agent's resignation, no successor Administrative
Agent has been appointed and has accepted such appointment, then the retiring
Administrative Agent may appoint a successor Administrative Agent, which shall
be a commercial bank organized or licensed to conduct a banking or trust
business under the Laws of the United States of America or of any state thereof.
Upon the acceptance of any appointment as Administrative Agent hereunder by a
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successor Administrative Agent, the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After any retiring Administrative Agent's resignation hereunder
the provisions of this Article IX shall continue to inure to its benefit as to
any actions taken or omitted to be taken by it while it was Administrative Agent
under the Loan Documents.
Section 9.10. Other Agents. Neither the Syndication Agent nor the
Documentation Agent, in such capacities, shall have any duties or
responsibilities or incur any liabilities under this Agreement or the other Loan
Documents.
ARTICLE X - Miscellaneous
Section 10.1. Waivers and Amendments; Acknowledgments.
(a) Waivers and Amendments. No failure or delay (whether by course of
conduct or otherwise) by any Lender in exercising any right, power or remedy
which such Lender Party may have under any of the Loan Documents shall operate
as a waiver thereof or of any other right, power or remedy, nor shall any single
or partial exercise by any Lender Party of any such right, power or remedy
preclude any other or further exercise thereof or of any other right, power or
remedy. No waiver of any provision of any Loan Document and no consent to any
departure therefrom shall ever be effective unless it is in writing and signed
as provided below in this section, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which given
and to the extent specified in such writing. No notice to or demand on any
Restricted Person shall in any case of itself entitle any Restricted Person to
any other or further notice or demand in similar or other circumstances. This
Agreement and the other Loan Documents set forth the entire understanding
between the parties hereto with respect to the transactions contemplated herein
and therein and supersede all prior discussions and understandings with respect
to the subject matter hereof and thereof, and no waiver, consent, release,
modification or amendment of or supplement to this Agreement or the other Loan
Documents shall be valid or effective against any party hereto unless the same
is in writing and signed by (i) if such party is Borrower, by Borrower, (ii) if
such party is Administrative Agent or LC Issuer, by such party, and (iii) if
such party is a Lender, by such Lender or by Administrative Agent on behalf of
Lenders with the written consent of Majority Lenders (which consent has already
been given as to the termination of the Loan Documents as provided in Section
10.9). Notwithstanding the foregoing or anything to the contrary herein,
Administrative Agent shall not, without the prior consent of each individual
Lender, execute and deliver on behalf of such Lender any waiver or amendment
which would: (1) waive any of the conditions specified in Article IV (provided
that Administrative Agent may in its discretion withdraw any request it has made
under Section 4.3), (2) increase the maximum amount which such Lender is
committed hereunder to lend, (3) reduce any fees payable to such Lender
hereunder, or the principal of, or interest on, such Lender's Note, (4) change
any date fixed for any payment of any such fees, principal or interest, (5)
amend the definition herein of "Majority Lenders" or otherwise change the
aggregate amount of Percentage Shares which is required for Administrative
Agent, Lenders or
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any of them to take any particular action under the Loan Documents, (6) release
Borrower from its obligation to pay such Lender's Note or any Guarantor from its
guaranty of such payment, or (7) release any Collateral, except such releases
relating to sales of property as permitted under Section 7.5.
(b) Acknowledgments and Admissions. Borrower hereby represents, warrants,
acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement and
the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Administrative Agent or any
other Lender Party, whether written, oral or implicit, other than as expressly
set out in this Agreement or in another Loan Document delivered on or after the
date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by any Lender Party as to the Loan Documents except
as expressly set out in this Agreement or in another Loan Document delivered on
or after the date hereof, (iv) no Lender Party has any fiduciary obligation
toward Borrower with respect to any Loan Document or the transactions
contemplated thereby, (v) the relationship pursuant to the Loan Documents
between Borrower and the other Restricted Persons, on one hand, and each Lender
Party, on the other hand, is and shall be solely that of debtor and creditor,
respectively, (vi) no partnership or joint venture exists with respect to the
Loan Documents between any Restricted Person and any Lender Party, (vii)
Administrative Agent is not Borrower's Administrative Agent, but Administrative
Agent for Lenders, (viii) should an Event of Default or Default occur or exist,
each Lender Party will determine in its sole discretion and for its own reasons
what remedies and actions it will or will not exercise or take at that time,
(ix) without limiting any of the foregoing, Borrower is not relying upon any
representation or covenant by any Lender Party, or any representative thereof,
and no such representation or covenant has been made, that any Lender Party
will, at the time of an Event of Default or Default, or at any other time,
waive, negotiate, discuss, or take or refrain from taking any action permitted
under the Loan Documents with respect to any such Event of Default or Default or
any other provision of the Loan Documents, and (x) all Lender Parties have
relied upon the truthfulness of the acknowledgments in this section in deciding
to execute and deliver this Agreement and to become obligated hereunder.
(c) Representation by Lenders. Each Lender hereby represents that it will
acquire its Note for its own account in the ordinary course of its commercial
lending or investing business; however, the disposition of such Lender's
property shall at all times be and remain within its control and, in particular
and without limitation, such Lender may sell or otherwise transfer its Note, any
participation interest or other interest in its Note, or any of its other rights
and obligations under the Loan Documents subject to compliance with Sections
10.5(b) through (f), inclusive, and applicable Law.
(D) JOINT ACKNOWLEDGMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
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THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 10.2. Survival of Agreements; Cumulative Nature. All of
Restricted Persons' various representations, warranties, covenants and
agreements in the Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents and the performance hereof and
thereof, including the making or granting of the Loans and the delivery of the
Notes and the other Loan Documents, and shall further survive until all of the
Obligations are paid in full to each Lender Party and all of Lender Parties'
obligations to Borrower are terminated. All statements and agreements contained
in any certificate or other instrument delivered by any Restricted Person to any
Lender Party under any Loan Document shall be deemed representations and
warranties by Borrower or agreements and covenants of Borrower under this
Agreement. The representations, warranties, indemnities, and covenants made by
Restricted Persons in the Loan Documents, and the rights, powers, and privileges
granted to Lender Parties in the Loan Documents, are cumulative, and, except for
expressly specified waivers and consents, no Loan Document shall be construed in
the context of another to diminish, nullify, or otherwise reduce the benefit to
any Lender Party of any such representation, warranty, indemnity, covenant,
right, power or privilege. In particular and without limitation, no exception
set out in this Agreement to any representation, warranty, indemnity, or
covenant herein contained shall apply to any similar representation, warranty,
indemnity, or covenant contained in any other Loan Document, and each such
similar representation, warranty, indemnity, or covenant shall be subject only
to those exceptions which are expressly made applicable to it by the terms of
the various Loan Documents.
Section 10.3. Notices. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Administrative Agent may give telephonic notices to the other Lender
Parties), and shall be deemed sufficiently given or furnished if delivered by
personal delivery, by facsimile or other electronic transmission, by delivery
service with proof of delivery, or by registered or certified United States
mail, postage prepaid, to Borrower and Restricted Persons at the address of
Borrower specified on the signature pages hereto and to each Lender Party at its
address specified on the signature pages hereto (unless changed by similar
notice in writing given by the particular Person whose address is to be
changed). Any such notice or communication shall be deemed to have been given
(a) in the case of personal delivery or delivery service, as of the date of
first attempted delivery during normal business hours at the address provided
herein, (b) in the case of facsimile or other electronic transmission, upon
receipt, or (c) in the case of registered or certified United States mail, three
days after deposit in the mail; provided, however, that no Borrowing Notice or
Continuation/Conversion Notice shall become effective until actually received by
Administrative Agent.
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Section 10.4. Payment of Expenses; Indemnity.
(a) Payment of Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, Borrower will promptly (and in any event, within
30 days after any invoice or other statement or notice) pay: (i) all transfer,
stamp, mortgage, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect of this Agreement or
any of the other Loan Documents or any other document referred to herein or
therein, (ii) all reasonable costs and expenses incurred by or on behalf of
Administrative Agent (including attorneys' fees, consultants' fees and
engineering fees, travel costs and miscellaneous expenses) in connection with
(1) the negotiation, preparation, execution and delivery of the Loan Documents,
and any and all consents, waivers or other documents or instruments relating
thereto, (2) the filing, recording, refiling and re-recording of any Loan
Documents and any other documents or instruments or further assurances required
to be filed or recorded or refiled or re-recorded by the terms of any Loan
Document, (3) the borrowings hereunder and other action reasonably required in
the course of administration hereof, (4) monitoring or confirming (or
preparation or negotiation of any document related to) Borrower's compliance
with any covenants or conditions contained in this Agreement or in any Loan
Document, and (iii) all reasonable costs and expenses incurred by or on behalf
of any Lender Party (including attorneys' fees, consultants' fees and accounting
fees) in connection with the defense or enforcement of any of the Loan Documents
(including this section) or the defense of any Lender Party's exercise of its
rights thereunder. In addition to the foregoing, until all Obligations have been
paid in full, Borrower will also pay or reimburse Administrative Agent for all
reasonable out-of-pocket costs and expenses of Administrative Agent or its
agents or employees in connection with the continuing administration of the
Loans and the related due diligence of Administrative Agent, including travel
and miscellaneous expenses and fees and expenses of Administrative Agent's
outside counsel, reserve engineers and consultants engaged in connection with
the Loan Documents.
(b) Indemnity. Borrower agrees to indemnify each Lender Party, upon
demand, from and against any and all liabilities, obligations, claims, losses,
damages, penalties, fines, actions, judgments, suits, settlements, costs,
expenses or disbursements (including reasonable fees of attorneys, accountants,
experts and advisors) of any kind or nature whatsoever (in this section
collectively called "liabilities and costs") which to any extent (in whole or in
part) may be imposed on, incurred by, or asserted against such Lender Party
growing out of, resulting from or in any other way associated with any of the
Collateral, the Loan Documents and the transactions and events (including the
enforcement or defense thereof) at any time associated therewith or contemplated
therein (whether arising in contract or in tort or otherwise and including any
violation or noncompliance with any Environmental Laws by any Lender Party or
any other Person or any liabilities or duties of any Lender Party or any other
Person with respect to Hazardous Materials found in or released into the
environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY OR
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CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY
LENDER PARTY, provided only that no Lender Party shall be entitled under this
section to receive indemnification for that portion, if any, of any liabilities
and costs which is proximately caused by its own individual gross negligence or
willful misconduct, as determined in a final judgment. If any Person (including
Borrower or any of its Affiliates) ever alleges such gross negligence or willful
misconduct by any Lender Party, the indemnification provided for in this section
shall nonetheless be paid upon demand, subject to later adjustment or
reimbursement, until such time as a court of competent jurisdiction enters a
final judgment as to the extent and effect of the alleged gross negligence or
willful misconduct. As used in this section the term "Lender Party" shall refer
not only to each Person designated as such in Section 1.1 but also to each
director, officer, trustee, agent, attorney, employee, representative and
Affiliate of such Persons.
Section 10.5. Joint and Several Liability; Parties in Interest;
Assignments.
(a) All Obligations which are incurred by two or more Restricted Persons
shall be their joint and several obligations and liabilities. All grants,
covenants and agreements contained in the Loan Documents shall bind and inure to
the benefit of the parties thereto and their respective successors and permitted
assigns; provided, however, that no Restricted Person may assign or transfer any
of its rights or delegate any of its duties or obligations under any Loan
Document without the prior consent of all Lenders. Neither Borrower nor any
Affiliates of Borrower shall directly or indirectly purchase or otherwise retire
any Obligations owed to any Lender nor will any Lender accept any offer to do
so, unless each Lender shall have received substantially the same offer with
respect to the same Percentage Share of the Obligations owed to it. If Borrower
or any Affiliate of Borrower at any time purchases some but less than all of the
Obligations owed to all Lender Parties, such purchaser shall not be entitled to
any rights of any Lender under the Loan Documents unless and until Borrower or
its Affiliates have purchased all of the Obligations.
(b) No Lender shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person unless the agreement between such Lender and such participant at all
times provides: (i) that such participation exists only as a result of the
agreement between such participant and such Lender and that such transfer does
not give such participant any right to vote as a Lender or any other direct
claims or rights against any Person other than such Lender, (ii) that such
participant is not entitled to payment from any Restricted Person under Sections
3.2 through 3.6 of amounts in excess of those payable to such Lender under such
sections (determined without regard to the sale of such participation), and
(iii) unless such participant is an Affiliate of such Lender, that such
participant shall not be entitled to require such Lender to take any action
under any Loan Document or to obtain the consent of such participant prior to
taking any action under any Loan Document, except for actions which would
require the consent of all Lenders under subsection (a) of Section 10.1. No
Lender selling such a participation shall, as between the other parties hereto
and such Lender, be relieved of any of its obligations hereunder as a result of
the sale of such participation. Each Lender which sells any such participation
to any Person (other than an Affiliate of such Lender) shall give prompt notice
thereof to Administrative
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Agent and Borrower; provided, however, that no liability shall arise if any such
Lender fails to give such notice to Borrower.
(c) Except for sales of participations under the immediately preceding
subsection, no Lender shall make any assignment or transfer of any kind of its
commitments or any of its rights under its Loans or under the Loan Documents,
except for assignments to an Eligible Transferee or, subject to the provisions
of Subsection (g) below, to an Affiliate, and then only if such assignment is
made in accordance with the following requirements:
(i) In the case of an assignment by a Revolver Lender of less than all
of its Revolver Loans, LC Obligations, and Revolver Commitments, each such
assignment shall apply to a consistent percentage of all Revolver Loans and
LC Obligations owing to the assignor Revolver Lender hereunder and to the
same percentage of the unused portion of the assignor Lender's Revolver
Commitments, so that after such assignment is made both the assignee
Revolver Lender and the assignor Revolver Lender shall have a fixed (and
not a varying) Revolver Percentage Share in its Revolver Loans and LC
Obligations and be committed to make that Revolver Percentage Share of all
future Revolver Loans and make that Revolver Percentage Share of all future
participations in LC Obligations, and the Revolver Percentage Share of the
Revolver Commitment of both the assignor and assignee shall equal or exceed
$5,000,000.
(ii) In the case of an assignment by a Term Lender, after such
assignment is made the outstanding Term Loans of both the assignor and
assignee shall equal or exceed $5,000,000, except with respect to an
assignment of all such Lender's Term Loans or such lesser amount as may be
agreed to by the Administrative Agent and Borrower (except that no such
minimum shall be applicable with respect to an assignment to a Lender).
(iii) The parties to each such assignment shall execute and deliver to
Administrative Agent, for its acceptance and recording in the "Register"
(as defined below in this section), an Assignment and Acceptance in the
form of Exhibit H, appropriately completed, together with the Note subject
to such assignment and a processing fee payable by such assignor Lender
(and not at Borrower's expense) to Administrative Agent of $3,500. Upon
such execution, delivery, and payment and upon the satisfaction of the
conditions set out in such Assignment and Acceptance, then (i) Borrower
shall issue new Notes to such assignor and assignee upon return of the old
Notes to Borrower, and (ii) as of the "Settlement Date" specified in such
Assignment and Acceptance the assignee thereunder shall be a party hereto
and a Lender hereunder and Administrative Agent shall thereupon deliver to
Borrower and each Lender a schedule showing the revised Revolver Percentage
Shares and total Percentage Shares of such assignor Lender and such
assignee Lender and the revised Revolver Percentage Shares and total
Percentage Shares of all other Lenders.
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(iv) Each assignee Lender which is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) for Federal income tax
purposes, shall (to the extent it has not already done so) provide
Administrative Agent and Borrower with the "Prescribed Forms" referred to
in Section 3.7(d).
(d) Nothing contained in this section shall prevent or prohibit any Lender
from assigning or pledging all or any portion of its Loans and Note to any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that (i) no such assignment or
pledge shall relieve such Lender from its obligations hereunder and (ii) all
related costs, fees and expenses incurred by such Lender in connection with such
assignment and the reassignment back to it, free of any interests of such
Federal Reserve Banks shall be for the sole account of such Lender.
(e) By executing and delivering an Assignment and Acceptance, each assignee
Lender thereunder will be confirming to and agreeing with Borrower,
Administrative Agent and each other Lender Party that such assignee understands
and agrees to the terms hereof, including Article IX hereof.
(f) Administrative Agent shall maintain a copy of each Assignment and
Acceptance and a register for the recordation of the names and addresses of
Lenders and the Percentage Shares of, and principal amount of the Loans owing
to, each Lender from time to time (in this section called the "Register"). The
entries in the Register shall be conclusive, in the absence of manifest error,
and Borrower and each Lender Party may treat each Person whose name is recorded
in the Register as a Lender Party hereunder for all purposes. The Register
shall be available for inspection by Borrower or any Lender Party at any
reasonable time and from time to time upon reasonable prior notice.
(g) Any Lender may assign or transfer its commitment or its rights under
its Loans or under the Loan Documents to (i) any Affiliate that is wholly-owned
direct or indirect subsidiary of such Lender or of any Person that wholly owns,
directly or indirectly, such Lender, or (ii) if such Lender is a fund that makes
or invests in bank loans, any other fund that makes or invests in bank loans and
is advised or managed by (A) the same investment advisor as any Lender or (B)
any Affiliate of such investment advisor that is a wholly-owned direct or
indirect subsidiary of any Person that wholly owns, directly or indirectly, such
investment advisor, subject to the following additional conditions:
(x) any right of such Lender assignor and such assignee to vote as a
Lender, or any other direct claims or rights against any other Persons,
shall be uniformly exercised or pursued in the manner that such Lender
assignor would have so exercised such vote, claim or right if it had not
made such assignment or transfer;
(y) such assignee shall not be entitled to payment from any Restricted
Person under Sections 3.2 through 3.7 of amounts in excess of those payable
to such Lender assignor under such sections (determined without regard to
such assignment or transfer); and
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(z) if such Lender assignor is a Revolver Lender that assigns or transfers
to such assignee any of such Lender Revolver Commitment, assignee may
become primarily liable for such Revolver Commitment, but such assignment
or transfer shall not relieve or release such Lender from such Revolver
Commitment.
Section 10.6. Confidentiality. Each Lender Party agrees (on behalf of
itself and each of its Affiliates, and each of its and their directors,
officers, agents, attorneys, employees, and representatives) that it (and each
of them) will take all reasonable steps to keep confidential any non-public
information supplied to it by or at the direction of any Restricted Person so
identified when delivered, provided, however, that this restriction shall not
apply to information which (a) has at the time in question entered the public
domain, (b) is required to be disclosed by Law (whether valid or invalid) of any
Tribunal, (c) is disclosed to any Lender Party's Affiliates, auditors,
attorneys, or agents, (d) is furnished to any other Lender Party or to any
purchaser or prospective purchaser of participations or other interests in any
Loan or Loan Document (provided each such purchaser or prospective purchaser
first agrees to hold such information in confidence on the terms provided in
this section), or (d) is disclosed in the course of enforcing its rights and
remedies during the existence of an Event of Default.
Section 10.7. GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT TO THE EXTENT
THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT,
THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS
OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS OF THE UNITED
STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. BORROWER
HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST BORROWER WITH RESPECT
TO THIS AGREEMENT, THE NOTES OR ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK AS LENDER PARTIES MAY ELECT, AND, BY EXECUTION AND
DELIVERY HEREOF, BORROWER ACCEPTS AND CONSENTS FOR ITSELF AND IN RESPECT TO ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS. BORROWER AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE
GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN
DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING
BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. IN FURTHERANCE
OF THE FOREGOING, BORROWER HEREBY IRREVOCABLY DESIGNATES AND APPOINTS
CORPORATION SERVICE COMPANY, 80 STATE STREET, ALBANY, NEW YORK 12207, AS AGENT
OF BORROWER TO RECEIVE SERVICE OF ALL PROCESS
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BROUGHT AGAINST BORROWER WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT
IN NEW YORK, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE
AND BINDING SERVICE IN EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL
ALSO, IF PERMITTED BY LAW, BE SENT BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS
SET FORTH BELOW, BUT THE FAILURE OF BORROWER TO RECEIVE SUCH COPIES SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID. BORROWER SHALL
FURNISH TO LENDER PARTIES A CONSENT OF CORPORATION SERVICE COMPANY AGREEING TO
ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF LENDER PARTIES TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER PARTIES TO BRING PROCEEDINGS
AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON
CORPORATION SERVICE COMPANY SHALL RESIGN OR OTHERWISE CEASE TO ACT AS BORROWER'S
AGENT, BORROWER HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY DESIGNATE AND
APPOINT A NEW AGENT ACCEPTABLE TO ADMINISTRATIVE AGENT TO SERVE IN SUCH CAPACITY
AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR
CORPORATION SERVICE COMPANY FOR ALL PURPOSES HEREOF AND (B) PROMPTLY DELIVER TO
AGENT THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO ADMINISTRATIVE
AGENT) OF SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY.
Section 10.8. Limitation on Interest. Lender Parties, Restricted Persons
and the other parties to the Loan Documents intend to contract in strict
compliance with applicable usury Law from time to time in effect. In
furtherance thereof such persons stipulate and agree that none of the terms and
provisions contained in the Loan Documents shall ever be construed to provide
for interest in excess of the maximum amount of interest permitted to be charged
by applicable Law from time to time in effect. Neither any Restricted Person
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of
the maximum amount that may be lawfully charged under applicable Law from time
to time in effect, and the provisions of this section shall control over all
other provisions of the Loan Documents which may be in conflict or apparent
conflict herewith.
Section 10.9. Termination; Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing or outstanding
elect in a written notice delivered to Administrative Agent to terminate this
Agreement. Upon receipt by Administrative Agent of such a notice, if no
Obligations are then owing or outstanding this
76
<PAGE>
Agreement and all other Loan Documents shall thereupon be terminated and the
parties thereto released from all prospective obligations thereunder.
Notwithstanding the foregoing or anything herein to the contrary, any waivers or
admissions made by any Restricted Person in any Loan Document, any Obligations
under Sections 3.2 through 3.6, and any obligations which any Person may have to
indemnify or compensate any Lender Party shall survive any termination of this
Agreement or any other Loan Document. At the request and expense of Borrower,
Administrative Agent shall prepare and execute all necessary instruments to
reflect and effect such termination of the Loan Documents. Administrative Agent
is hereby authorized to execute all such instruments on behalf of all Lenders,
without the joinder of or further action by any Lender.
Section 10.10. Severability. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.
Section 10.11. Counterparts. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 10.12. WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. TO THE
EXTENT PERMITTED BY LAW, LENDER PARTIES AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF SUCH PERSONS OR BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR LENDER PARTIES' ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
BORROWER AND EACH LENDER PARTY HEREBY FURTHER (A) IRREVOCABLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES," AS DEFINED BELOW, (B) CERTIFIES
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (C)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
77
<PAGE>
SECTION. AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL,
CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT
DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY
PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
78
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
ALL AMERICAN, L.P.
By: PLAINS ALL AMERICAN, INC.
By:
-----------------------------
Name:
Title:
Address:
500 Dallas Street
Suite 700
Houston, Texas 77002
Attention: Phil Kramer
Telephone: (713) 654-1414
Fax: (713) 654-1523
PLAINS MARKETING, L.P.
By: PLAINS ALL AMERICAN, INC.
By:
-----------------------------
Name:
Title:
Address:
500 Dallas Street
Suite 700
Houston, Texas 77002
Attention: Phil Kramer
Telephone: (713) 654-1414
Fax: (713) 654-1523
79
<PAGE>
ING (U.S.) CAPITAL CORPORATION,
Administrative Agent and Lender
By:
-----------------------------
Name:
Title:
Address:
ING (U.S.) Capital Corporation
135 East 57th Street
New York, New York
Attention: Christopher Wagner
Telephone: (212) 409-1500
Fax: (212) 832-3616
ING BARING FURMAN SELZ LLC,
Syndication Agent
By:
------------------------------------
Name:
Title:
Address:
ING Baring (U.S.) Capital Corporation
135 East 57th Street
New York, New York
Attention:
Telephone: (212)
Fax: (212)
80
<PAGE>
BANCBOSTON ROBERTSON
STEPHENS INC., Documentation Agent
By:
------------------------------------
Name:
Title:
Address:
100 Federal Street
Boston, Massachusetts 02110
Attention: Terrence Ronan
Mail Code: 01-08-04
Telephone: (617) 434-5472
Fax: (617) 434-3652
BANKBOSTON, N.A., LC Issuer and Lender
By:
------------------------------------
Name:
Title:
Address:
100 Federal Street
Boston, Massachusetts 02110
Attention: Terrence Ronan
Mail Code: 01-08-04
Telephone: (617) 434-5472
Fax: (617) 434-3652
81
<PAGE>
EXHIBIT 10.2
================================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
_______________________________________________________
PLAINS MARKETING, L.P.,
as Borrower,
and
ALL AMERICAN, L.P.
as Guarantor
and
PLAINS ALL AMERICAN PIPELINE, L.P.,
as Guarantor,
and
BANKBOSTON, N.A.,
as Administrative Agent,
BANCBOSTON ROBERTSON STEPHENS INC.,
as Syndication Agent,
ING BARING FURMAN SELZ LLC
as Documentation Agent,
and CERTAIN FINANCIAL INSTITUTIONS,
as Lenders
_______________________________________________________
$175,000,000
November __, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AMENDED AND RESTATED CREDIT AGREEMENT 1
ARTICLE I - Definitions and References 1
Section 1.1. Defined Terms 1
Section 1.2. Exhibits and Schedules; Additional Definitions 22
Section 1.3. Amendment of Defined Instruments 22
Section 1.4. References and Titles 22
Section 1.5. Calculations and Determinations 23
ARTICLE II - The Loans 23
Section 2.1. Commitments to Lend; Notes 23
Section 2.2. Requests for New Loans 23
Section 2.3. Continuations and Conversions of Existing Loans 24
Section 2.4. Use of Proceeds 25
Section 2.5. Optional Prepayments of Loans 26
Section 2.6. Mandatory Prepayments 26
Section 2.7. Letters of Credit 26
Section 2.8. Requesting Letters of Credit 27
Section 2.9. Reimbursement and Participations 27
Section 2.10. No Duty to Inquire 29
Section 2.11. LC Collateral 30
Section 2.12. Interest Rates and Fees; Reduction in Commitment 31
Section 2.13. Borrowing Base Reporting 32
ARTICLE III - Payments to Lenders 32
Section 3.1. General Procedures 32
Section 3.2. Capital Reimbursement 33
Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit 33
Section 3.4. Notice; Change of Applicable Lending Office 34
Section 3.5. Availability 34
Section 3.6. Funding Losses 34
Section 3.7. Reimbursable Taxes 35
ARTICLE IV - Conditions Precedent to Credit 37
Section 4.1. Documents to be Delivered 37
Section 4.2. Additional Conditions to Initial Credit 38
Section 4.3. Additional Conditions Precedent 39
ARTICLE V - Representations and Warranties 40
Section 5.1. No Default 40
Section 5.2. Organization and Good Standing 40
Section 5.3. Authorization 40
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 5.4. No Conflicts or Consents 41
Section 5.5. Enforceable Obligations 41
Section 5.6. Initial Financial Statements 41
Section 5.7. Other Obligations and Restrictions. 41
Section 5.8. Full Disclosure 41
Section 5.9. Litigation 42
Section 5.10. Labor Disputes and Acts of God 42
Section 5.11. ERISA Plans and Liabilities 42
Section 5.12. Compliance with Laws 42
Section 5.13. Environmental Laws 43
Section 5.14. Names and Places of Business 44
Section 5.15. Borrower's Subsidiaries 44
Section 5.16. Title to Properties; Licenses 44
Section 5.17. Government Regulation 45
Section 5.18. Insider 45
Section 5.19. Solvency 45
Section 5.20. Credit Arrangements 45
Section 5.21. Year 2000 45
ARTICLE VI - Affirmative Covenants 46
Section 6.1. Payment and Performance 46
Section 6.2. Books, Financial Statements and Reports 46
Section 6.3. Other Information and Inspections 48
Section 6.4. Notice of Material Events and Change of Address 49
Section 6.5. Maintenance of Properties 50
Section 6.6. Maintenance of Existence and Qualifications 50
Section 6.7. Payment of Trade Liabilities, Taxes, etc. 50
Section 6.8. Insurance 50
Section 6.9. Performance on Borrower's Behalf 50
Section 6.10. Interest 51
Section 6.11. Compliance with Agreements and Law 51
Section 6.12. Environmental Matters; Environmental Reviews 51
Section 6.13. Evidence of Compliance 51
Section 6.14. Agreement to Deliver Security Documents 52
Section 6.15. Perfection and Protection of Security Interests and Lie ns 52
Section 6.16. Bank Accounts; Offset. 52
Section 6.17. Guaranties of Subsidiaries 52
Section 6.19. Year 2000 53
Section 6.21. Rents 53
ARTICLE VII - Negative Covenants 54
Section 7.1. Indebtedness 54
Section 7.2. Limitation on Liens 54
Section 7.3. Hedging Contracts 56
Section 7.4. Limitation on Mergers, Issuances of Securities 57
Section 7.5. Limitation on Sales of Property 57
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 7.6. Limitation on Dividends and Redemptions 58
Section 7.7. Limitation on Investments and New Businesses 58
Section 7.8. Limitation on Credit Extensions 59
Section 7.9. Transactions with Affiliates 59
Section 7.10. Prohibited Contracts 59
Section 7.11. Current Ratio 59
Section 7.12. Debt Coverage Ratio 59
Section 7.13. Interest Coverage Ratio 59
Section 7.14. Fixed Charge Coverage Ratio 60
Section 7.15. Debt to Capital Ratio 60
Section 7.16. Open Inventory Position 60
ARTICLE VIII - Events of Default and Remedies 60
Section 8.1. Events of Default 60
Section 8.2. Remedies 63
ARTICLE IX - Administrative Agent 63
Section 9.1. Appointment and Authority 63
Section 9.2. Exculpation, Administrative Agent's Reliance, Etc. 63
Section 9.3. Credit Decisions 64
Section 9.4. Indemnification 64
Section 9.5. Rights as Lender 65
Section 9.6. Sharing of Set-Offs and Other Payments 65
Section 9.7. Investments 66
Section 9.8. Benefit of Article IX 66
Section 9.9. Resignation 66
Section 9.10. Other Agents 67
ARTICLE X - Miscellaneous 67
Section 10.1. Waivers and Amendments; Acknowledgments 67
Section 10.2. Survival of Agreements; Cumulative Nature 68
Section 10.3. Notices 69
Section 10.4. Payment of Expenses; Indemnity 69
Section 10.5. Joint and Several Liability; Parties in Interest;
Assignments 71
Section 10.6. Confidentiality 73
Section 10.7. Governing Law; Submission to Process 73
Section 10.8. Limitation on Interest 74
Section 10.9. Termination; Limited Survival 74
Section 10.10. Severability 75
Section 10.11. Counterparts 75
Section 10.12. Waiver of Jury Trial, Punitive Damages, etc. 75
Section 10.13. Amendment and Restatement. 75
</TABLE>
iii
<PAGE>
Schedules and Exhibits:
Schedule 1 - Lender Schedule
Schedule 2 - Disclosure Schedule
Schedule 3 - Security Schedule
Schedule 4 - Insurance Schedule
Schedule 5 - Pro Forma EBITDA
Schedule 6 - Offering Documents
Schedule 7 - Borrowing Base Procedures
Exhibit A - Promissory Note
Exhibit B - Borrowing Notice
Exhibit C - Continuation/Conversion Notice
Exhibit D - Forms of Letter of Credit
Exhibit E - Letter of Credit Application and Agreement
Exhibit F - Certificate Accompanying Financial Statements
Exhibit G-1 - Opinion of In-House Counsel for Restricted Persons
Exhibit G-2 - Opinion of Counsel for Restricted Persons
Exhibit G-3 - Opinion of Counsel for Restricted Persons
Exhibit H - Borrowing Base Report
Exhibit I - Environmental Compliance Certificate
Exhibit J - Assignment and Acceptance Agreement
Exhibit L - Intercreditor Agreement
iv
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is made as of November __, 1998,
by and among PLAINS MARKETING, L.P. ("Borrower"), a Delaware limited
partnership, ALL AMERICAN, L.P. ("All American"), a Delaware limited
partnership, PLAINS ALL AMERICAN PIPELINE, L.P. ("Plains MLP"), a Delaware
limited partnership, and BANKBOSTON, N.A., as administrative agent (in such
capacity, "Administrative Agent"), BANCBOSTON ROBERTSON STEPHENS INC., as
syndication agent (in such capacity, "Syndication Agent"), ING BARING FURMAN
SELZ LLC, as documentation agent (in such capacity, "Documentation Agent") and
the Lenders referred to below.
RECITALS
1. Plains Marketing & Transportation Inc., a Delaware corporation
("PMTI"), is party to a Credit Agreement dated as of July 30, 1998 with
Administrative Agent, BancBoston Robertson Stephens Inc., as Syndication Agent,
ING (U.S.) Capital Corporation, as Documentation Agent, and certain Lenders
named therein (the "Existing Agreement").
2. Pursuant to the [Merger Agreement among Plains Resources Inc.
("Resources"), PMTI, and certain other Subsidiaries of Resources of even date
herewith] PMTI and such Subsidiaries of Resources will be merged with and into
Resources and the liabilities of PMTI and such Subsidiaries of Resources will be
assumed by Resources.
3. Pursuant to the [Purchase and Sale Agreement between Resources and
Borrower of even date herewith] the assets and liabilities of PMTI and such
other Subsidiaries of Resources acquired by Resources pursuant to such merger
will be assigned to and assumed by Borrower.
4. The Administrative Agent and Lenders party to the Existing Agreement
have consented to such transactions, subject to the agreement by Borrower to
amend and restate the Existing Agreement as provided herein;
In consideration of the mutual covenants and agreements contained herein
the parties hereto agree as follows:
ARTICLE I - Definitions and References
Section 1.1. Defined Terms. As used in this Agreement, each of the
following terms has the meaning given to such term in this Section 1.1 or in
the sections and subsections referred to below:
"Acceptable Issuer" means any national or state bank or trust company which
is organized under the laws of the United States of America or any state thereof
or any branch licensed to operate under the laws of the United States of America
or any state thereof, which is a branch of a bank organized under any country
which is a member of the Organization for Economic
<PAGE>
Cooperation and Development, in each case which has capital, surplus and
undivided profits of at least $500,000,000 and whose commercial paper is rated
at least P-1 by Moody's or A-1 by S&P.
"Account" shall have the meaning given that term in the UCC.
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account.
"Adjusted Eurodollar Rate" means, with respect to each particular
Eurodollar Loan and the related Interest Period, the rate per annum (rounded
upwards, if necessary, to the nearest 1/1000 of 1%) determined by Administrative
Agent to be equal to the quotient obtained by dividing (i) the Eurodollar Rate
for such Eurodollar Loan for such Interest Period by (ii) 1 minus the Reserve
Requirement for such Eurodollar Loan for such Interest Period. The Adjusted
Eurodollar Rate for any Eurodollar Loan shall change whenever the Reserve
Requirement changes.
"Administrative Agent" means BankBoston, N.A., as Administrative Agent
hereunder, and its successors in such capacity.
"Affiliate" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person. A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power
(a) to vote 5% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners; or
(b) to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise.
"Affiliate Agreements" means [that certain marketing agreement of even date
herewith among Operating, Resources and certain Subsidiaries of Resources and
that certain Omnibus Agreement of even date herewith between Plains MLP and
Resources].
"Agreement" means this Amended and Restated Credit Agreement.
"All American" means All American, L.P., a Delaware limited partnership.
"All American Agreement" means that certain Amended and Restated Credit
Agreement of even date herewith among Borrower, All American, Plains MLP, the
Agents named therein and certain financial institutions as Lenders.
"All American Revolver Availability" means for any day, the unutilized
portion available on such day of the commitment for revolving credit loans to
All American pursuant to the All American Agreement.
2
<PAGE>
"All American Term Loans" means those certain loans made to All American
pursuant to the All American Agreement which are evidenced by a "Term Note" (as
such term is defined in the All American Agreement).
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of Base Rate Loans and such
Lender's Eurodollar Lending Office in the case of Eurodollar Loans.
"Applicable Leverage Level" means the level set forth below that
corresponds to the ratio of (i) Consolidated Indebtedness of Plains MLP and its
Subsidiaries to (ii) the Consolidated EBITDA for the applicable period of four
Fiscal Quarters (the "Leverage Ratio"):
<TABLE>
<CAPTION>
===================================================
Applicable
Leverage Level Leverage Ratio
- ---------------------------------------------------
<S> <C>
Level I greater than or equal to 4.0
to 1.0
- ---------------------------------------------------
Level II greater than or equal to 3.0
to
1.0 but less than 4.0 to 1.0
- ---------------------------------------------------
Level III greater than or equal to 2.0
to
1.0 but less than 3.0 to 1.0
- ---------------------------------------------------
Level IV less than 2.0 to 1.0
===================================================
</TABLE>
The Leverage Ratio will be determined quarterly by Administrative Agent within
two (2) Business Days after Administrative Agent's receipt of Plains MLP's
Consolidated financial statements for the immediate preceding Fiscal Quarter
based upon: (i) Consolidated Indebtedness as of the end of such Fiscal Quarter,
and (ii) the Consolidated EBITDA for the four Fiscal Quarters ending with such
Fiscal Quarter. The Applicable Leverage Level shall become effective upon such
determination of the Leverage Ratio by Administrative Agent and shall remain
effective until the next such determination by Administrative Agent of the
Leverage Ratio. From the date hereof until the date the Administrative Agent
has determined the Leverage Ratio based on the December 31, 1998 Fiscal Quarter,
the Applicable Leverage Level shall be Level [II].
"Applicable Rating Level" means, for any day, the level set forth below
that corresponds to the higher of the ratings publicly announced by Moody's or
S&P, as applicable on that day, to the Term Loans; provided that if ratings
announced by Moody's and S&P differ by more than two (2) levels on such day,
then the Applicable Rating Level shall be based upon the level which is one
level lower than the higher.
3
<PAGE>
========================================
Applicable
Rating Level Moody's S&P
- ----------------------------------------
Level A * Baa3 * BBB-
- ----------------------------------------
Level B ** Baa3 ** BBB-
========================================
"*" means greater than or equal to and "**" means less than. If neither Moody's
or S&P shall have in effect a rating for the Term Loans, then the Applicable
Rating Level shall be deemed to be Level B. If the rating system of either
rating agency shall change, or if a rating agency shall cease to be in the
business of rating corporate debt obligations, Plains MLP and the Lenders shall
negotiate in good faith to amend this definition to reflect such changed rating
system or the unavailability of ratings from such rating agency, but until such
an agreement shall be reached, the Applicable Rating Level shall be based only
upon the rating by the remaining rating agency.
"Approved Eligible Receivables" means each Eligible Receivable (other than
Eligible Exchange Balances) (a) from a Person whose Debt Rating is either at
least Baa3 by Moody's or at least BBB- by S&P; (b) fully and unconditionally
guaranteed as to payment by a Person whose Debt Rating is either at least Baa3
by Moody's or at least BBB- by S&P; (c) from any other Person Currently Approved
by Majority Lenders; or (d) fully covered by a letter of credit from an
Acceptable Issuer.
"Available Cash" has the meaning given such term as of the date of this
Agreement in the Amended and Restated Agreement of Limited Partnership of Plains
All American Pipeline, L.P. dated as of _____________, 1998.
"Base Rate" means the higher of (a) the annual rate of interest announced
from time to time by Administrative Agent at its "base rate" at its head office
in Boston, Massachusetts, or (b) the Federal Funds Rate plus one-half percent
(0.5%) per annum; provided that such rate may not be the lowest rate at which
funds are made available to customers of Administrative Agent at such time.
Each change in the Base Rate shall become effective without prior notice to
Borrower automatically as of the opening of business on the date of such change
in the Base Rate.
"Base Rate Loan" means a Loan which does not bear interest at the Adjusted
Eurodollar Rate.
"Borrower" means Plains Marketing, L.P., a Delaware limited partnership.
"Borrowing" means a borrowing of new Loans of a single Type pursuant to
Section 2.2 or a Continuation or Conversion of all or a portion of an existing
Loan (whether alone or as a combination with a new Loan) into a single Type
(and, in the case of Eurodollar Loans, with the same Interest Period) pursuant
to Section 2.3.
"Borrowing Base" means the remainder of (a) minus (b) below as of the date
of determination:
(a) the sum of the following as of the date of determination:
(i) 100% of Eligible Cash Equivalents; plus
4
<PAGE>
(ii) 90% of Approved Eligible Receivables; plus
(iii) the lesser of (A) 85% of Other Eligible Receivables or (B) 1/3
of the sum of the amounts of clauses (a)(i) plus (a)(ii) [(i.e.,
(a)(i) plus (a)(ii) must be 75% of (a)(i) plus (a)(ii) plus
(a)(iii); plus
(iv) 85% of Eligible Margin Deposits; plus
(v) the lesser of (A) 95% of Hedged Eligible Inventory plus 100% of
Other Eligible Inventory Value or (B) $40,000,000; plus
(vi) 80% of Eligible Exchange Balances, plus
(vii) 100% of all Paid but Unexpired Letters of Credit
MINUS (b) the following as of the date of determination:
(i) 100% of First Purchase Crude Payables; plus
(ii) 100% of Other Priority Claims, plus
(iii) The Estimate Adjustment Amount as provided in Section 2.13.
"Borrowing Notice" means a written or telephonic request, or a written
confirmation, made by Borrower which meets the requirements of Section 2.2.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Boston, Massachusetts.
Any Business Day in any way relating to Eurodollar Loans (such as the day on
which an Interest Period begins or ends) must also be a day on which, in the
judgment of Administrative Agent, significant transactions in dollars are
carried out in the London interbank eurocurrency market.
"Capital Lease" means a lease with respect to which the lessee is required
concurrently to recognize the acquisition of an asset and the incurrence of a
liability in accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Person and a Capital
Lease, the amount of the obligation of such Person as the lessee under such
Capital Lease which would, in accordance with GAAP, appear as a liability on a
balance sheet of such Person.
"Cash Equivalents" means Investments in:
(a) marketable obligations, maturing within 12 months after acquisition
thereof, issued or unconditionally guaranteed by the United States of America or
an instrumentality or agency thereof and entitled to the full faith and credit
of the United States of America;
5
<PAGE>
(b) demand deposits and time deposits (including certificates of deposit)
maturing within 12 months from the date of deposit thereof, (i) with any office
of any Lender or (ii) with a domestic office of any national or state bank or
trust company which is organized under the Laws of the United States of America
or any state therein, which has capital, surplus and undivided profits of at
least $500,000,000, and whose long-term certificates of deposit are rated at
least Aa3 by Moody's or AA- by S&P;
(c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in subsection (a) above entered
into with (i) any Lender or (ii) any other commercial bank meeting the
specifications of subsection (b) above;
(d) open market commercial paper, maturing within 270 days after
acquisition thereof, which are rated at least P-1 by Moody's or A-1 by S&P; and
(e) money market or other mutual funds substantially all of whose assets
comprise securities of the types described in subsections (a) through (d) above.
"Change of Control" means the occurrence of any of the following events:
(i) an event or series of events by which any Person or other entity or group of
Persons or other entities acting in concert as a partnership or other group (a
"Group of Persons") shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, merger, consolidation or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended) of 40% or more of the
combined voting power of the then outstanding voting stock of Resources, (ii)
during any period of two consecutive years (A) the members of the board of
directors of Resources (the "Board") as of January 1, 1998, (B) any director
elected thereafter in any annual meeting of the stockholders of Resources upon
the recommendation of the Board, and (C) any other member of the Board who will
be recommended or elected to succeed those Persons described in subclauses (A)
and (B) of this clause (ii) by a majority of such Persons who are then members
of the Board, cease for any reason to constitute collectively a majority of the
Board then in office, (iii) the direct or indirect sale, lease, exchange or
other transfer of all or substantially all of the Consolidated assets of
Resources and its Subsidiaries, to any Person or Group of Persons, or (iv)
Resources, either directly or through a wholly owned Subsidiary of Resources,
shall cease to be the legal and beneficial owner (as defined above) of more than
50% of the voting percent of the outstanding voting stock of General Partner, or
General Partner shall cease to be the sole legal and beneficial owner (as
defined above) of all of the general partnership interests (including all
securities which are convertible into general partnership interests) of Plains
MLP, All American, or Borrower, (v) any Person or Group of Persons other than
Resources or any Subsidiary of Resources shall be the beneficial owner (as
defined above) of 50% or more of the combined voting power of the then total
partnership interests in Plains MLP, or (vi) Resources and its wholly owned
Subsidiaries taken as a whole shall hold legal and beneficial ownership of
issued and outstanding partnership interests of Plains MLP representing less
than 5% of the total outstanding partnership interests of Plains MLP.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, together with all rules and regulations promulgated with respect thereto.
6
<PAGE>
"Collateral" means all property of any kind which is subject to a Lien in
favor of Lenders (or in favor of Administrative Agent for the benefit of
Lenders) or which, under the terms of any Security Document, is purported to be
subject to such a Lien, in each case granted or created to secure all or part of
the Obligations.
"Commitment Period" means the period from and including the date hereof
until July 31, 2001 (or, if earlier, the day on which (i) the obligation of
Lenders to make Loans hereunder and the obligations of LC Issuer to issue
Letters of Credit hereunder have terminated, (ii) the obligation of LC Issuer to
issue Letters of Credit hereunder has terminated, or (iii) the Notes first
become due and payable in full, whichever shall first occur).
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.
"Consolidated EBITDA" means, for any four-Fiscal Quarter period, the sum of
(1) the Consolidated Net Income of Plains MLP and its Subsidiaries during such
period, plus (2) all interest expense which was deducted in determining such
Consolidated Net Income for such period, plus (3) all income taxes (including
any franchise taxes to the extent based upon net income) which were deducted in
determining such Consolidated Net Income, plus (4) all depreciation,
amortization (including amortization of good will and debt issue costs) and
other non-cash charges (including any provision for the reduction in the
carrying value of assets recorded in accordance with GAAP) which were deducted
in determining such Consolidated Net Income, minus (5) all non-cash items of
income which were included in determining such Consolidated Net Income. For the
Fiscal Quarters preceding the date hereof, Consolidated EBITDA shall be mean the
pro forma Consolidated EBITDA reflected on Schedule 5 for such Fiscal Quarter.
"Consolidated Indebtedness" means all Indebtedness of Plains MLP and,
without duplication, all Indebtedness any of its Subsidiaries after eliminating
(i) all intercompany items between Plains MLP and its Subsidiaries required to
be eliminated in the course of the preparation of Consolidated financial
statements in accordance with GAAP and (ii) any Liability related to any
unrealized gains or losses from a mark to market of any Hedging Contracts.
"Consolidated Net Income" means, for any period, Plains MLP's and its
Subsidiaries' gross revenues for such period, including any cash dividends or
distributions actually received from any other Person during such period, minus
Plains MLP's and its Subsidiaries' expenses and other proper charges against
income (including taxes on income to the extent imposed), determined on a
Consolidated basis after eliminating earnings or losses attributable to
outstanding minority interests and excluding the net earnings of any Person
other than a Subsidiary in which Plains MLP or any of its Subsidiaries has an
ownership interest. Consolidated Net Income shall not include any gain or loss
from the sale of assets or any extraordinary gains or losses.
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<PAGE>
"Consolidated Net Worth" means the remainder of all Consolidated assets, as
determined in accordance with GAAP, of Plains MLP and its Subsidiaries minus the
sum of (a) Plains MLP's Consolidated liabilities, as determined in accordance
with GAAP, and (b) all outstanding Minority Interests. The effect of any
increase or decrease in net worth in any period as a result of any unrealized
gains or losses from a mark to market of any Hedging Contracts not reflected in
the determination of net income but reflected in the determination of
comprehensive income shall be excluded in determining Consolidated Net Worth.
"Minority Interests" means the book value of any equity interests in any of
Plains MLP's Subsidiaries (exclusive of the [1.00%] general partnership
interests held by the General Partner which equity interests are owned by
Persons other than Plains MLP or one of its wholly owned Subsidiaries.
"Continuation/Conversion Notice" means a written or telephonic request, or
a written confirmation, made by Borrower which meets the requirements of Section
2.3.
"Continue", "Continuation", and "Continued" shall refer to the continuation
pursuant to Section 2.3 hereof of a Eurodollar Loan as a Eurodollar Loan from
one Interest Period to the next Interest Period.
"Currently Approved by Majority Lenders" means such Person (including a
limit on the maximum credit exposure to any such Person), storage location,
pipeline, form of Letter of Credit or other matter as the case may be, as
reflected in the most recent written notice given by Administrative Agent to
Borrower as being approved by Majority Lenders. Each such written notice will
supersede and revoke each prior notice.
"Convert", "Conversion", and "Converted" shall refer to a conversion
pursuant to Section 2.3 or Article III of one Type of Loan into another Type of
Loan.
"Debt Rating" means with respect to a Person, the rating then in effect by
a Rating Agency for the long term senior unsecured non-credit enhanced debt of
such Person.
"Default" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"Default Rate" means, at the time in question, (i) three and three-fourths
percent (3.75%) per annum plus the Adjusted Eurodollar Rate then in effect for
any Eurodollar Loan (up to the end of the applicable Interest Period) or (ii)
two percent (2%) per annum plus the Base Rate for each Base Rate Loan; provided,
however, the Default Rate shall never exceed the Highest Lawful Rate.
"Default Rate Period" means (i) any period during which an Event of
Default, other than pursuant to Section 8.1 (a) or (b), is continuing, provided
that such period shall not begin until notice of the commencement of the Default
Rate has been given to Borrower by Administrative Agent upon the instruction by
Majority Lenders and (ii) any period during which any Event of Default pursuant
to Section 8.1 (a) or (b) is continuing unless Borrower has been notified
otherwise by Administrative Agent upon the instruction by Majority Lenders.
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<PAGE>
"Disclosure Schedule" means Schedule 2 hereto.
"Domestic Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Domestic Lending Office" in the Lender Schedule
hereto, or such other office as such Lender may from time to time specify to
Borrower and Administrative Agent; with respect to LC Issuer, the office,
branch, or agency through which it issues Letters of Credit; and, with respect
to Administrative Agent, the office, branch, or agency through which it
administers this Agreement.
"Eligible Cash Equivalents" means Cash Equivalents in which Borrower has
lawful and absolute title, which are free from any express or implied at law
Lien, trust or other beneficial interest, in which Administrative Agent holds a
fully perfected first-priority security interest prior to the rights of, and
enforceable as such against, any other Persons pursuant to an account agreement
satisfactory to Administrative Agent and which remain under the sole dominion
and control of Administrative Agent.
"Eligible Exchange Balances" means each Approved Eligible Receivable
(including for this purpose only either the right to receive crude oil in kind
or to receive money) arising from the trading, lending, borrowing or exchange of
crude oil, net of any netted obligations or other offsets or counterclaims
determined in accordance with prices set forth in the applicable exchange
contracts, based on current value at the Market Price, in which Borrower has
lawful and absolute title, which is not subject to any Lien in favor of any
Person (other than Permitted Inventory Liens), and which is subject to a fully
perfected first-priority security interest (subject only to Permitted Inventory
Liens) in favor of Administrative Agent pursuant to the Loan Documents prior to
the rights of, and enforceable as such against, any other Persons minus without
duplication the amount of any Permitted Inventory Lien on any crude oil
receivable in kind.
"Eligible Inventory" means inventories of crude oil in which Borrower has
lawful and absolute title, which are not subject to any Lien in favor of any
Person (other than Permitted Inventory Liens), which are subject to a fully
perfected first priority security interest (subject only to Permitted Inventory
Liens) in favor of Administrative Agent pursuant to the Loan Documents prior to
the rights of, and enforceable as such against, any other Person, which are
otherwise satisfactory to Majority Lenders in their reasonable business judgment
and which are located in storage locations (including pipelines) which are
either (a) owned by a wholly owned Subsidiary of Resources or (b) Currently
Approved by Majority Lenders minus without duplication the amount of any
Permitted Inventory Lien on any such inventory.
"Eligible Margin Deposit" means net equity value of investments by Borrower
in margin deposit accounts with commodities brokers on nationally recognized
exchanges subject to a perfected security interest in favor of Administrative
Agent and a three-party agreement among Borrower, Administrative Agent and the
depository institution, in form and substance satisfactory to Administrative
Agent.
"Eligible Receivables" means, at the time of any determination thereof (and
without duplication), each Account and, with respect to each determination made
on or after the 20th day of each calendar month and prior to the first day of
the next calendar month, each amount which
9
<PAGE>
will be, in the good faith estimate reasonably determined by Borrower, an
Account of the Borrower with respect to sales and deliveries of crude oil during
the remainder of such calendar month or deliveries of crude oil during the next
calendar month under firm written purchase and sale agreements, in either event
as to which the following requirements have been fulfilled (or as to future
Accounts, will be fulfilled as of the date of such sales and deliveries of crude
oil), to the reasonable satisfaction of Administrative Agent:
(i) Borrower has lawful and absolute title to such Account;
(ii) such Account is a valid, legally enforceable obligation of an
Account Debtor payable in United States dollars, arising from the sale and
delivery of crude oil to such Person in the United States of America in the
ordinary course of business of Borrower, to the extent of the volumes of
crude oil delivered to such Person prior to the date of determination;
(iii) there has been excluded from such Account (A) any portion that
is subject to any dispute, rejection, loss, non-conformance, counterclaim
or other claim or defense on the part of any Account Debtor or to any claim
on the part of any Account Debtor denying liability under such Account, and
(B) the amount of any account payable or other liability owed by Borrower
to the Account Debtor on such Account, whether or not a specific netting
agreement may exist, excluding, however, any portion of any such account
payable or other liability which is at the time in question covered by a
Letter of Credit;
(iv) Borrower has the full and unqualified right to assign and grant
a security interest in such Account to Administrative Agent as security for
the Obligation;
(v) such Account (A) is evidenced by an invoice rendered to the
Account Debtor, or (B) represents the uninvoiced amount in respect to
actual deliveries of crude oil not earlier than 45 days prior to the date
of determination and is governed by a purchase and sale agreement,
exchange agreement or other written agreement, and in either event such
Account is not evidenced by any promissory note or other instrument;
(vi) such Account is not subject to any Lien in favor of any Person
and is subject to a fully perfected first priority security interest in
favor of Administrative Agent pursuant to the Loan Documents, prior to the
rights of, and enforceable as such against, any other Person except for a
Lien in respect of First Purchase Crude Payables;
(vii) such Account is due not more than 30 days following the last
day of the calendar month in which the crude oil delivery occurred and is
not more than 30 days past due (except that Accounts of a single Account
Debtor in excess of $500,000 which are not Approved Eligible Receivables
shall be excluded from Eligible Receivables if not paid within three
Business Days after the due date);
(viii) such Account is not payable by an Account Debtor with more
than twenty percent (20%) of its Accounts to Borrower that are outstanding
more than 60 days from the invoice date;
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<PAGE>
(ix) the Account Debtor in respect of such Account (A) is located, is
conducting significant business or has significant assets in the United
States of America or is a Person Currently Approved by Majority Lenders,
(B) is not an Affiliate of Borrower, and (C) is not the subject of any
event of the type described in Section 8.1(i);
(x) the Account Debtor in respect of such Account is not a
governmental authority, domestic or foreign; and
(xi) such Account is not the obligation of an Account Debtor that
Administrative Agent or Majority Lenders determine in good faith that there
is a legitimate concern over the timing or collection of such receivable.
"Eligible Transferee" means a Person which either (a) is a Lender, or (b)
is consented to as an Eligible Transferee by Administrative Agent and, so long
as no Default or Event of Default is continuing, by Borrower, which consents in
each case will not be unreasonably withheld (provided that no Person organized
outside the United States may be an Eligible Transferee if Borrower would be
required to pay withholding taxes on interest or principal owed to such Person).
"Environmental Laws" means any and all Laws relating to the environment or
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes
into the environment including ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing, distribution use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Affiliate" means each Restricted Person and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control that, together with such Restricted Person,
are treated as a single employer under Section 414 of the Code.
"ERISA Plan" means any employee pension benefit plan subject to Title IV of
ERISA maintained by any ERISA Affiliate with respect to which any Restricted
Person has a fixed or contingent liability.
"Eurodollar Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Eurodollar Lending Office" on the Lender
Schedule hereto (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to Borrower and Administrative Agent.
"Eurodollar Loan" means a Loan that bears interest at a rate based upon the
Adjusted Eurodollar Rate.
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<PAGE>
"Eurodollar Rate" means, for any Eurodollar Loan within a Borrowing and
with respect to the related Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/1000 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If for any reason such rate is not available, the term
"Eurodollar Rate" shall mean, for any Eurodollar Loan within a Borrowing and
with respect to the related Interest Period therefor, the rate per annum
(rounded upwards, if necessary, to the nearest 1/1000 of 1%) appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates
(rounded upwards, if necessary, to the nearest 1/1000 of 1%).
"Eurodollar Rate Margin" means the percent per annum set forth below on the
Applicable Leverage Level in effect on such date.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Applicable Rating Level
- ---------------------------------------------------------
Applicable Leverage Level Level A Level B
- ---------------------------------------------------------
<S> <C> <C>
Level I 1.50% 1.75%
- ---------------------------------------------------------
Level II 1.25% 1.50%
- ---------------------------------------------------------
Level III 1.00% 1.25%
- ---------------------------------------------------------
Level IV .75% 1.00%
- ---------------------------------------------------------
</TABLE>
Changes in the Eurodollar Rate Margin will occur automatically without prior
notice as changes in the Applicable Leverage Level or Applicable Rating Level
occur. Administrative Agent will give notice promptly to Borrower and the
Lenders of Applicable Rating Level changes in the Eurodollar Rate Margin.
"Event of Default" has the meaning given to such term in Section 8.1.
"Existing Agreement" means that certain Credit Agreement among PMTI,
Administrative Agent, ING (U.S.) Capital Corporation, as Documentation Agent,
BancBoston Securities, Inc., as Syndication Agent and other financial
institutions dated as of July 30, 1998, as amended, restated or supplemented to
the date hereof.
"Facility Usage" means, at the time in question, the aggregate amount of
outstanding Loans and LC Obligations at such time.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of one percent) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by
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<PAGE>
Federal funds brokers on such day, as published by the Federal Reserve Bank of
New York on the Business Day next succeeding such day, provided that (i) if the
day for which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day, and
(ii) if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate quoted to Administrative Agent on such day on
such transactions as determined by Administrative Agent.
"First Purchase Crude Payables" means the unpaid amount of any payable
obligation related to the purchase of crude oil by Borrower which Administrative
Agent determines will be secured by a statutory Lien, including but not limited
to the statutory Liens created under the laws of Texas, New Mexico and Wyoming,
to the extent such payable obligation is not at the time in question covered by
a Letter of Credit.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of Plains MLP and its
Consolidated Subsidiaries, are applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the audited Initial Financial Statements. If any change in any
accounting principle or practice is required by the Financial Accounting
Standards Board (or any such successor) in order for such principle or practice
to continue as a generally accepted accounting principle or practice, all
reports and financial statements required hereunder with respect to Plains MLP
or with respect to Plains MLP and its Consolidated Subsidiaries may be prepared
in accordance with such change, but all calculations and determinations to be
made hereunder may be made in accordance with such change only after notice of
such change is given to each Lender, and Majority Lenders agree to such change
insofar as it affects the accounting of Plains MLP or of Plains MLP and its
Consolidated Subsidiaries.
"General Partner" means Plains All American Inc., a Delaware corporation.
"Guarantors" means Plains MLP and all of its Subsidiaries (including All
American but excluding Borrower) and any other Person who has guaranteed some or
all of the Obligations and who has been accepted by Administrative Agent as a
Guarantor or any Subsidiary of Plains MLP which now or hereafter executes and
delivers a guaranty to Administrative Agent pursuant to Section 6.17.
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants, or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise.
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<PAGE>
"Hedged Eligible Inventory" means Eligible Inventory, which has been (a)
hedged on the New York Mercantile Exchange arranged through brokers approved by
Administrative Agent and with whom a three party agreement among Borrower,
Administrative Agent and such broker has been entered in form and substance
satisfactory to Administrative Agent or (b) otherwise hedged in a manner
satisfactory to Majority Lenders. The value of Hedged Eligible Inventory shall
be the volume of the inventory times the prices fixed in such hedge, minus all
storage, transportation and other applicable costs.
"Hedging Contract" means (a) any agreement providing for options, swaps,
floors, caps, collars, forward sales or forward purchases involving interest
rates, commodities or commodity prices, equities, currencies, bonds, or indexes
based on any of the foregoing, (b) any option, futures or forward contract
traded on an exchange, and (c) any other derivative agreement or other similar
agreement or arrangement. [add provision excluding normal purchase, sale and
exchange contracts by Borrower]
"Highest Lawful Rate" means, with respect to each Lender Party to whom
Obligations are owed, the maximum nonusurious rate of interest that such Lender
Party is permitted under applicable Law to contract for, take, charge, or
receive with respect to such Obligations. All determinations herein of the
Highest Lawful Rate, or of any interest rate determined by reference to the
Highest Lawful Rate, shall be made separately for each Lender Party as
appropriate to assure that the Loan Documents are not construed to obligate any
Person to pay interest to any Lender Party at a rate in excess of the Highest
Lawful Rate applicable to such Lender Party.
"Incentive and Option Plans" means the Plains All American Inc. 1998 Long-
Term Incentive Plan as in effect on the date hereof and the Plains All American
Inc. Management Incentive Plan as in effect on the date hereof.
"Indebtedness" of any Person means its Liabilities (without duplication) in
any of the following categories:
(a) Liabilities for borrowed money,
(b) Liabilities constituting an obligation to pay the deferred purchase
price of property or services,
(c) Liabilities evidenced by a bond, debenture, note or similar
instrument,
(d) Liabilities (other than reserves for taxes and reserves for contingent
obligations) which (i) would under GAAP be shown on such Person's balance sheet
as a liability and (ii) are payable more than one year from the date of creation
or incurrence thereof,
(e) Liabilities arising under Hedging Contracts (on a net basis to the
extent netting is provided for in the applicable Hedging Contract),
(f) Liabilities arising under operating leases or constituting principal
under Capital Leases,
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<PAGE>
(g) Liabilities arising under conditional sales or other title retention
agreements,
(h) Liabilities owing under direct or indirect guaranties of Liabilities
of any other Person or otherwise constituting obligations to purchase or acquire
or to otherwise protect or insure a creditor against loss in respect of
Liabilities of any other Person (such as obligations under working capital
maintenance agreements, agreements to keep-well, or agreements to purchase
Liabilities, assets, goods, securities or services), but excluding endorsements
in the ordinary course of business of negotiable instruments in the course of
collection,
(i) Liabilities consisting of an obligation to purchase or redeem
securities or other property, if such Liabilities arises out of or in connection
with the sale or issuance of the same or similar securities or property (for
example, repurchase agreements, mandatorily redeemable preferred stock and
sale/leaseback agreements),
(j) Liabilities with respect to letters of credit or applications or
reimbursement agreements therefor,
(k) Liabilities with respect to banker's acceptances, or
(l) Liabilities with respect to obligations to deliver goods or services
in consideration of advance payments therefor;
provided, however, that the "Indebtedness" of any Person shall not include
Liabilities that were incurred in the ordinary course of business by such Person
on ordinary trade terms to vendors, suppliers or other Persons providing goods
and services for use by such Person in the ordinary course of its business,
unless and until such Liabilities are outstanding more than 120 days after the
date the respective goods are delivered or the respective services are rendered,
other than Liabilities contested in good faith by appropriate proceedings, if
required, and for which adequate reserves are maintained on the books of such
Person in accordance with GAAP.
"Initial Financial Statements" means the audited pro forma Consolidated
financial statements of Plains MLP as of September 30, 1998.
"Insurance Schedule" means Schedule 4 attached hereto.
"Interest Expense" means, with respect to any period, the sum (without
duplication) of the following (in each case, eliminating all offsetting debits
and credits between Plains MLP and its Subsidiaries and all other items required
to be eliminated in the course of the preparation of consolidated financial
statements of Plains MLP and its Subsidiaries in accordance with GAAP): (a) all
interest and commitment fees in respect of Indebtedness of Plains MLP or any of
its Subsidiaries (including imputed interest on Capital Lease Obligations) which
are accrued during such period and whether expensed in such period or
capitalized; plus (b) all fees, expenses and charges in respect of letters of
credit issued for the account of Plains MLP or any of its Subsidiaries, which
are accrued during such period and whether expensed in such period or
capitalized.
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<PAGE>
"Interest Payment Date" means (a) with respect to each Base Rate Loan, the
last day of each March, June, September and December, and (b) with respect to
each Eurodollar Loan, the last day of the Interest Period that is applicable
thereto.
"Interest Period" means, with respect to each particular Eurodollar Loan in
a Borrowing, the period specified in the Borrowing Notice or
Continuation/Conversion Notice applicable thereto, beginning on and including
the date specified in such Borrowing Notice or Continuation/Conversion Notice
(which must be a Business Day), and ending one, two or three months thereafter,
as Borrower may elect in such notice; provided that: (a) any Interest Period
which would otherwise end on a day which is not a Business Day shall be extended
to the next succeeding Business Day unless such Business Day falls in another
calendar month, in which case such Interest Period shall end on the next
preceding Business Day; (b) any Interest Period which begins on the last
Business Day in a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day in a calendar month; and (c) notwithstanding
the foregoing, no Interest Period may be selected that would end after the last
day of the Commitment Period.
"Investment" means any investment made, directly or indirectly in any
Person, whether by acquisition of shares of capital stock, indebtedness or other
obligations or securities or by loan, advance, capital contribution or otherwise
and whether made in cash, by the transfer of property or by any other means.
"Law" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof or of any foreign country or any department, province or
other political subdivision thereof.
"LC Application" means any application for a Letter of Credit hereafter
made by Borrower to LC Issuer.
"LC Collateral" has the meaning given to such term in Section 2.11(a).
"LC Issuer" means BankBoston, N.A. in its capacity as the issuer of Letters
of Credit hereunder, and its successors in such capacity. Administrative Agent
may, with the consent of Borrower and the Lender in question, appoint any Lender
hereunder as an LC Issuer in place of or in addition to BankBoston, N.A.
"LC Obligations" means, at the time in question, the sum of all Matured LC
Obligations plus the maximum amounts which LC Issuer might then or thereafter be
called upon to advance under all Letters of Credit then outstanding.
"Lease Rentals" means, with respect to any period, the sum of the rental
and other obligations required to be paid during such period by Plains MLP or
any Subsidiary of Plains MLP as lessee under all leases of real or personal
property (other than Capital Leases), excluding any amount required to be paid
by the lessee (whether or not therein designated as rental or additional rental)
on account of maintenance and repairs, insurance, taxes, assessments, water
16
<PAGE>
rates and similar charges, provisions that, if at the date of determination, any
such rental or other obligations are contingent or not otherwise definitely
determinable by terms of the related lease, the amount of such obligations (i)
shall be assumed to be equal to the amount of such obligations for the period of
12 consecutive calendar months immediately preceding the date of determination
or (ii) if the related lease was not in effect during such preceding 12-month
period, shall be the amount estimated by a senior financial officer of Plains
MLP on a reasonable basis and in good faith.
"Lender Parties" means Administrative Agent, Syndication Agent,
Documentation Agent, LC Issuer, and all Lenders.
"Lender Schedule" means Schedule 1 hereto.
"Lenders" means each signatory hereto (other than Borrower and any
Restricted Person that is a party hereto), including BankBoston, N.A. in its
capacity as a Lender hereunder rather than as Administrative Agent and LC
Issuer, and the successors of each such party as holder of a Note.
"Letter of Credit" means any letter of credit issued by LC Issuer hereunder
at the application of Borrower.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP.
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Liabilities owed to it or any other arrangement
with such creditor which provides for the payment of such Liabilities out of
such property or assets or which allows such creditor to have such Liabilities
satisfied out of such property or assets prior to the general creditors of any
owner thereof, including any lien, mortgage, security interest, pledge, deposit,
production payment, rights of a vendor under any title retention or conditional
sale agreement or lease substantially equivalent thereto, tax lien, mechanic's
or materialman's lien, or any other charge or encumbrance for security purposes,
whether arising by Law or agreement or otherwise, but excluding any right of
offset which arises without agreement in the ordinary course of business.
"Lien" also means any filed financing statement, any registration of a pledge
(such as with an issuer of uncertificated securities), or any other arrangement
or action which would serve to perfect a Lien described in the preceding
sentence, regardless of whether such financing statement is filed, such
registration is made, or such arrangement or action is undertaken before or
after such Lien exists.
"Loans" has the meaning given to such term in Section 2.1.
"Loan Documents" means this Agreement, the Notes, the Security Documents,
the Letters of Credit, the LC Applications, and all other agreements,
certificates, documents, instruments and
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writings at any time delivered in connection herewith or therewith (exclusive of
term sheets and commitment letters).
"Majority Lenders" means Lenders whose aggregate Percentage Shares equal or
exceed sixty-six and two-thirds percent (66-2/3%).
"Market Price" means on each day a spot price for the inventory of crude
oil being valued, determined by published prices and methodology approved by
Administrative Agent from time to time, based on an index gravity and grade of
crude oil at a delivery point reflecting as nearly as practical the actual
gravity, grade, and location of the crude oil being valued, adjusted to reflect
any differences in gravity and grade between the index crude oil and the actual
inventory and to reflect transportation costs or other appropriate location
price differential from the actual location to the index location.
"Material Adverse Change" means a material and adverse change, from the
state of affairs presented in the Initial Financial Statements or as represented
or warranted in any Loan Document, to (a) Plains MLP's Consolidated financial
condition, (b) Plains MLP's Consolidated operations, properties or prospects,
considered as a whole, (c) Borrower's ability to timely pay the Obligations, or
(d) the enforceability of the material terms of any Loan Document.
"Material Market Open Position Loss" means a cumulative amount of net
losses resulting from open inventory positions of all Restricted Persons on a
mark to market basis during any period of 12 consecutive months in excess of
$5,000,000.
"Matured LC Obligations" means all amounts paid by LC Issuer on drafts or
demands for payment drawn or made under or purported to be under any Letter of
Credit and all other amounts due and owing to LC Issuer under any LC Application
for any Letter of Credit, to the extent the same have not been repaid to LC
Issuer (with the proceeds of Loans or otherwise).
"Maximum Drawing Amount" means at the time in question the sum of the
maximum amounts which LC Issuer might then or thereafter be called upon to
advance under all Letters of Credit then outstanding.
"Maximum Facility Amount" means the amount of $175,000,000, as such amount
may be reduced by Borrower from time to time as provided in Section 2.12.
"Moody's" means Moody's Investor Service, Inc., or its successor.
"Note" has the meaning given to such term in Section 2.1.
"Obligations" means all Liabilities from time to time owing by any
Restricted Person to any Lender Party under or pursuant to any of the Loan
Documents, including all LC Obligations. "Obligation" means any part of the
Obligations.
"Offering" means the public issuance of limited partnership interests of
Plains MLP as described in the Prospectus dated _________, 1998.
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"Offering Documents" means the documents listed on Schedule 6 hereto.
"Open Position" permitted to be under a Hedging Contract for a particular
month means the aggregate volume of crude oil on which Restricted Persons have
commodity price risk, which may include, without limitation, (i) the volume of
crude oil owned for which Restricted Persons do not have an allocated contract
for sale at a fixed price and (ii) the volume of crude oil under any contract
for purchase for which Restricted Persons do not have an allocated contract for
sale on the same pricing basis (i.e. at a fixed price for sale above the fixed
price for purchase of such crude oil or at a margin above an index price for
sale equivalent to the index price for purchase) [subject to further revision].
"Other Eligible Inventory Value" means the following amount of Eligible
Inventory, other than Hedged Eligible Inventory: (a) if the WTI Price is less
than or equal to $30 per barrel, 80% of the product of the volume of such crude
oil times the Market Price, or (b) if the WTI Price is greater than $30 per
barrel the greater of (i) 70% of the product of the volume of such crude oil
times the Market Price or (ii) 80% of the product of the volume of such crude
oil times $30 per barrel; minus, in each case, all storage, transportation and
other applicable costs. As used herein "WTI Price" means on each day the
Platt's Average Spot Price for West Texas intermediate crude oil (Cushing,
Oklahoma).
"Other Eligible Receivable" means any Eligible Receivable which is not an
Approved Eligible Receivable nor an Eligible Exchange Balance. The portions of
the aggregate of the Other Eligible Receivables owed by any obligor and its
Affiliates exceeding 20% of the aggregate amount of all Other Eligible
Receivables shall not be included without the prior written approval of the
Majority Lenders.
"Other Priority Claims" means any account payable, obligation or liability
which Administrative Agent has determined has or will have a Lien upon or claim
against any Cash Equivalent, account or inventory of Borrower senior or equal in
priority to the security interests in favor of Administrative Agent for the
benefit of Lenders, in each case to the extent such Cash Equivalent, account or
inventory of Borrower is otherwise included in the determination of the
Borrowing Base and the included portion thereof has not already been reduced by
such Lien or claim.
"Paid but Unexpired Letters of Credit" means, on any day, the maximum
drawing amount of Letters of Credit on such day where no underlying obligation
exists on such day, or if the amount of the Letter of Credit exceeds the
underlying obligation on such day, the amount of such excess. As used herein,
"underlying obligation" includes without limitation, all existing and future
obligations to the beneficiary of such Letter of Credit in respect of crude oil
purchased or received on or prior to such day or in respect of crude oil
Borrower is then obligated to purchase or receive or has then nominated to
purchase or receive.
"Percentage Share" means, with respect to any Lender (a) when used in
Sections 2.1, 2.2 or 2.12, in any Borrowing Notice or when no Loans are
outstanding hereunder, the percentage set forth opposite such Lender's name on
the Lender Schedule hereto, and (b) when used otherwise, the percentage obtained
by dividing (i) the sum of the unpaid principal balance of such Lender's
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Loans at the time in question plus the Matured LC Obligations which such Lender
has funded pursuant to Section 2.9(c) plus the portion of the Maximum Drawing
Amount which such Lender might be obligated to fund under Section 2.9(c), by
(ii) the sum of the aggregate unpaid principal balance of all Loans at such time
plus the aggregate amount of LC Obligations outstanding at such time.
"Permitted Acquisitions" means the acquisition of 100% of the capital stock
or other equity interest in a Person (exclusive of general partnership interests
held by General Partner or another wholly owned Subsidiary of Resources not in
excess of a 1% economic interest and exclusive of director qualifying shares and
other equity interests required to be held by an Affiliate to comply with a
requirement of Law) or the acquisition of the business, assets or operations of
a Person, provided that (i) prior to and after giving effect to such acquisition
no Default or Event of Default shall have occurred and be continuing; (ii) all
representations and warranties shall be true and correct as if restated
immediately following the consummation of such acquisition; and (iii)
substantially all of the business, assets and operations so acquired, or of the
Person so acquired, consists of crude oil and/or gas marketing, gathering,
transportation, storage and terminaling.
"Permitted Inventory Liens" means any Lien, and the amount of any Liability
secured thereby, on crude oil inventory which would be a Permitted Lien under
Section 7.2(d).
"Permitted Investments" means (a) Cash Equivalents, (b) Investments
described in the Disclosure Schedule, (c) Investments by Plains MLP or any of
its Subsidiaries in any wholly owned Subsidiary of Plains MLP which is a
Guarantor and (d) Permitted Acquisitions.
"Permitted Lien" has the meaning given to such term in Section 7.2.
"Person" means an individual, corporation, partnership, limited liability
company, association, joint stock company, trust or trustee thereof, estate or
executor thereof, unincorporated organization or joint venture, Tribunal, or any
other legally recognizable entity.
"Plains MLP" means Plains All American Pipeline, L.P., a Delaware limited
partnership.
"Plains Terminal" means either the storage terminals in Cushing, Oklahoma
or Ingleside, Texas owned by Borrower.
"PMTI" means Plains Marketing & Transportation, Inc., a Delaware
corporation.
"Qualified Inventory Purchases" means (i) purchases of crude oil for
physical storage at a Plains Terminal or in transit in pipelines Currently
Approved by Majority Lenders which constitutes Hedged Eligible Inventory and
(ii) purchases of crude oil designated as working inventory at a Plains Terminal
and line fill in pipelines Currently Approved by Majority Lenders.
"Rating Agency" means either S&P or Moody's.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect.
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"Reserve Requirement" means, at any time, the maximum rate at which
reserves (including any marginal, special, supplemental, or emergency reserves)
are required to be maintained under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency liabilities" (as such
term is used in Regulation D). Without limiting the effect of the foregoing,
the Reserve Requirement shall reflect any other reserves required to be
maintained by such member banks with respect to (a) any category of liabilities
which includes deposits by reference to which the Adjusted Eurodollar Rate is to
be determined, or (b) any category of extensions of credit or other assets which
include Eurodollar Loans.
"Resources" means Plains Resources Inc., a Delaware corporation.
"Restricted Person" means any of Plains MLP and each Subsidiary of Plains
MLP, including but not limited to Borrower, All American, and each Subsidiary of
Borrower and/or All American.
"S&P" means Standard & Poor's Ratings Group (a division of McGraw Hill,
Inc.) or its successor.
"Security Documents" means the instruments listed in the Security Schedule
and all other security agreements, deeds of trust, mortgages, chattel mortgages,
pledges, guaranties, financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore, or hereafter
delivered by any Restricted Person to Administrative Agent in connection with
this Agreement or any transaction contemplated hereby to secure or guarantee the
payment of any part of the Obligations or the performance of any Restricted
Person's other duties and obligations under the Loan Documents.
"Security Schedule" means Schedule 3 hereto.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, limited liability company, joint venture, or other
business or corporate entity, enterprise or organization which is directly or
indirectly (through one or more intermediaries) controlled or owned more than
fifty percent by such Person.
"Termination Event" means (a) the occurrence with respect to any ERISA Plan
of (i) a reportable event described in Sections 4043(c)(5) or (6) of ERISA or
(ii) any other reportable event described in Section 4043(c) of ERISA other than
a reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation pursuant to a waiver by such corporation under
Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an
ERISA Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent
to terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under
Section 4042 of ERISA, or (e) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any ERISA Plan.
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"Tribunal" means any government, any arbitration panel, any court or any
governmental department, commission, board, bureau, agency or instrumentality of
the United States of America or any state, province, commonwealth, nation,
territory, possession, county, parish, town, township, village or municipality,
whether now or hereafter constituted or existing.
"Type" means, with respect to any Loans, the characterization of such Loans
as either Base Rate Loans or Eurodollar Loans.
"UCC" means the Uniform Commercial Code as in effect in the State of New
York.
Section 1.2. Exhibits and Schedules; Additional Definitions. All
Exhibits and Schedules attached to this Agreement are a part hereof for all
purposes. Reference is hereby made to the Security Schedule for the meaning of
certain terms defined therein and used but not defined herein, which definitions
are incorporated herein by reference.
Section 1.3. Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section 1.4. References and Titles. All references in this Agreement to
Exhibits, Schedules, articles, sections, subsections and other subdivisions
refer to the Exhibits, Schedules, articles, sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for convenience only and do
not constitute any part of such subdivisions and shall be disregarded in
construing the language contained in such subdivisions. The words "this
Agreement," "this instrument," "herein," "hereof," "hereby," "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections hereof in which such phrases occur. The word "or" is not exclusive,
and the word "including" (in its various forms) means "including without
limitation." Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
Section 1.5. Calculations and Determinations. All calculations under the
Loan Documents of interest chargeable with respect to Eurodollar Loans and of
fees shall be made on the basis of actual days elapsed (including the first day
but excluding the last) and a year of 360 days. All other calculations of
interest made under the Loan Documents shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 365 or
366 days, as appropriate. Each determination by a Lender Party of amounts to be
paid under Article III or any other matters which are to be determined hereunder
by a Lender Party (such as any Eurodollar Rate, Adjusted Eurodollar Rate,
Business Day, Interest Period, or Reserve Requirement) shall, in the absence of
manifest error, be conclusive and binding. Unless otherwise expressly provided
herein or unless Majority Lenders otherwise consent all financial statements
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and reports furnished to any Lender Party hereunder shall be prepared and all
financial computations and determinations pursuant hereto shall be made in
accordance with GAAP.
ARTICLE II - The Loans and Letters of Credit
Section 2.1. Commitments to Lend; Notes. Subject to the terms and
conditions hereof, each Lender agrees to make loans to Borrower (herein called
such Lender's "Loans") upon Borrower's request from time to time during the
Commitment Period, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all
Lenders are requested to make Loans of the same Type in accordance with their
respective Percentage Shares and as part of the same Borrowing, (b) after giving
effect to such loans, the aggregate principal amount of outstanding Loans will
not exceed $40,000,000, and (c) after giving effect to such Loans, the Facility
Usage does not exceed the lesser of (i) the Maximum Facility Amount and (ii) the
Borrowing Base determined as of the date on which the requested Loans are to be
made. The aggregate amount of all Loans in any Borrowing must be equal to
$2,000,000 or any higher integral multiple of $250,000. Borrower may have no
more than five Borrowings of Eurodollar Loans outstanding at any time. The
obligation of Borrower to repay to each Lender the aggregate amount of all Loans
made by such Lender, together with interest accruing in connection therewith,
shall be evidenced by a single promissory note (herein called such Lender's
"Note") made by Borrower payable to the order of such Lender in the form of
Exhibit A with appropriate insertions. The amount of principal owing on any
Lender's Note at any given time shall be the aggregate amount of all Loans
theretofore made by such Lender minus all payments of principal theretofore
received by such Lender on such Note. Interest on each Note shall accrue and be
due and payable as provided herein and therein. Each Note shall be due and
payable as provided herein and therein, and shall be due and payable in full on
the last day of the Commitment Period. Subject to the terms and conditions of
this Agreement, Borrower may borrow, repay, and reborrow hereunder.
Section 2.2. Requests for New Loans. Borrower must give to
Administrative Agent written notice (or telephonic notice promptly confirmed in
writing) of any requested Borrowing of Loans to be funded by Lenders. Each such
notice constitutes a "Borrowing Notice" hereunder and must:
(a) specify (i) the aggregate amount of any such Borrowing of Base
Rate Loans and the date on which such Base Rate Loans are to be advanced,
or (ii) the aggregate amount of any such Borrowing of Eurodollar Loans, the
date on which such Eurodollar Loans are to be advanced (which shall be the
first day of the Interest Period which is to apply thereto), and the length
of the applicable Interest Period; and
(b) be received by Administrative Agent not later than 11:00 a.m.,
Boston, Massachusetts time, on (i) the day on which any such Base Rate
Loans are to be made, or (ii) the third Business Day preceding the day on
which any such Eurodollar Loans are to be made.
Each such written request or confirmation must be made in the form and substance
of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each
such telephonic request
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shall be deemed a representation, warranty, acknowledgment and agreement by
Borrower as to the matters which are required to be set out in such written
confirmation. Upon receipt of any such Borrowing Notice, Administrative Agent
shall give each Lender prompt notice of the terms thereof. If all conditions
precedent to such new Loans have been met, each Lender will on the date
requested promptly remit to Administrative Agent at Administrative Agent's
office in Boston, Massachusetts the amount of such Lender's Loan in immediately
available funds, and upon receipt of such funds, unless to its actual knowledge
any conditions precedent to such Loans have been neither met nor waived as
provided herein, Administrative Agent shall promptly make such Loans available
to Borrower. Unless Administrative Agent shall have received prompt notice from
a Lender that such Lender will not make available to Administrative Agent such
Lender's new Loan, Administrative Agent may in its discretion assume that such
Lender has made such Loan available to Administrative Agent in accordance with
this section and Administrative Agent may if it chooses, in reliance upon such
assumption, make such Loan available to Borrower. If and to the extent such
Lender shall not so make its new Loan available to Administrative Agent, such
Lender and Borrower severally agree to pay or repay to Administrative Agent
within three days after demand the amount of such Loan together with interest
thereon, for each day from the date such amount was made available to Borrower
until the date such amount is paid or repaid to Administrative Agent, with
interest at (i) the Federal Funds Rate, if such Lender is making such payment
and (ii) the interest rate applicable at the time to the other new Loans made on
such date, if Borrower is making such repayment. If neither such Lender nor
Borrower pays or repays to Administrative Agent such amount within such three-
day period, Administrative Agent shall be entitled to recover from Borrower, on
demand, in lieu of interest provided for in the preceding sentence, interest
thereon at the Default Rate, calculated from the date such amount was made
available to Borrower. The failure of any Lender to make any new Loan to be made
by it hereunder shall not relieve any other Lender of its obligation hereunder,
if any, to make its new Loan, but no Lender shall be responsible for the failure
of any other Lender to make any new Loan to be made by such other Lender.
Section 2.3. Continuations and Conversions of Existing Loans. Borrower
may make the following elections with respect to Loans already outstanding: to
Convert, in whole or in part, Base Rate Loans to Eurodollar Loans, to Convert,
in whole or in part, Eurodollar Loans to Base Rate Loans on the last day of the
Interest Period applicable thereto, and to Continue, in whole or in part,
Eurodollar Loans beyond the expiration of such Interest Period by designating a
new Interest Period to take effect at the time of such expiration. In making
such elections, Borrower may combine existing Loans made pursuant to separate
Borrowings into one new Borrowing or divide existing Loans made pursuant to one
Borrowing into separate new Borrowings, provided that Borrower may have no more
than five Borrowings of Eurodollar Loans outstanding at any time. To make any
such election, Borrower must give to Administrative Agent written notice (or
telephonic notice promptly confirmed in writing) of any such Conversion or
Continuation of existing Loans, with a separate notice given for each new
Borrowing. Each such notice constitutes a "Continuation/Conversion Notice"
hereunder and must:
(a) specify the existing Loans which are to be Continued or
Converted;
(b) specify (i) the aggregate amount of any Borrowing of Base Rate
Loans into which such existing Loans are to be Continued or Converted and
the date on which such
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Continuation or Conversion is to occur, or (ii) the aggregate amount of any
Borrowing of Eurodollar Loans into which such existing Loans are to be
Continued or Converted, the date on which such Continuation or Conversion
is to occur (which shall be the first day of the Interest Period which is
to apply to such Eurodollar Loans), and the length of the applicable
Interest Period; and
(c) be received by Administrative Agent not later than 11:00 a.m.,
Boston, Massachusetts time, on (i) the day on which any such Continuation
or Conversion to Base Rate Loans is to occur, or (ii) the third Business
Day preceding the day on which any such Continuation or Conversion to
Eurodollar Loans is to occur.
Each such written request or confirmation must be made in the form and substance
of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Upon receipt of any such
Continuation/Conversion Notice, Administrative Agent shall give each Lender
prompt notice of the terms thereof. Each Continuation/Conversion Notice shall
be irrevocable and binding on Borrower. During the continuance of any Default,
Borrower may not make any election to Convert existing Loans into Eurodollar
Loans or Continue existing Loans as Eurodollar Loans beyond the expiration of
their respective and corresponding Interest Period then in effect. If (due to
the existence of a Default or for any other reason) Borrower fails to timely and
properly give any Continuation/Conversion Notice with respect to a Borrowing of
existing Eurodollar Loans at least three days prior to the end of the Interest
Period applicable thereto, such Eurodollar Loans, to the extent not prepaid at
the end of such Interest Period, shall automatically be Converted into Base Rate
Loans at the end of such Interest Period. No new funds shall be repaid by
Borrower or advanced by any Lender in connection with any Continuation or
Conversion of existing Loans pursuant to this section, and no such Continuation
or Conversion shall be deemed to be a new advance of funds for any purpose; such
Continuations and Conversions merely constitute a change in the interest rate
applicable to already outstanding Loans.
Section 2.4. Use of Proceeds. Borrower shall use the proceeds of all
Loans to make Qualified Inventory Purchases and to refinance Matured LC
Obligations. In no event shall any Loan or any Letter of Credit be used (i) to
fund distributions by Plains MLP, (ii) directly or indirectly by any Person for
personal, family, household or agricultural purposes, (iii) for the purpose,
whether immediate, incidental or ultimate, of purchasing, acquiring or carrying
any "margin stock" (as such term is defined in Regulation U promulgated by the
Board of Governors of the Federal Reserve System) or (iv) to extend credit to
others directly or indirectly for the purpose of purchasing or carrying any such
margin stock. Borrower represents and warrants that Borrower is not engaged
principally, or as one of Borrower's important activities, in the business of
extending credit to others for the purpose of purchasing or carrying such margin
stock.
Section 2.5. Optional Prepayments of Loans. Borrower may, upon five
Business Days' notice to Administrative Agent (and Administrative Agent will
promptly give notice to the other Lenders), from time to time and without
premium or penalty prepay the Loans, in whole or in part, so long as the
aggregate amounts of all partial prepayments of principal on the Loans equals
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$2,000,000 or any higher integral multiple of $250,000. Each prepayment of
principal under this section shall be accompanied by all interest then accrued
and unpaid on the principal so prepaid. Any principal or interest prepaid
pursuant to this section shall be in addition to, and not in lieu of, all
payments otherwise required to be paid under the Loan Documents at the time of
such prepayment.
Section 2.6. Mandatory Prepayments. If at any time the Facility Usage
exceeds the Borrowing Base (whether due to a reduction in the Borrowing Base in
accordance with this Agreement, or otherwise), Borrower shall immediately upon
demand prepay the principal of the Loans in an amount at least equal to such
excess. Each prepayment of principal under this section shall be accompanied by
all interest then accrued and unpaid on the principal so prepaid. Any principal
or interest prepaid pursuant to this section shall be in addition to, and not in
lieu of, all payments otherwise required to be paid under the Loan Documents at
the time of such prepayment.
Section 2.7. Letters of Credit. Subject to the terms and conditions
hereof, Borrower may during the Commitment Period request LC Issuer to issue,
amend, or extend the expiration date of, one or more Letters of Credit, provided
that:
(a) after taking such Letter of Credit into account (i) the Facility
Usage does not exceed the lesser of (A) the Maximum Facility Amount at such
time or (B) the Borrowing Base at such time and (ii) such Letter of Credit
can be incurred by Borrower pursuant to the Permitted Debt Limit at such
time;
(b) the expiration date of such Letter of Credit is prior to the
earlier of (i) 70 days (or 100 days, if the beneficiary thereof is Exxon
Company U.S.A.) after the date of issuance of such Letter of Credit (or 180
days after the date of issuance in the case of a Surety Letter of Credit)
or (ii) 30 days prior to the end of the Commitment Period;
(c) the issuance of such Letter of Credit will be in compliance with
all applicable governmental restrictions, policies, and guidelines and will
not subject LC Issuer to any cost which is not reimbursable under Article
III;
(d) either (i) such Letter of Credit is related to the purchase or
exchange by Borrower of crude oil and is in the Form of Exhibit D hereto or
such other form and terms as shall be acceptable to LC Issuer in its sole
and absolute discretion and Currently Approved by Majority Lenders, or (ii)
such Letter of Credit is a Surety Letter of Credit and after taking such
Letter of Credit into account the aggregate amount of LC Obligations in
respect to all Surety Letters of Credit does not exceed $1,000,000; and
(e) all other conditions in this Agreement to the issuance of such
Letter of Credit have been satisfied.
LC Issuer will honor any such request if the foregoing conditions (a) through
(e) (in the following Section 2.8 called the "LC Conditions") have been met as
of the date of issuance, amendment, or extension of such Letter of Credit. The
outstanding letters of credit issued by LC Issuer under the
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Existing Agreement shall be deemed to be Letters of Credit issued hereunder;
Borrower hereby represents and warrants that the LC Conditions have been met as
of the date hereof with respect to each such Letter of Credit.
Section 2.8. Requesting Letters of Credit. Borrower must make written
application for any Letter of Credit at least two Business Days before the date
on which Borrower desires for LC Issuer to issue such Letter of Credit. By
making any such written application, unless otherwise expressly stated therein,
Borrower shall be deemed to have represented and warranted that the LC
Conditions described in Section 2.7 will be met as of the date of issuance of
such Letter of Credit. Each such written application for a Letter of Credit
must be made in writing in the form and substance of Exhibit E, the terms and
provisions of which are hereby incorporated herein by reference (or in such
other form as may mutually be agreed upon by LC Issuer and Borrower). If all LC
Conditions for a Letter of Credit have been met as described in Section 2.7 on
any Business Day before 11:00 a.m, Boston, Massachusetts time, LC Issuer will
issue such Letter of Credit on the same Business Day at LC Issuer's office in
Boston, Massachusetts. If the LC Conditions are met as described in Section 2.7
on any Business Day on or after 11:00 a.m, Boston, Massachusetts time, LC Issuer
will issue such Letter of Credit on the next succeeding Business Day at LC
Issuer's office in Boston, Massachusetts. If any provisions of any LC
Application conflict with any provisions of this Agreement, the provisions of
this Agreement shall govern and control.
Section 2.9. Reimbursement and Participations.
(a) Reimbursement by Borrower. Each Matured LC Obligation shall
constitute a loan by LC Issuer to Borrower. Borrower promises to pay to LC
Issuer, or to LC Issuer's order, on demand, the full amount of each Matured LC
Obligation, together with interest thereon (i) at the Base Rate to and including
the second Business Day after the Matured LC Obligation is incurred and (ii) at
the Default Rate on each day thereafter.
(b) Letter of Credit Advances. If the beneficiary of any Letter of Credit
makes a draft or other demand for payment thereunder then Borrower may, during
the interval between the making thereof and the honoring thereof by LC Issuer,
request Lenders to make Loans to Borrower in the amount of such draft or demand,
which Loans shall be made concurrently with LC Issuer's payment of such draft or
demand and shall be immediately used by LC Issuer to repay the amount of the
resulting Matured LC Obligation. Such a request by Borrower shall be made in
compliance with all of the provisions hereof, provided that for the purposes of
the first sentence of Section 2.1, the amount of such Loans shall be considered,
but the amount of the Matured LC Obligation to be concurrently paid by such
Loans shall not be considered.
(c) Participation by Lenders. LC Issuer irrevocably agrees to grant and
hereby grants to each Lender, and -- to induce LC Issuer to issue Letters of
Credit hereunder -- each Lender irrevocably agrees to accept and purchase and
hereby accepts and purchases from LC Issuer, on the terms and conditions
hereinafter stated and for such Lender's own account and risk an undivided
interest equal to such Lender's Percentage Share of LC Issuer's obligations and
rights under each Letter of Credit issued hereunder and the amount of each
Matured LC Obligation paid by LC Issuer thereunder. Each Lender unconditionally
and irrevocably agrees with LC Issuer
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that, if a Matured LC Obligation is paid under any Letter of Credit for which LC
Issuer is not reimbursed in full by Borrower in accordance with the terms of
this Agreement and the related LC Application (including any reimbursement by
means of concurrent Loans or by the application of LC Collateral), such Lender
shall (in all circumstances and without set-off or counterclaim) pay to LC
Issuer on demand, in immediately available funds at LC Issuer's address for
notices hereunder, such Lender's Percentage Share of such Matured LC Obligation
(or any portion thereof which has not been reimbursed by Borrower). Each
Lender's obligation to pay LC Issuer pursuant to the terms of this subsection is
irrevocable and unconditional. If any amount required to be paid by any Lender
to LC Issuer pursuant to this subsection is paid by such Lender to LC Issuer
within three Business Days after the date such payment is due, LC Issuer shall
in addition to such amount be entitled to recover from such Lender, on demand,
interest thereon calculated from such due date at the Federal Funds Rate. If any
amount required to be paid by any Lender to LC Issuer pursuant to this
subsection is not paid by such Lender to LC Issuer within three Business Days
after the date such payment is due, LC Issuer shall in addition to such amount
be entitled to recover from such Lender, on demand, interest thereon calculated
from such due date at the Base Rate.
(d) Distributions to Participants. Whenever LC Issuer has in accordance
with this section received from any Lender payment of such Lender's Percentage
Share of any Matured LC Obligation, if LC Issuer thereafter receives any payment
of such Matured LC Obligation or any payment of interest thereon (whether
directly from Borrower or by application of LC Collateral or otherwise, and
excluding only interest for any period prior to LC Issuer's demand that such
Lender make such payment of its Percentage Share), LC Issuer will distribute to
such Lender its Percentage Share of the amounts so received by LC Issuer;
provided, however, that if any such payment received by LC Issuer must
thereafter be returned by LC Issuer, such Lender shall return to LC Issuer the
portion thereof which LC Issuer has previously distributed to it.
(e) Calculations. A written advice setting forth in reasonable detail the
amounts owing under this section, submitted by LC Issuer to Borrower or any
Lender from time to time, shall be conclusive, absent manifest error, as to the
amounts thereof.
Section 2.10. No Duty to Inquire.
(a) Drafts and Demands. LC Issuer is authorized and instructed to accept
and pay drafts and demands for payment under any Letter of Credit without
requiring, and without responsibility for, any determination as to the existence
of any event giving rise to said draft, either at the time of acceptance or
payment or thereafter. LC Issuer is under no duty to determine the proper
identity of anyone presenting such a draft or making such a demand (whether by
tested telex or otherwise) as the officer, representative or agent of any
beneficiary under any Letter of Credit, and payment by LC Issuer to any such
beneficiary when requested by any such purported officer, representative or
agent is hereby authorized and approved. Borrower releases each Lender Party
from, and agrees to hold each Lender Party harmless and indemnified against, any
liability or claim in connection with or arising out of the subject matter of
this section, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR
CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY
NEGLIGENT
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ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender
Party shall be entitled to indemnification for that portion, if any, of any
liability or claim which is proximately caused by its own individual gross
negligence or willful misconduct, as determined in a final judgment.
(b) Extension of Maturity. If the maturity of any Letter of Credit is
extended by its terms or by Law or governmental action, if any extension of the
maturity or time for presentation of drafts or any other modification of the
terms of any Letter of Credit is made at the request of Borrower, or if the
amount of any Letter of Credit is increased at the request of Borrower, this
Agreement shall be binding upon all Restricted Persons with respect to such
Letter of Credit as so extended, increased or otherwise modified, with respect
to drafts and property covered thereby, and with respect to any action taken by
LC Issuer, LC Issuer's correspondents, or any Lender Party in accordance with
such extension, increase or other modification.
(c) Transferees of Letters of Credit. If any Letter of Credit provides
that it is transferable, LC Issuer shall have no duty to determine the proper
identity of anyone appearing as transferee of such Letter of Credit, nor shall
LC Issuer be charged with responsibility of any nature or character for the
validity or correctness of any transfer or successive transfers, and payment by
LC Issuer to any purported transferee or transferees as determined by LC Issuer
is hereby authorized and approved, and Borrower releases each Lender Party from,
and agrees to hold each Lender Party harmless and indemnified against, any
liability or claim in connection with or arising out of the foregoing, WHICH
INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY
OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be
entitled to indemnification for that portion, if any, of any liability or claim
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment.
Section 2.11. LC Collateral.
(a) LC Obligations in Excess of Borrowing Base. If, after the making of
all mandatory prepayments required under Section 2.6, the outstanding LC
Obligations will exceed the Borrowing Base, then in addition to prepayment of
the entire principal balance of the Loans Borrower will immediately pay to LC
Issuer an amount equal to such excess. LC Issuer will hold such amount as
collateral security for the remaining LC Obligations (all such amounts held as
collateral security for LC Obligations being herein collectively called "LC
Collateral") and the other Obligations, and such collateral may be applied from
time to time to pay Matured LC Obligations. Neither this subsection nor the
following subsection shall, however, limit or impair any rights which LC Issuer
may have under any other document or agreement relating to any Letter of Credit,
LC Collateral or LC Obligation, including any LC Application, or any rights
which any Lender Party may have to otherwise apply any payments by Borrower and
any LC Collateral under Section 3.1.
(b) Acceleration of LC Obligations. If the Obligations or any part
thereof become immediately due and payable pursuant to Section 8.1 then, unless
all Lenders otherwise
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specifically elect to the contrary (which election may thereafter be retracted
by all Lenders at any time), all LC Obligations shall become immediately due and
payable without regard to whether or not actual drawings or payments on the
Letters of Credit have occurred, and Borrower shall be obligated to pay to LC
Issuer immediately an amount equal to the aggregate LC Obligations which are
then outstanding to be held as LC Collateral.
(c) Investment of LC Collateral. Pending application thereof, all LC
Collateral shall be invested by LC Issuer in such Cash Equivalents as LC Issuer
may choose in its sole discretion. All interest on (and other proceeds of) such
Investments shall be reinvested or applied to Matured LC Obligations or other
Obligations which are due and payable. When all Obligations have been satisfied
in full, including all LC Obligations, all Letters of Credit have expired or
been terminated, and all of Borrower's reimbursement obligations in connection
therewith have been satisfied in full, LC Issuer shall release any remaining LC
Collateral. Borrower hereby assigns and grants to LC Issuer a continuing
security interest in all LC Collateral paid by it to LC Issuer, all Investments
purchased with such LC Collateral, and all proceeds thereof to secure its
Matured LC Obligations and its Obligations under this Agreement, each Note, and
the other Loan Documents, and Borrower agrees that such LC Collateral,
Investments and proceeds shall be subject to all of the terms and conditions of
the Security Documents. Borrower further agrees that LC Issuer shall have all
of the rights and remedies of a secured party under the UCC with respect to such
security interest and that an Event of Default under this Agreement shall
constitute a default for purposes of such security interest.
(d) Payment of LC Collateral. When Borrower is required to provide LC
Collateral for any reason and fails to do so on the day when required, LC Issuer
or Administrative Agent may without notice to Borrower or any other Restricted
Person provide such LC Collateral (whether by application of proceeds of other
Collateral, by transfers from other accounts maintained with LC Issuer, or
otherwise) using any available funds of Borrower or any other Person also liable
to make such payments, and LC Issuer or Administrative Agent will give notice
thereof to Borrower promptly after such application or transfer. Any such
amounts which are required to be provided as LC Collateral and which are not
provided on the date required shall, for purposes of each Security Document, be
considered past due Obligations owing hereunder, and LC Issuer is hereby
authorized to exercise its respective rights under each Security Document to
obtain such amounts.
Section 2.12. Interest Rates and Fees; Reduction in Commitment.
(a) Interest Rates. Unless the Default Rate shall apply, (i) each Base
Rate Loan shall bear interest on each day outstanding at the Base Rate in effect
on such day and (ii) each Eurodollar Loan shall bear interest on each day during
the related Interest Period at the related Adjusted Eurodollar Rate plus the
Eurodollar Rate Margin in effect on such day. During a Default Rate Period, all
Loans shall bear interest on each day outstanding at the Default Rate. If an
Event of Default based upon Section 8.1(a), Section 8.1(b) or, with respect to
Borrower, based upon Section 8.1(i)(i), (i)(ii) or (i)(iii) exists and the Loans
are not bearing interest at the Default Rate, the past due principal and past
due interest shall bear interest on each day outstanding at the Default Rate.
The interest rate shall change whenever the applicable Base Rate, the Adjusted
Eurodollar Rate or the Eurodollar Rate Margin changes. In no event shall the
interest rate on any Loan exceed the Highest Lawful Rate.
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(b) Commitment Fees. In consideration of each Lender's commitment to make
Loans, Borrower will pay to Administrative Agent for the account of each Lender
a commitment fee determined on a daily basis by applying a rate of one-fourth of
one percent (0.25%) per annum to such Lender's Percentage Share of the unused
portion of the Maximum Facility Amount on each day during the Commitment Period,
determined for each such day by deducting from the amount of the Maximum
Facility Amount at the end of such day the Facility Usage. This commitment fee
shall be due and payable in arrears on the last day of each Fiscal Quarter and
at the end of the Commitment Period. Borrower shall have the right from time to
time to permanently reduce the Maximum Facility Amount, provided that (i) notice
of such reduction is given not less than 2 business Days prior to such
reduction, (ii) the resulting Maximum Facility Amount is not less than the
Facility Usage, and (iii) each partial reduction shall be in an amount at least
equal to $500,000 and in multiples of $100,000 in excess thereof.
(c) Letter of Credit Fees. In consideration of LC Issuer's issuance of
any Letter of Credit, Borrower agrees to pay (i) to Administrative Agent, for
the account of all Lenders in accordance with their respective Percentage
Shares, a letter of credit fee at a rate equal to nine-tenths of one percent
(0.9%) per annum, and (ii) to such LC Issuer for its own account, a letter of
credit fronting fee at a rate equal to one-tenth of one percent (.10%) per
annum. Each such fee will be calculated on the face amount of each Letter of
Credit outstanding on each day at the above applicable rates and will be payable
monthly in arrears on the last day of each month. In addition, Borrower will
pay to LC Issuer a minimum administrative issuance fee of $100 for each Letter
of Credit and such other fees and charges customarily charged by the LC Issuer
in respect of any amendment or negotiation of any Letter of Credit in accordance
with the LC Issuer's published schedule of such charges as of the date of such
amendment or negotiation.
(d) Administrative Agent's Fees. In addition to all other amounts due to
Administrative Agent under the Loan Documents, Borrower will pay fees to
Administrative Agent as described in a letter agreement of even date herewith
between Administrative Agent and Borrower.
Section 2.13. Borrowing Base Reporting. The Borrowing Base Reports are
subject to the procedures set forth on Schedule 6.
ARTICLE III - Payments to Lenders
Section 3.1. General Procedures. Borrower will make each payment which
it owes under the Loan Documents to Administrative Agent for the account of the
Lender Party to whom such payment is owed in lawful money of the United States
of America, without set-off, deduction or counterclaim, and in immediately
available funds. Each such payment must be received by Administrative Agent not
later than noon, Boston, Massachusetts time, on the date such payment becomes
due and payable. Any payment received by Administrative Agent after such time
will be deemed to have been made on the next following Business Day. Should any
such payment become due and payable on a day other than a Business Day, the
maturity of such payment shall be extended to the next succeeding Business Day,
and, in the case of a payment of principal or past due interest, interest shall
accrue and be payable thereon for the period of such extension as provided in
the Loan Document under which such payment is due. Each payment under a Loan
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Document shall be due and payable at the place provided therein and, if no
specific place of payment is provided, shall be due and payable at the place of
payment of Administrative Agent's Note. When Administrative Agent collects or
receives money on account of the Obligations, Administrative Agent shall
distribute all money so collected or received, and each Lender Party shall apply
all such money so distributed, as follows:
(a) first, for the payment of all Obligations which are then due (and
if such money is insufficient to pay all such Obligations, first to any
reimbursements due Administrative Agent under Section 6.9 or 10.4 and then
to the partial payment of all other Obligations then due in proportion to
the amounts thereof, or as Lender Parties shall otherwise agree);
(b) then for the prepayment of amounts owing under the Loan Documents
(other than principal on the Notes) if so specified by Borrower;
(c) then for the prepayment of principal on the Notes, together with
accrued and unpaid interest on the principal so prepaid; and
(d) last, for the payment or prepayment of any other Obligations.
All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest in compliance with Sections
2.5 and 2.6. All distributions of amounts described in any of subsections (b),
(c) or (d) above shall be made by Administrative Agent pro rata to each Lender
Party then owed Obligations described in such subsection in proportion to all
amounts owed to all Lender Parties which are described in such subsection;
provided that if any Lender then owes payments to LC Issuer for the purchase of
a participation under Section 2.9(c) or to Administrative Agent under Section
9.4, any amounts otherwise distributable under this section to such Lender shall
be deemed to belong to LC Issuer or Administrative Agent, respectively, to the
extent of such unpaid payments, and Administrative Agent shall apply such
amounts to make such unpaid payments rather than distribute such amounts to such
Lender.
Section 3.2. Capital Reimbursement. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any Law, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any central bank or
other governmental authority (whether or not having the force of Law) affects or
would affect the amount of capital required or expected to be maintained by any
Lender Party or any corporation controlling any Lender Party, then, within five
Business Days after demand by such Lender Party, Borrower will pay to
Administrative Agent for the benefit of such Lender Party, from time to time as
specified by such Lender Party, such additional amount or amounts which such
Lender Party shall determine to be appropriate to compensate such Lender Party
or any corporation controlling such Lender Party in light of such circumstances,
to the extent that such Lender Party reasonably determines that the amount of
any such capital would be increased or the rate of return on any such capital
would be reduced by or in whole or in part based on the existence of the face
amount of such Lender Party's Loans, Letters of Credit, participations in
Letters of Credit or commitments under this Agreement.
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Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit. If
any applicable Law (whether now in effect or hereinafter enacted or promulgated,
including Regulation D) or any interpretation or administration thereof by any
governmental authority charged with the interpretation or administration thereof
(whether or not having the force of Law):
(a) shall change the basis of taxation of payments to any Lender
Party of any principal, interest, or other amounts attributable to any
Eurodollar Loan or Letter of Credit or otherwise due under this Agreement
in respect of any Eurodollar Loan or Letter of Credit (other than taxes
imposed on, or measured by, the overall net income of such Lender Party or
any Applicable Lending Office of such Lender Party by any jurisdiction in
which such Lender Party or any such Applicable Lending Office is located);
or
(b) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Eurodollar Loan or any Letter of Credit (excluding those for which such
Lender Party is fully compensated pursuant to adjustments made in the
definition of Eurodollar Rate) or against assets of, deposits with or for
the account of, or credit extended by, such Lender Party; or
(c) shall impose on any Lender Party or the interbank eurocurrency
deposit market any other condition affecting any Eurodollar Loan or Letter
of Credit, the result of which is to increase the cost to any Lender Party
of funding or maintaining any Eurodollar Loan or of issuing any Letter of
Credit or to reduce the amount of any sum receivable by any Lender Party in
respect of any Eurodollar Loan or Letter of Credit by an amount deemed by
such Lender Party to be material,
then such Lender Party shall promptly notify Administrative Agent and Borrower
in writing of the happening of such event and of the amount required to
compensate such Lender Party for such event (on an after-tax basis, taking into
account any taxes on such compensation), whereupon (i) Borrower shall, within
five Business Days after demand therefor by such Lender Party, pay such amount
to Administrative Agent for the account of such Lender Party and (ii) Borrower
may elect, by giving to Administrative Agent and such Lender Party not less than
three Business Days' notice, to Convert all (but not less than all) of any such
Eurodollar Loans into Base Rate Loans.
Section 3.4. Notice; Change of Applicable Lending Office. A Lender Party
shall notify Borrower of any event occurring after the date of this Agreement
that will entitle such Lender Party to compensation under Section 3.2, 3.3 or
3.5 hereof as promptly as practicable, but in any event within 90 days, after
such Lender Party obtains actual knowledge thereof; provided, that (i) if such
Lender Party fails to give such notice within 90 days after it obtains actual
knowledge of such an event, such Lender Party shall, with respect to
compensation payable pursuant to Section 3.2, 3.3 or 3.5 in respect of any costs
resulting from such event, only be entitled to payment under Section 3.2, 3.3 or
3.5 hereof for costs incurred from and after the date 90 days prior to the date
that such Lender Party does give such notice and (ii) such Lender Party will
designate a different Applicable Lending Office for the Loans affected by such
event if such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender Party, be
disadvantageous to such Lender Party, except that such Lender Party shall have
no obligation to designate an Applicable Lending Office located in the United
States of America.
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Each Lender Party will furnish to Borrower a certificate setting forth the basis
and amount of each request by such Lender Party for compensation under Section
3.2, 3.3 or 3.5 hereof.
Section 3.5. Availability. If (a) any change in applicable Laws, or in
the interpretation or administration thereof of or in any jurisdiction
whatsoever, domestic or foreign, shall make it unlawful or impracticable for any
Lender Party to fund or maintain Eurodollar Loans or to issue or participate in
Letters of Credit, or shall materially restrict the authority of any Lender
Party to purchase or take offshore deposits of dollars (i.e., "eurodollars"), or
(b) any Lender Party determines that matching deposits appropriate to fund or
maintain any Eurodollar Loan are not available to it, or (c) any Lender Party
determines that the formula for calculating the Eurodollar Rate does not fairly
reflect the cost to such Lender Party of making or maintaining loans based on
such rate, then, upon notice by such Lender Party to Borrower and Administrative
Agent, Borrower's right to elect Eurodollar Loans from such Lender Party (or, if
applicable, to obtain Letters of Credit) shall be suspended to the extent and
for the duration of such illegality, impracticability or restriction and all
Eurodollar Loans of such Lender Party which are then outstanding or are then the
subject of any Borrowing Notice and which cannot lawfully or practicably be
maintained or funded shall immediately become or remain, or shall be funded as,
Base Rate Loans of such Lender Party. Borrower agrees to indemnify each Lender
Party and hold it harmless against all costs, expenses, claims, penalties,
liabilities and damages which may result from any such change in Law,
interpretation or administration. Such indemnification shall be on an after-tax
basis, taking into account any taxes imposed on the amounts paid as indemnity.
Section 3.6. Funding Losses. In addition to its other obligations
hereunder, Borrower will indemnify each Lender Party against, and reimburse each
Lender Party on demand for, any loss or expense incurred or sustained by such
Lender Party (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by a Lender
Party to fund or maintain Eurodollar Loans), as a result of (a) any payment or
prepayment (whether or not authorized or required hereunder) of all or a portion
of a Eurodollar Loan on a day other than the day on which the applicable
Interest Period ends, (b) any payment or prepayment, whether or not required
hereunder, of a Loan made after the delivery, but before the effective date, of
a Continuation/Conversion Notice, if such payment or prepayment prevents such
Continuation/Conversion Notice from becoming fully effective, (c) the failure of
any Loan to be made or of any Continuation/Conversion Notice to become effective
due to any condition precedent not being satisfied or due to any other action or
inaction of any Restricted Person, or (d) any Conversion (whether or not
authorized or required hereunder) of all or any portion of any Eurodollar Loan
into a Base Rate Loan or into a different Eurodollar Loan on a day other than
the day on which the applicable Interest Period ends. Such indemnification
shall be on an after-tax basis, taking into account any taxes imposed on the
amounts paid as indemnity.
Section 3.7. Reimbursable Taxes. Borrower covenants and agrees that:
(a) Borrower will indemnify each Lender Party against and reimburse
each Lender Party for all present and future income, stamp and other taxes,
levies, costs and charges whatsoever imposed, assessed, levied or collected
on or in respect of this Agreement or any Eurodollar Loans or Letters of
Credit (whether or not legally or correctly imposed, assessed, levied or
collected), excluding, however, any taxes imposed on or measured by
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the overall net income of Administrative Agent or such Lender Party or any
Applicable Lending Office of such Lender Party by any jurisdiction in which
such Lender Party or any such Applicable Lending Office is located (all
such non-excluded taxes, levies, costs and charges being collectively
called "Reimbursable Taxes" in this section). Such indemnification shall be
on an after-tax basis, taking into account any taxes imposed on the amounts
paid as indemnity.
(b) All payments on account of the principal of, and interest on,
each Lender Party's Loans and Note, and all other amounts payable by
Borrower to any Lender Party hereunder, shall be made in full without set-
off or counterclaim and shall be made free and clear of and without
deductions or withholdings of any nature by reason of any Reimbursable
Taxes, all of which will be for the account of Borrower. In the event of
Borrower being compelled by Law to make any such deduction or withholding
from any payment to any Lender Party, Borrower shall pay on the due date of
such payment, by way of additional interest, such additional amounts as are
needed to cause the amount receivable by such Lender Party after such
deduction or withholding to equal the amount which would have been
receivable in the absence of such deduction or withholding. If Borrower
should make any deduction or withholding as aforesaid, Borrower shall
within 60 days thereafter forward to such Lender Party an official receipt
or other official document evidencing payment of such deduction or
withholding.
(c) If Borrower is ever required to pay any Reimbursable Tax with
respect to any Eurodollar Loan, Borrower may elect, by giving to
Administrative Agent and such Lender Party not less than three Business
Days' notice, to Convert all (but not less than all) of any such Eurodollar
Loan into a Base Rate Loan, but such election shall not diminish Borrower's
obligation to pay all Reimbursable Taxes.
(d) Notwithstanding the foregoing provisions of this section,
Borrower shall be entitled, to the extent it is required to do so by Law,
to deduct or withhold (and not to make any indemnification or reimbursement
for) income or other similar taxes imposed by the United States of America
(other than any portion thereof attributable to a change in federal income
tax Laws effected after the date hereof) from interest, fees or other
amounts payable hereunder for the account of any Lender Party, other than a
Lender Party (i) who is a U.S. person for Federal income tax purposes or
(ii) who has the Prescribed Forms on file with Administrative Agent (with
copies provided to Borrower) for the applicable year to the extent
deduction or withholding of such taxes is not required as a result of the
filing of such Prescribed Forms, provided that if Borrower shall so deduct
or withhold any such taxes, it shall provide a statement to Administrative
Agent and such Lender Party, setting forth the amount of such taxes so
deducted or withheld, the applicable rate and any other information or
documentation which such Lender Party may reasonably request for assisting
such Lender Party to obtain any allowable credits or deductions for the
taxes so deducted or withheld in the jurisdiction or jurisdictions in which
such Lender Party is subject to tax. As used in this section, "Prescribed
Forms" means such duly executed forms or statements, and in such number of
copies, which may, from time to time, be prescribed by Law and which,
pursuant to applicable provisions of (x) an income tax treaty between the
United States and the country of residence of the
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Lender Party providing the forms or statements, (y) the Internal Revenue
Code of 1986, as amended from time to time, or (z) any applicable rules or
regulations thereunder, permit Borrower to make payments hereunder for the
account of such Lender Party free of such deduction or withholding of
income or similar taxes.
Section 3.8 Replacement of Lenders. If any Lender Party seeks
reimbursement for increased costs under Sections 3.2 through 3.7, then within
ninety days thereafter -- provided no Event of Default then exists -- Borrower
shall have the right (unless such Lender Party withdraws its request for
additional compensation) to replace such Lender Party by requiring such Lender
Party to assign its Loans and Notes and its commitments hereunder to an Eligible
Transferee reasonably acceptable to Administrative Agent and to Borrower,
provided that: (i) all Obligations of Borrower owing to such Lender Party being
replaced (including such increased costs, but excluding principal and accrued
interest on the Notes being assigned) shall be paid in full to such Lender Party
concurrently with such assignment, and (ii) the replacement Eligible Transferee
shall purchase the Note being assigned by paying to such Lender Party a price
equal to the principal amount thereof plus accrued and unpaid interest and
accrued and unpaid commitment fees thereon. In connection with any such
assignment Borrower, Administrative Agent, such Lender Party and the replacement
Eligible Transferee shall otherwise comply with Section 10.5. Notwithstanding
the foregoing rights of Borrower under this section, however, Borrower may not
replace any Lender Party which seeks reimbursement for increased costs under
Section 3.2 through 3.7 unless Borrower is at the same time replacing all Lender
Parties which are then seeking such compensation.
ARTICLE IV - Conditions Precedent to Credit
Section 4.1. Documents to be Delivered. This Agreement shall not be
effective, and no Lender has any obligation to make its first Loan, and LC
Issuer has no obligation to issue the first Letter of Credit unless
Administrative Agent shall have received all of the following, at Administrative
Agent's office in Boston, Massachusetts, duly executed and delivered and in
form, substance and date satisfactory to Administrative Agent:
(a) This Agreement and any other documents that Lenders are to
execute in connection herewith.
(b) Each Note.
(c) Each Security Document listed in the Security Schedule.
(d) Certain certificates including:
(i) An "Omnibus Certificate" of the secretary and of the
president of General Partner, which shall contain the names and
signatures of the officers of each Restricted Person authorized to
execute Loan Documents and which shall certify to the truth,
correctness and completeness of the following exhibits attached
thereto: (1) a copy of resolutions duly adopted by the Board of
Directors of
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General Partner and in full force and effect at the time this
Agreement is entered into, authorizing the execution of this Agreement
and the other Loan Documents delivered or to be delivered in
connection herewith and the consummation of the transactions
contemplated herein and therein, (2) a copy of the charter documents
of each Restricted Person and all amendments thereto, certified by the
appropriate official of such Restricted Person's state of
organization, and (3) a copy of any bylaws or agreement of limited
partnership of each Restricted Person; and
(ii) A certificate of the president and of the chief financial
officer of General Partner, regarding satisfaction of Section 4.2.
(e) A certificate (or certificates) of the due formation, valid
existence and good standing of each Restricted Person in its respective
state of organization, issued by the appropriate authorities of such
jurisdiction, and certificates of each Restricted Person's good standing
and due qualification to do business, issued by appropriate officials in
any states in which such Restricted Person owns property subject to
Security Documents.
(f) Documents similar to those specified in subsections (d)(i) and
(e) of this section with respect to each Guarantor and the execution by it
of its guaranty of Borrower's Obligations.
(g) A favorable opinion of Michael Patterson, Esq., General Counsel
for Restricted Persons, substantially in the form set forth in Exhibit G-1,
Fulbright & Jaworski L.L.P., special Texas and New York counsel to
Restricted Persons, substantially in the form set forth in Exhibit G-2 and
Andrews & Kurth, special counsel to Restricted Persons, substantially in
the form of Exhibit G-3.
(h) The Initial Financial Statements.
(i) Certificates or binders evidencing Restricted Persons' insurance
in effect on the date hereof.
(j) Copies of such permits and approvals regarding the property and
business of Restricted Persons as Administrative Agent may request.
(k) A certificate signed by the chief executive officer of General
Partner in form and detail acceptable to Administrative Agent confirming
the insurance that is in effect as of the date hereof and certifying that
such insurance is customary for the businesses conducted by Restricted
Persons and is in compliance with the requirements of this Agreement.
(l) Payment of all commitment, facility, agency and other fees
required to be paid to any Lender pursuant to any Loan Documents or any
commitment agreement heretofore entered into.
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(m) The Intercreditor Agreement with the lenders party to the All
American Agreement in the form of Exhibit L hereto.
Section 4.2. Additional Conditions to Initial Credit. This Agreement
shall not be effective, and no Lender has any obligation to make its first Loan,
and LC Issuer has no obligation to issue the first Letter of Credit unless prior
to or contemporaneously with the initial Loan or initial Letter of Credit the
following conditions precedent have been satisfied:
(a) The Offering and all of the transactions contemplated under the
Offering Documents shall have been consummated, in compliance with the
terms and conditions thereof, and all representations and warranties made
by any party to the Offering Documents shall be true and correct.
(b) Each Restricted Person shall have executed and delivered the All
American Credit Agreement and all conditions precedent to the All American
Agreement have been satisfied.
(c) After giving effect to each of the transactions under the
Offering Documents, all representations and warranties made by any
Restricted Person in any Loan Document shall be true on and as of the date
of such Loan or the date of issuance of such Letter of Credit as if such
representations and warranties had been made as of the date of such Loan or
the date of issuance of such Letter of Credit.
(d) General Partner shall have delivered to Administrative Agent a
Consolidated balance sheet for Plains MLP and its Subsidiaries certified by
the chief financial officer of General Partner, reflecting compliance with
each event specified in Sections 7.11 through 7.16, inclusive.
(e) The Borrowing Base as of the date of such first Loan and first
Letter of Credit shall be at least $5,000,000 more than the initial
Facility Usage on such date after giving effects to the Loans and Letters
of Credit requested for such date, and General Partner shall have delivered
to the Administrative Agent a Borrowing Base Report in reasonable detail
demonstrating compliance with this requirement.
(f) Plains MLP shall have a market capitalization of at least
$500,000,000 calculated based upon the total issued partnership units of
Plains MLP and the market price of the publicly held portion of such
partnership units of Plains MLP.
(g) Plains MLP shall have a minimum tangible net worth of
$225,000,000.
(h) Each condition precedent set forth in Section 4.3 has been
satisfied as of such effective date of this Agreement.
Section 4.3. Additional Conditions Precedent. No Lender has any
obligation to make any Loan (including its first), and LC Issuer has no
obligation to issue any Letter of Credit (including its first), unless the
following conditions precedent have been satisfied:
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(a) All representations and warranties made by any Restricted Person
in any Loan Document shall be true on and as of the date of such Loan or
the date of issuance of such Letter of Credit as if such representations
and warranties had been made as of the date of such Loan or the date of
issuance of such Letter of Credit except to the extent that such
representation or warranty was made as of a specific date or updated,
modified or supplemented as of a subsequent date with the consent of
Majority Lenders.
(b) No Default shall exist at the date of such Loan or the date of
issuance of such Letter of Credit.
(c) No Material Adverse Change shall have occurred to, and no event
or circumstance shall have occurred that could cause a Material Adverse
Change to, Plains MLP's or Borrower's Consolidated financial condition or
businesses since the date of the Initial Financial Statements.
(d) Each Restricted Person shall have performed and complied with all
agreements and conditions required in the Loan Documents to be performed or
complied with by it on or prior to the date of such Loan or the date of
issuance of such Letter of Credit.
(e) The making of such Loan or the issuance of such Letter of Credit
shall not be prohibited by any Law and shall not subject any Lender or any
LC Issuer to any penalty or other onerous condition under or pursuant to
any such Law.
(f) Administrative Agent shall have received all documents and
instruments which Administrative Agent has then requested, in addition to
those described in Section 4.1 (including opinions of legal counsel for
Restricted Persons and Administrative Agent; corporate documents and
records; documents evidencing governmental authorizations, consents,
approvals, licenses and exemptions; and certificates of public officials
and of officers and representatives of Borrower and other Persons), as to
(i) the accuracy and validity of or compliance with all representations,
warranties and covenants made by any Restricted Person in this Agreement
and the other Loan Documents, (ii) the satisfaction of all conditions
contained herein or therein, and (iii) all other matters pertaining hereto
and thereto. All such additional documents and instruments shall be
satisfactory to Administrative Agent in form, substance and date.
ARTICLE V - Representations and Warranties
To confirm each Lender's understanding concerning Restricted Persons and
Restricted Persons' businesses, properties and obligations and to induce each
Lender to enter into this Agreement and to extend credit hereunder, Plains MLP
and Borrower represent and warrant to each Lender that:
Section 5.1. No Default. No Restricted Person is in default in the
performance of any of the covenants and agreements contained in any Loan
Document. No event has occurred and is continuing which constitutes a Default.
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Section 5.2. Organization and Good Standing. Each Restricted Person is
duly organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, having all powers required to carry on its
business and enter into and carry out the transactions contemplated hereby.
Each Restricted Person is duly qualified, in good standing, and authorized to do
business in all other jurisdictions within the United States wherein the
character of the properties owned or held by it or the nature of the business
transacted by it makes such qualification necessary except where the failure to
so qualify would not cause a Material Adverse Change. Each Restricted Person
has taken all actions and procedures customarily taken in order to enter, for
the purpose of conducting business or owning property, each jurisdiction outside
the United States wherein the character of the properties owned or held by it or
the nature of the business transacted by it makes such actions and procedures
necessary except where the failure to so qualify would not cause a Material
Adverse Change.
Section 5.3. Authorization. Each Restricted Person has duly taken all
action necessary to authorize the execution and delivery by it of the Loan
Documents to which it is a party and to authorize the consummation of the
transactions contemplated thereby and the performance of its obligations
thereunder. Borrower is duly authorized to borrow funds hereunder.
Section 5.4. No Conflicts or Consents. The execution and delivery by the
various Restricted Persons of the Loan Documents and Offering Documents to which
each is a party, the performance by each of its obligations under such Loan
Documents and Offering Documents, and the consummation of the transactions
contemplated by the various Loan Documents and various Offering Documents, do
not and will not (i) conflict with any provision of (1) any Law, (2) the
organizational documents of any Restricted Person or any of its Affiliates, or
(3) any agreement, judgment, license, order or permit applicable to or binding
upon any Restricted Person or any of its Affiliates, (ii) result in the
acceleration of any Indebtedness owed by any Restricted Person, or any of its
Affiliates, or (iii) result in or require the creation of any Lien upon any
assets or properties of any Restricted Person or any of its Affiliates except as
expressly contemplated in the Loan Documents. Except as expressly contemplated
in the Loan Documents or the Offering Documents no consent, approval,
authorization or order of, and no notice to or filing with, any Tribunal or
third party is required in connection with the execution, delivery or
performance by any Restricted Person of any Loan Document or Offering Document
or to consummate any transactions contemplated by the Loan Documents and the
Offering Documents.
Section 5.5. Enforceable Obligations. This Agreement is, and the other
Loan Documents and the Offering Documents when duly executed and delivered will
be, legal, valid and binding obligations of each Restricted Person which is a
party hereto or thereto, enforceable in accordance with their terms except as
such enforcement may be limited by bankruptcy, insolvency or similar Laws of
general application relating to the enforcement of creditors' rights.
Section 5.6. Initial Financial Statements. Plains MLP has heretofore
delivered to each Lender true, correct and complete copies of the Initial
Financial Statements. The Initial Financial Statements fairly present Plains
MLP's Consolidated financial position at the date thereof and the Consolidated
results of Plains MLP's operations and Consolidated cash flows for the period
thereof. Since the date of the annual Initial Financial Statements no Material
Adverse Change has
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occurred, except as reflected in the quarterly Initial Financial Statements or
in the Disclosure Schedule. All Initial Financial Statements were prepared in
accordance with GAAP.
Section 5.7. Other Obligations and Restrictions. No Restricted Person
has any outstanding Liabilities of any kind (including contingent obligations,
tax assessments, and unusual forward or long-term commitments) which are, in the
aggregate, material to Plains MLP or material with respect to Plains MLP's
Consolidated financial condition and not shown in the Initial Financial
Statements or disclosed in the Disclosure Schedule. Except as shown in the
Initial Financial Statements or disclosed in the Disclosure Schedule, no
Restricted Person is subject to or restricted by any franchise, contract, deed,
charter restriction, or other instrument or restriction which could cause a
Material Adverse Change.
Section 5.8. Full Disclosure. No certificate, statement or other
information delivered herewith or heretofore by any Restricted Person to any
Lender in connection with the negotiation of this Agreement or in connection
with any transaction contemplated hereby contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading as of the date made or deemed made. All
written information furnished after the date hereof by or on behalf of any
Restricted Person to Administrative Agent or any Lender Party in connection with
this Agreement and the other Loan Documents and the transactions contemplated
hereby and thereby will be true, complete and accurate in every material respect
or based on reasonable estimates on the date as of which such information is
stated or certified. There is no fact known to any Restricted Person that has
not been disclosed to each Lender in writing which could cause a Material
Adverse Change.
Section 5.9. Litigation. Except as disclosed in the Initial Financial
Statements or in the Disclosure Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Restricted Person threatened, against any Restricted Person
before any Tribunal which could cause a Material Adverse Change, and (ii) there
are no outstanding judgments, injunctions, writs, rulings or orders by any such
Tribunal against any Restricted Person or any Restricted Person's stockholders,
partners, directors or officers which could cause a Material Adverse Change.
Section 5.10. Labor Disputes and Acts of God. Except as disclosed in the
Disclosure Schedule, neither the business nor the properties of any Restricted
Person has been affected by any fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy or other casualty (whether or not covered by insurance), which
could cause a Material Adverse Change.
Section 5.11. ERISA Plans and Liabilities. All currently existing ERISA
Plans are listed in the Disclosure Schedule. Except as disclosed in the Initial
Financial Statements or in the Disclosure Schedule, no Termination Event has
occurred with respect to any ERISA Plan and all ERISA Affiliates are in
compliance with ERISA in all material respects. No ERISA Affiliate is required
to contribute to, or has any other absolute or contingent liability in respect
of, any "multiemployer plan" as defined in Section 4001 of ERISA. Except as set
forth in the Disclosure Schedule: (i) no "accumulated funding deficiency" (as
defined in Section 412(a) of the Code
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exists with respect to any ERISA Plan, whether or not waived by the Secretary of
the Treasury or his delegate, and (ii) the current value of each ERISA Plan's
benefits does not exceed the current value of such ERISA Plan's assets available
for the payment of such benefits by more than $500,000.
Section 5.12. Compliance with Laws. Except as set forth in the
Disclosure Schedule, each Restricted Person is conducting its businesses in
compliance with all applicable Laws, including Environmental Laws, and has all
permits, licenses and authorizations required in connection with the conduct of
its businesses, except to the extent failure to have any such permit, license or
authorization could not cause a Material Adverse Change. Each Restricted Person
is in compliance with the terms and conditions of all such permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Law, including applicable
Environmental Law, or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply could not cause a Material
Adverse Change.
Section 5.13. Environmental Laws. As used in this section: "CERCLA"
means the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, "CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System List of the Environmental
Protection Agency, and "Release" has the meaning given such term in 42 U.S.C.
(S) 9601(22). Without limiting the provisions of Section 5.12 and except as set
forth in the Disclosure Schedule:
(a) No notice, notification, demand, request for information, citation,
summons or order has been issued, no complaint has been filed, no penalty has
been assessed, and no investigation or review is pending or threatened by any
Tribunal or any other Person with respect to any of the following which in the
aggregate could cause a Material Adverse Change (i) any alleged generation,
treatment, storage, recycling, transportation, disposal, or Release of any
Hazardous Materials, either by any Restricted Person or on any property owned by
any Restricted Person, (ii) any remedial action which might be needed to respond
to any such alleged generation, treatment, storage, recycling, transportation,
disposal, or Release, or (iii) any alleged failure by any Restricted Person to
have any permit, license or authorization required in connection with the
conduct of its business or with respect to any such generation, treatment,
storage, recycling, transportation, disposal, or Release.
(b) No Restricted Person otherwise has any known material contingent
liability in connection with any alleged generation, treatment, storage,
recycling, transportation, disposal, or Release of any Hazardous Materials.
(c) No Restricted Person has handled any Hazardous Materials, other than
as a generator, on any properties now or previously owned or leased by any
Restricted Person to an extent that such handling has caused, or could cause, a
Material Adverse Change.
(d) Except to the extent that the following in the aggregate has not
caused and could not cause a Material Adverse Change:
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(i) no PCBs are or have been present at any properties now or previously
owned or leased by any Restricted Person;
(ii) no asbestos is or has been present at any properties now or
previously owned or leased by any Restricted Person;
(iii) there are no underground storage tanks for Hazardous Materials,
active or abandoned, at any properties now or previously owned or leased by
any Restricted Person; and
(iv) no Hazardous Materials have been Released at, on or under any
properties now or previously owned or leased by any Restricted Person.
(e) No Restricted Person has transported or arranged for the
transportation of any Hazardous Material to any location which is listed on the
National Priorities List under CERCLA, any location listed for possible
inclusion on the National Priorities List by the Environmental Protection Agency
in CERCLIS, nor, except to the extent that has not caused and could not cause a
Material Adverse Change, any location listed on any similar state list or which
is the subject of federal, state or local enforcement actions or other
investigations which may lead to claims against any Restricted Person for clean-
up costs, remedial work, damages to natural resources or for personal injury
claims, including, but not limited to, claims under CERCLA.
(f) No property now or previously owned or leased by any Restricted Person
is listed or proposed for listing on the National Priority list promulgated
pursuant to CERCLA, in CERCLIS, nor, except to the extent that has not caused
and could not cause a Material Adverse Change, on any similar state list of
sites requiring investigation or clean-up.
(g) There are no Liens arising under or pursuant to any Environmental Laws
on any of the real properties or properties owned or leased by any Restricted
Person, and no government actions of which Borrower is aware have been taken or
are in process which could subject any of such properties to such Liens; nor
would any Restricted Person be required to place any notice or restriction
relating to the presence of Hazardous Materials at any properties owned by it in
any deed to such properties.
(h) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses for ground water or soil contamination relating
to the Release of Hazardous Materials conducted by or which are in the
possession of any Restricted Person in relation to any properties or facility
now or previously owned or leased by any Restricted Person which have not been
made available to Administrative Agent.
Section 5.14. Names and Places of Business. No Restricted Person has,
during the preceding five years, had, been known by, or used any other trade or
fictitious name, except as disclosed in the Disclosure Schedule. Except as
otherwise indicated in the Disclosure Schedule, the chief executive office and
principal place of business of each Restricted Person are (and for the preceding
five years have been) located at the address of Borrower set out in Section
10.3.
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Except as indicated in the Disclosure Schedule, no Restricted Person has any
other office or place of business.
Section 5.15. Borrower's Subsidiaries. Borrower does not presently have
any Subsidiary or own any stock in any other corporation or association except
those listed in the Disclosure Schedule. Neither Borrower nor any Restricted
Person is a member of any general or limited partnership, joint venture or
association of any type whatsoever except those listed in the Disclosure
Schedule. Borrower owns, directly or indirectly, the equity interest in each of
its Subsidiaries which is indicated in the Disclosure Schedule.
Section 5.16. Title to Properties; Licenses. Each Restricted Person has
good and defensible title to all of its material properties and assets, free and
clear of all Liens other than Permitted Liens and of all impediments to the use
of such properties and assets in such Restricted Person's business. Each
Restricted Person possesses all licenses, permits, franchises, patents,
copyrights, trademarks and trade names, and other intellectual property (or
otherwise possesses the right to use such intellectual property without
violation of the rights of any other Person) which are necessary to carry out
its business as presently conducted and as presently proposed to be conducted
hereafter, and no Restricted Person is in violation in any material respect of
the terms under which it possesses such intellectual property or the right to
use such intellectual property.
Section 5.17. Government Regulation. Neither Borrower nor any other
Restricted Person owing Obligations is subject to regulation under the Public
Utility Holding Company Act of 1935, the Investment Company Act of 1940 (as any
of the preceding acts have been amended) or any other Law which regulates the
incurring by such Person of Indebtedness, including Laws relating to common
contract carriers or the sale of electricity, gas, steam, water or other public
utility services. Neither Borrower nor any other Restricted Person is subject
to regulation under the Federal Power Act which would violate, result in a
default of, or prohibit the effectiveness or the performance of any of the
provisions of the Loan Documents.
Section 5.18. Insider. No Restricted Person, nor any Person having
"control" (as that term is defined in 12 U.S.C. (S) 375b(9) or in regulations
promulgated pursuant thereto) of any Restricted Person, is a "director" or an
"executive officer" or "principal shareholder" (as those terms are defined in 12
U.S.C. (S) 375b(8) or (9) or in regulations promulgated pursuant thereto) of any
Lender, of a bank holding company of which any Lender is a Subsidiary or of any
Subsidiary of a bank holding company of which any Lender is a Subsidiary.
Section 5.19. Solvency. Upon giving effect to the issuance of the Notes,
the execution of the Loan Documents by Borrower and each Guarantor and the
consummation of the transactions contemplated hereby, Borrower and each
Guarantor will be solvent (as such term is used in applicable bankruptcy,
liquidation, receivership, insolvency or similar Laws).
Section 5.20. Credit Arrangements. The Disclosure Schedule contains a
complete and correct list, as of the date of this Agreement, of each credit
agreement, loan agreement, indenture, purchase agreement, guaranty or other
arrangement providing for or otherwise relating to any Indebtedness or any
extension of credit (or commitment for any extension of credit) to, or
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guaranty by, any Restricted Person, or to which any Restricted Person is
subject, other than the Loan Documents, and the aggregate principal or face
amount outstanding or which may become outstanding under each such arrangement
is correctly described in the Disclosure Schedule. No Restricted Person is
subject to any restriction under any credit agreement, loan agreement,
indenture, purchase agreement, guaranty or other arrangement providing for or
otherwise relating to any Indebtedness or any extension of credit (or commitment
for any extension of credit) to, or guaranty by, any Affiliate.
Section 5.21. Year 2000.
(a) Restricted Persons have (i) begun analyzing the operations of
Restricted Persons and their Subsidiaries and Affiliates that could be adversely
affected by failure to be become Year 2000 compliant (that is, that computer
applications, imbedded microchips and other systems will be able to perform
date-sensitive functions prior to and after December 31, 1999) and (ii)
developed a plan for becoming Year 2000 compliant in a timely manner, the
implementation of which is on schedule in all material respects. Plains MLP and
Borrower reasonably believe that Restricted Persons and their Affiliates will
become Year 2000 compliant for their operations on a timely basis except to the
extent that a failure to do so could not reasonably be expected to cause a
Material Adverse Change.
(b) Plains MLP and Borrower reasonably believe any suppliers and vendors
that are material to the operations of Restricted Persons or their Subsidiaries
and Affiliates will be Year 2000 compliant for their own computer applications
except to the extent that a failure to do so could not reasonably be expected to
cause a Material Adverse Change.
ARTICLE VI - Affirmative Covenants
To conform with the terms and conditions under which each Lender is willing
to have credit outstanding to Borrower, and to induce each Lender to enter into
this Agreement and extend credit hereunder, Plains MLP and Borrower covenant and
agree that until the full and final payment of the Obligations and the
termination of this Agreement, unless Majority Lenders, or all Lenders as
required under Section 10.1, have previously agreed otherwise:
Section 6.1. Payment and Performance. Each Restricted Person will pay
all amounts due under the Loan Documents, to which it is a party, in accordance
with the terms thereof and will observe, perform and comply with every covenant,
term and condition expressed in the Loan Documents to which it is a party.
Section 6.2. Books, Financial Statements and Reports. Each Restricted
Person will at all times maintain full and accurate books of account and
records. Plains MLP will maintain and will cause its Subsidiaries to maintain a
standard system of accounting, will maintain its Fiscal Year, and will furnish
the following statements and reports to each Lender at Restricted Person's
expense:
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(a) As soon as available, and in any event within ninety (90) days
after the end of each Fiscal Year (i) complete Consolidated financial
statements of Plains MLP together with all notes thereto, prepared in
reasonable detail in accordance with GAAP, together with an unqualified
opinion, based on an audit using generally accepted auditing standards, by
Price Waterhouse Coopers, or other independent certified public accountants
selected by General Partner and acceptable to Majority Lenders, stating
that such Consolidated financial statements have been so prepared and (ii)
supporting unaudited consolidating balance sheets and statements of income
of each other Restricted Person. These financial statements shall contain
a Consolidated and consolidating balance sheet as of the end of such Fiscal
Year and Consolidated and consolidating statements of earnings for such
Fiscal Year, each setting forth in comparative form the corresponding
figures for the preceding Fiscal Year. In addition, within ninety (90)
days after the end of each Fiscal Year Plains MLP will furnish a
certificate signed by such accountants (i) stating that they have read this
Agreement, (ii) containing calculations showing compliance (or non-
compliance) at the end of such Fiscal Year with the requirements of
Sections 7.11 through 7.16, inclusive, and (iii) further stating that in
making their examination and reporting on the Consolidated financial
statements described above they obtained no knowledge of any Default
existing at the end of such Fiscal Year, or, if they did so conclude that a
Default existed, specifying its nature and period of existence.
(b) As soon as available, and in any event within forty-five (45)
days after the end of each of the first three Fiscal Quarters of each
Fiscal Year (i) Plains MLP's Consolidated balance sheet as of the end of
such Fiscal Quarter and Consolidated statements of Plains MLP's earnings
and cash flows for such Fiscal Quarter and for the period from the
beginning of the then current Fiscal Year to the end of such Fiscal
Quarter, and (ii) supporting consolidating balance sheets and statements of
income of each other Restricted Person, all in reasonable detail and
prepared in accordance with GAAP, subject to changes resulting from normal
year-end adjustments, and as soon as available, and in any event within
forty-five (45) days after the end of the last Fiscal Quarter of each
Fiscal Year, Plains MLP's unaudited Consolidated balance sheet as of the
end of such Fiscal Quarter and income statement for such Fiscal Quarter and
for the period from the beginning of the current Fiscal Year to the end of
such Fiscal Quarter. In addition Plains MLP will, together with each such
set of financial statements and each set of financial statements furnished
under subsection (a) of this section, furnish a certificate in the form of
Exhibit F signed by the chief financial officer of General Partner stating
that such financial statements are accurate and complete in all material
respects (subject to normal year-end adjustments), stating that he has
reviewed the Loan Documents, containing calculations showing compliance (or
non-compliance) at the end of such Fiscal Quarter with the requirements of
Sections 7.11 through 7.16, inclusive and stating that no Default exists at
the end of such Fiscal Quarter or at the time of such certificate or
specifying the nature and period of existence of any such Default.
(c) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by Plains MLP to its
unit holders and all registration statements, periodic reports and other
statements and schedules filed by Plains
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MLP with any securities exchange, the Securities and Exchange Commission or
any similar governmental authority.
(d) As soon as available, and in any event within ninety (90) days
after the end of each Fiscal Year, a business and financial plan for
Plains MLP (in form reasonably satisfactory to Administrative Agent),
prepared by a senior financial officer thereof, setting forth for the first
year thereof, quarterly financial projections and budgets for Plains MLP,
and thereafter yearly financial projections and budgets during the
Commitment Period.
(e) On the twenty-sixth (26th) day of each calendar month (i) a
Borrowing Base Report in the form of Exhibit H duly completed by an
authorized officer of General Partner and conforming with the requirements
of Section 2.13, and (ii) a statement reconciliating such report with the
Borrowing Base Report delivered on the 26th day of the preceding calendar
month.
(f) As soon as available, and in any event within thirty-five (35)
days after the end of each calendar month, a report setting forth for such
month aggregate volumes and margins for all marketing activities of
Restricted Persons.
(g) As soon as available, and in any event within thirty (30) days
after the end of each Fiscal Year, an environmental compliance certificate
signed by the president or chief executive officer of General Partner in
the form attached hereto as Exhibit I. Further, if requested by
Administrative Agent, Restricted Persons shall permit and cooperate with an
environmental and safety review made in connection with the operations of
Restricted Persons' properties one time during each Fiscal Year beginning
with the Fiscal Year 1999, by Pilko & Associates, Inc. or other consultants
selected by Administrative Agent which review shall, if requested by
Administrative Agent, be arranged and supervised by environmental legal
counsel for Administrative Agent, all at Restricted Persons' cost and
expense. The consultant shall render a verbal or written report, as
specified by Administrative Agent, based upon such review at Restricted
Persons' cost and expense and a copy thereof will be provided to Restricted
Persons.
(h) Concurrently with the annual renewal of Restricted Persons'
insurance policies, Restricted Persons shall at their own cost and expense,
if requested by Administrative Agent in writing, cause a certificate or
report to be issued by Administrative Agent's professional insurance
consultants or other insurance consultants satisfactory to Administrative
Agent certifying that Restricted Persons' insurance for the next succeeding
year after such renewal (or for such longer period for which such insurance
is in effect) complies with the provisions of this Agreement and the
Security Documents.
Section 6.3. Other Information and Inspections. In each case subject to
the last sentence of this Section 6.3, each Restricted Person will furnish to
each Lender any information which Administrative Agent or any Lender may from
time to time request concerning any covenant, provision or condition of the Loan
Documents or any matter in connection with Restricted Persons' businesses and
operations. In each case subject to the last sentence of this Section 6.3, each
Restricted Person will permit representatives appointed by Administrative Agent
(including
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independent accountants, auditors, agents, attorneys, appraisers and any other
Persons) to visit and inspect during normal business hours any of such
Restricted Person's property, including its books of account, other books and
records, and any facilities or other business assets, and to make extra copies
therefrom and photocopies and photographs thereof, and to write down and record
any information such representatives obtain, and each Restricted Person shall
permit Administrative Agent or its representatives to investigate and verify the
accuracy of the information furnished to Administrative Agent or any Lender in
connection with the Loan Documents and to discuss all such matters with its
officers, employees and, upon prior notice to Borrower, its representatives.
Each of the foregoing inspections shall be made subject to compliance with
applicable safety standards and the same conditions applicable to any Restricted
Person in respect of property of that Restricted Person on the premises of
Persons other than a Restricted Person or an Affiliate of a Restricted Person,
and all information, books and records furnished or requested to be furnished,
or of which copies, photocopies or photographs are made or requested to be made,
all information to be investigated or verified and all discussions conducted
with any officer, employee or representative of any Restricted Person shall be
subject to any applicable attorney-client privilege exceptions which the
Restricted Person determines is reasonably necessary and compliance with
conditions to disclosures under non-disclosure agreements between any Restricted
Person and Persons other than a Restricted Person or an Affiliate of a
Restricted Person and the express undertaking of each Person acting at the
direction of or on behalf of any Lender Party to be bound by the confidentiality
provisions of Section 10.6 of this Agreement.
Section 6.4. Notice of Material Events and Change of Address. Each
Restricted Person will notify each Lender Party, not later than five (5)
Business Days after any executive officer of Restricted Persons has knowledge
thereof, stating that such notice is being given pursuant to this Agreement, of:
(a) the occurrence of any Material Adverse Change,
(b) the occurrence of any Default,
(c) the acceleration of the maturity of any Indebtedness owed by any
Restricted Person or of any default by any Restricted Person under any
indenture, mortgage, agreement, contract or other instrument to which any
of them is a party or by which any of them or any of their properties is
bound, if such acceleration or default could cause a Material Adverse
Change,
(d) the occurrence of any Termination Event,
(e) any claim of $1,000,000 or more, any notice of potential
liability under any Environmental Laws which might be reasonably likely to
exceed such amount, or any other material adverse claim asserted against
any Restricted Person or with respect to any Restricted Person's properties
taken as a whole, and
(f) the filing of any suit or proceeding against any Restricted
Person in which an adverse decision could cause a Material Adverse Change.
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Upon the occurrence of any of the foregoing, Restricted Persons will take all
necessary or appropriate steps to remedy promptly any such Material Adverse
Change, Default, acceleration, default, or Termination Event to protect against
any such adverse claim, to defend any such suit or proceeding, and to resolve
all controversies on account of any of the foregoing. Restricted Persons will
also notify Administrative Agent and Administrative Agent's counsel in writing
at least twenty Business Days prior to the date that any Restricted Person
changes its name or the location of its chief executive office or principal
place of business or the place where it keeps its books and records concerning
the Collateral, furnishing with such notice any necessary financing statement
amendments or requesting Administrative Agent and its counsel to prepare the
same.
Borrower will promptly notify Administrative Agent in the event Borrower
determines that any computer application which is material to the operations of
Borrower, its Subsidiaries, its Affiliates or any of its material vendors or
suppliers will not be fully Year 2000 compliant on a timely basis, except to the
extent that such failure could not reasonably be expected to cause a Material
Adverse Change.
Section 6.5. Maintenance of Properties. Each Restricted Person will
maintain, preserve, protect, and keep all Collateral and all other property used
or useful in the conduct of its business in good condition (ordinary wear and
tear excepted) and in compliance with all applicable Laws, and will from time to
time make all repairs, renewals and replacements needed to enable the business
and operations carried on in connection therewith to be promptly and
advantageously conducted at all times.
Section 6.6. Maintenance of Existence and Qualifications. Each
Restricted Person will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable Law, except where the
failure so to qualify will not cause a Material Adverse Change.
Section 6.7. Payment of Trade Liabilities, Taxes, etc. Each Restricted
Person will (a) timely file all required tax returns including any extensions;
(b) timely pay all taxes, assessments, and other governmental charges or levies
imposed upon it or upon its income, profits or property; (c) within one hundred
twenty (120) days after the date such goods are delivered or such services are
rendered, pay all Liabilities owed by it on ordinary trade terms to vendors,
suppliers and other Persons providing goods and services used by it in the
ordinary course of its business; (d) pay and discharge when due all other
Liabilities now or hereafter owed by it; and (e) maintain appropriate accruals
and reserves for all of the foregoing in accordance with GAAP. Each Restricted
Person may, however, delay paying or discharging any of the foregoing so long as
it is in good faith contesting the validity thereof by appropriate proceedings,
if necessary, and has set aside on its books adequate reserves therefor which
are required by GAAP.
Section 6.8. Insurance. Each Restricted Person shall at all times
maintain insurance for its property in accordance with the Insurance Schedule
which insurance shall be by financially sound and reputable insurers. Borrower
will maintain any additional insurance coverage as described in the respective
Security Documents. Upon demand by Administrative Agent any insurance policies
covering Collateral shall be endorsed (a) to provide for payment of losses to
Administrative Agent as its interests may appear, (b) to provide that such
policies may not be
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canceled or reduced or affected in any material manner for any reason without
fifteen days prior notice to Administrative Agent, and (c) to provide for any
other matters specified in any applicable Security Document or which
Administrative Agent may reasonably require. Each Restricted Person shall at all
times maintain insurance against its liability for injury to persons or property
in accordance with the Insurance Schedule, which insurance shall be by
financially sound and reputable insurers. Without limiting the foregoing, each
Restricted Person shall at all time maintain liability insurance in accordance
with the Insurance Schedule.
Section 6.9. Performance on Borrower's Behalf. If any Restricted Person
fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other
amounts it is required to pay under any Loan Document, Administrative Agent may
pay the same after notice of such payment by Administrative Agent is given to
Borrower. Borrower shall immediately reimburse Administrative Agent for any
such payments and each amount paid by Administrative Agent shall constitute an
Obligation owed hereunder which is due and payable on the date such amount is
paid by Administrative Agent.
Section 6.10. Interest. Borrower hereby promises to each Lender to pay
interest at the Default Rate on all Obligations (including Obligations to pay
fees or to reimburse or indemnify any Lender) which Borrower has in this
Agreement promised to pay to such Lender and which are not paid when due. Such
interest shall accrue from the date such Obligations become due until they are
paid.
Section 6.11. Compliance with Agreements and Law. Each Restricted Person
will perform all material obligations it is required to perform under the terms
of each indenture, mortgage, deed of trust, security agreement, lease, and
franchise, and each material agreement, contract or other instrument or
obligation to which it is a party or by which it or any of its properties is
bound. Each Restricted Person will conduct its business and affairs in
compliance with all Laws applicable thereto.
Section 6.12. Environmental Matters; Environmental Reviews.
(a) Each Restricted Person will comply in all material respects with all
Environmental Laws now or hereafter applicable to such Restricted Person as well
as all contractual obligations and agreements with respect to environmental
remediation or other environmental matters and shall obtain, at or prior to the
time required by applicable Environmental Laws, all environmental, health and
safety permits, licenses and other authorizations necessary for its operations
and will maintain such authorizations in full force and effect.
(b) Each Restricted Person will promptly furnish to Administrative Agent
all written notices of violation, orders, claims, citations, complaints, penalty
assessments, suits or other proceedings received by any Restricted Person or
General Partner, or of which it has notice, pending or threatened against any
Restricted Person, the potential liability of which exceeds $1,000,000 or would
cause a Material Adverse Change if resolved adversely against any Restricted
Person, by any governmental authority with respect to any alleged violation of
or non-compliance with any Environmental Laws or any permits, licenses or
authorizations in connection with its ownership or use of its properties or the
operation of its business.
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(c) Each Restricted Person will promptly furnish to Administrative Agent
all requests for information, notices of claim, demand letters, and other
notifications, received by any Restricted Person or General Partner in
connection with its ownership or use of its properties or the conduct of its
business, relating to potential responsibility with respect to any investigation
or clean-up of Hazardous Material at any location, the potential liability of
which exceeds $1,000,000 or would cause a Material Adverse Change if resolved
adversely against any Restricted Person.
Section 6.13. Evidence of Compliance. Subject to the last sentence of
Section 6.3, each Restricted Person will furnish to each Lender at such
Restricted Person's expense all evidence which Administrative Agent from time to
time reasonably requests in writing as to the accuracy and validity of or
compliance with all representations, warranties and covenants made by any
Restricted Person in the Loan Documents, the satisfaction of all conditions
contained therein, and all other matters pertaining thereto.
Section 6.14. Agreement to Deliver Security Documents. Restricted
Persons will deliver to further secure the Obligations whenever requested by
Administrative Agent in its sole and absolute discretion, deeds of trust,
mortgages, chattel mortgages, security agreements, financing statements and
other Security Documents in form and substance satisfactory to Administrative
Agent for the purpose of granting, confirming, and perfecting first and prior
liens or security interests in any real or personal property now owned or
hereafter acquired by any Restricted Person.
Section 6.15. Perfection and Protection of Security Interests and Liens.
Each Restricted Person will from time to time deliver to Administrative Agent
any financing statements, continuation statements, extension agreements and
other documents, properly completed and executed (and acknowledged when
required) by Restricted Persons in form and substance satisfactory to
Administrative Agent, which Administrative Agent requests for the purpose of
perfecting, confirming, or protecting any Liens or other rights in Collateral
securing any Obligations.
Section 6.16. Bank Accounts; Offset. To secure the repayment of the
Obligations each Restricted Person hereby grants to each Lender a security
interest, a lien, and a right of offset, each of which shall be in addition to
all other interests, liens, and rights of any Lender at common Law, under the
Loan Documents, or otherwise, and each of which shall be upon and against (a)
any and all moneys, securities or other property (and the proceeds therefrom) of
such Restricted Person now or hereafter held or received by or in transit to any
Lender from or for the account of such Restricted Person, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, (b) any and
all deposits (general or special, time or demand, provisional or final) of such
Restricted Person with any Lender, and (c) any other credits and claims of such
Restricted Person at any time existing against any Lender, including claims
under certificates of deposit. At any time and from time to time during the
continuance of any Event of Default, each Lender is hereby authorized to
foreclose upon, or to offset against the Obligations then due and payable (in
either case without notice to any Restricted Person), any and all items herein
above referred to. The remedies of foreclosure and offset are separate and
cumulative, and either may be exercised independently of the other without
regard to procedures or restrictions applicable to the other.
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Section 6.17. Guaranties of Subsidiaries. Each Subsidiary of Plains MLP
now existing or created, acquired or coming into existence after the date hereof
shall, promptly upon request by Administrative Agent, execute and deliver to
Administrative Agent an absolute and unconditional guaranty of the timely
repayment of the Obligations and the due and punctual performance of the
obligations of Borrower hereunder, which guaranty shall be satisfactory to
Administrative Agent in form and substance. Each Subsidiary of Plains MLP
existing on the date hereof shall duly execute and deliver such a guaranty prior
to the making of any Loan hereunder. Plains MLP will cause each of its
Subsidiaries to deliver to Administrative Agent, simultaneously with its
delivery of such a guaranty, written evidence satisfactory to Administrative
Agent and its counsel that such Subsidiary has taken all corporate or
partnership action necessary to duly approve and authorize its execution,
delivery and performance of such guaranty and any other documents which it is
required to execute.
Section 6.18. Compliance with Agreements. Each Restricted Person shall
observe, perform or comply with any agreement with any Person or any term or
condition of any instrument, if such agreement or instrument is materially
significant to such Restricted Person or to Restricted Persons on a Consolidated
basis or materially significant to any Guarantor, and such failure is not
remedied within the applicable period of grace (if any) provided in such
agreement or instrument.
Section 6.19. Year 2000.
(a) Restricted Persons (i) no later than December 31, 1998 shall have
completed the analysis of the operations of Restricted Persons and their
Affiliates that could be adversely affected by failure to become Year 2000
compliant (that is, that computer applications, imbedded microchips and other
systems will be able to perform date-sensitive functions prior to and after
December 31, 1999) and developed a plan for Restricted Persons and their
Affiliates for becoming Year 2000 compliant in a timely manner, and (ii) shall
at all times after development of such plan implement such plan in all material
respects, in a timely manner, and in accordance with the schedule of such plan.
Contemporaneously with the delivery of each compliance certificate under Section
6.2 (a) or (b) on and after December 31, 1998, Each Restricted Person shall
certify that it reasonably believes that Restricted Persons and their Affiliates
will become Year 2000 compliant for their operations on a timely basis except to
the extent that a failure to do so could not reasonably be expected to cause a
Material Adverse Change.
(b) Contemporaneously with the delivery of each compliance certificate
under Section 6.2 (a) or (b) on and after December 31, 1998, Plains MLP shall
certify that it reasonably believes any suppliers and vendors that are material
to the operations of Plains MLP or its Subsidiaries and Affiliates will be Year
2000 compliant for their own computer applications except to the extent that a
failure to do so could not reasonably be expected to cause a Material Adverse
Change.
Section 6.21. Rents. By the terms of the various Security Documents,
certain Restricted Persons are and will be assigning to Administrative Agent,
for the benefit of Lender Parties, all of the "Rents" (as defined therein)
accruing to the property covered thereby. Notwithstanding any such assignments,
so long as no Default has occurred and is continuing, (i) such Restricted
Persons may continue to receive and collect from the payors of such Rents all
such Rents, subject,
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however, to the Liens created under the Security Documents, which Liens are
hereby affirmed and ratified, and free and clear of such Liens, use the proceeds
of the Rents, and (ii) the Administrative Agent will not notify the obligors of
such Rents or take any other action to cause proceeds thereof to be remitted to
the Administrative Agent. Upon the occurrence of a Default, Administrative Agent
may exercise all rights and remedies granted under the Security Documents,
including the right to obtain possession of all Rents then held by such
Restricted Persons or to receive directly from the payors of such Rents all
other Rents until such time as such Default is no longer continuing. If the
Administrative Agent shall receive any Rent proceeds from any payor at any time
other than during the continuance of a Default, then it shall notify Borrower
thereof and (i) upon request and pursuant to the instructions of Borrower, it
shall, if no Default is then continuing, remit such proceeds to the Borrower and
(ii) at the request and expense of Borrower, execute and deliver a letter to
such payors confirming Restricted Persons' right to receive and collect Rents
until otherwise notified by Administrative Agent. In no case shall any failure,
whether purposed or inadvertent, by Administrative Agent to collect directly any
such Rents constitute in any way a waiver, remission or release of any of its
rights under the Security Documents, nor shall any release of any Rents by
Administrative Agent to such Restricted Persons constitute a waiver, remission,
or release of any other Rents or of any rights of Administrative Agent to
collect other Rents thereafter.
ARTICLE VII - Negative Covenants
To conform with the terms and conditions under which each Lender is willing
to have credit outstanding to Borrower, and to induce each Lender to enter into
this Agreement and make the Loans, Plains MLP and Borrower covenant and agree
that until the full and final payment of the Obligations and the termination of
this Agreement, unless Majority Lenders, or all Lenders as required under
Section 10.1, have previously agreed otherwise:
Section 7.1. Indebtedness. No Restricted Person will in any manner owe
or be liable for Indebtedness except:
(a) the Obligations;
(b) Indebtedness arising under Hedging Contracts permitted under Section
7.3;
(c) Indebtedness of any Restricted Person owing to another Restricted
Person;
(d) Liabilities with respect to obligations to deliver crude oil or to
render terminaling or storage services in consideration for advance payments to
a Restricted Person provided such delivery or rendering, as applicable, is to be
made within 60 days after such payment;
(e) Operating leases, provided that the annual rentals and other
obligations thereunder in the aggregate in respect of all Related Persons do not
exceed $_________;
(f) Indebtedness under the All American Agreement;
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(g) guaranties by Plains MLP of trade payables of Operating incurred and
paid in the ordinary course of business on ordinary trade terms; and
(h) other Indebtedness not to exceed in the aggregate in respect of all
Related Persons the principal amount of $25,000,000 at any one time outstanding.
Section 7.2. Limitation on Liens. No Restricted Person will create,
assume or permit to exist (i) any Lien upon any Collateral except (A) Permitted
Inventory Liens, (B) Liens created pursuant to the Security Documents, (C)
statutory Liens in respect of First Purchase Crude Payables, (D) Liens of the
type described in clause (e) below in connection with any Eligible Margin
Deposit to secure Hedging Contracts permitted under Section 7.1 with the broker
that is the holder of such Eligible Margin Deposit, and (E) any other Liens
expressly permitted to encumber such Collateral under any Security Document
covering such Collateral or (ii) any Lien upon any of the properties or assets
other than Collateral (except as provided in the preceding clause (i)) which it
now owns or hereafter acquires except the following (Liens, to the extent
permitted by this Section, herein called "Permitted Liens"):
(a) Liens existing on the date of this Agreement and listed in the
Disclosure Schedule or Liens created pursuant to the All American Agreement,
subject to the terms of the Intercreditor Agreement referred to in Section
4.1(n);
(b) Liens imposed by any governmental authority for taxes, assessments or
charges not yet due or the validity of which is being contested in good faith
and by appropriate proceedings, if necessary, for which adequate reserves are
maintained on the books of any Restricted Person in accordance with GAAP;
(c) pledges or deposits under worker's compensation, unemployment insurance
or other social security legislation;
(d) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
landlord's, or other like Liens (including, without limitation, Liens on
property in the possession of storage facilities, pipelines or barges) arising
in the ordinary course of business for amounts which are not more than 60 days
past due or the validity of which is being contested in good faith and by
appropriate proceedings, if necessary, and for which adequate reserves are
maintained on the books of any Restricted Person in accordance with GAAP;
(e) Liens under or with respect to accounts with brokers or counterparties
with respect to Hedging Contracts consisting of cash, commodities or futures
contracts, options, securities, instruments, and other like assets securing only
Hedging Contracts permitted under Section 7.1;
(f) deposits of cash or securities to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
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(g) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business and encumbrances consisting of
zoning restrictions, easements, licenses, restrictions on the use of real
property or minor imperfections in title thereto which, in the aggregate, are
not material in amount, and which do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary conduct of
the business of any Restricted Person;
(h) Liens in respect of operating leases and Capital Leases permitted under
Section 7.1;
(i) Liens upon any property or assets acquired after the date hereof by a
Restricted Person, each of which either (i) existed on such property or asset
before the time of its acquisition and was not created in anticipation thereof,
or (ii) was created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
the cost of construction) of such property or asset; provided that no such Lien
shall extend to or cover any property or asset of a Restricted Person other than
the property or asset so acquired (or constructed) and the Indebtedness secured
thereby is permitted under Section 7.1(d) hereof; and any extension, renewal,
refinancing, refunding or replacement (or successive extensions, renewals,
refinancings, refundings or replacements), in whole or part, of the foregoing,
provided, however, that such Liens shall not cover or secure any additional
Indebtedness, obligations, property or asset;
(j) rights reserved to or vested in any governmental authority by the terms
of any right, power, franchise, grant, license or permit, or by any provision of
law, to revoke or terminate any such right, power, franchise, grant, license or
permit or to condemn or acquire by eminent domain or similar process;
(k) rights reserved to or vested by Law in any governmental authority to in
any manner, control or regulate in any manner any of the properties of any
Restricted Person or the use thereof or the rights and interests of any
Restricted Person therein, in any manner under any and all Laws;
(l) rights reserved to the grantors of any properties of any Restricted
Person, and the restrictions, conditions, restrictive covenants and limitations,
in respect thereto, pursuant to the terms, conditions and provisions of any
rights-of-way agreements, contracts or other agreements therewith; and
(m) Inchoate Liens in respect of pending litigation or with respect to a
judgment which has not resulted in an Event of Default under Section 8.1.
Section 7.3. Hedging Contracts. No Restricted Person will be a party to
or in any manner be liable on any Hedging Contract, except:
(a) Hedging Contracts entered into by a Restricted Person with the purpose
and effect of fixing interest rates on a principal amount of indebtedness of
such Restricted Person that is accruing interest at a variable rate, provided
that (i) the aggregate notional amount of such
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contracts never exceeds one hundred percent (100%) of the anticipated
outstanding principal balance of the indebtedness to be hedged by such contracts
or an average of such principal balances calculated using a generally accepted
method of matching interest swap contracts to declining principal balances, (ii)
the floating rate index of each such contract generally matches the index used
to determine the floating rates of interest on the corresponding indebtedness to
be hedged by such contract and (iii) each such contract is with a counterparty
or has a guarantor of the obligation of the counterparty who (unless such
counterparty is a Lender or one of its Affiliates) at the time the contract is
made has long-term unsecured and unenhanced debt obligations rated AA or Aa2 or
better, respectively, by either Rating Agency or is an investment grade-rated
industry participant or otherwise acceptable to Majority Lenders.
(b) Hedging Contracts entered into with the purpose and effect of fixing
prices on crude oil then owned by a Restricted Person or which a Restricted
Person is then obligated to purchase, provided that at all times: (i) no such
contract fixes a price for a term of more than [thirty-six (36)] months
[provision dealing with time spreads to be discussed]; (ii) with respect to
crude oil constituting the linefill carried in the All American Pipeline, the
aggregate amount of oil so hedged at any one time does not exceed 500,000
barrels, (iii) with respect to crude oil owned by Restricted Persons other than
linefill carried in the All American Pipeline, the aggregate amount of such
other crude oil so hedged at any one time does not exceed the aggregate Open
Position at such time, (iv) such contract is entered into for the purpose of
hedging the price risk on oil anticipated to be disposed of and for which no
other fixed sale price or other price fixing arrangement exists, and (v) each
such contract is either (A) with a counterparty or has a guarantor of the
obligation of the counterparty who (unless such counterparty is a Lender Party
or one of its Affiliates) at the time the contract is made has long-term
unsecured and unenhanced debt obligations rated AA or Aa2 or better,
respectively, by either Rating Agency or (B) entered into on the New York
Mercantile Exchange through a broker listed on the Disclosure Schedule or
otherwise approved by Majority Lenders [provision dealing with counterparty
credit rating on an exchange for physical contracts].
Section 7.4. Limitation on Mergers, Issuances of Securities. Except as
expressly provided in this section, no Restricted Person will (a) enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), (b) acquire any
business or property from, or capital stock of, or be a party to any acquisition
of, any Person except for purchases of inventory and other property to be sold
or used in the ordinary course of business and Investments permitted under
Section 7.7 hereof or (c) sell, transfer, lease, exchange, alienate or
otherwise dispose of, in one transaction or a series of transactions, any part
of its business or property, whether now owned or hereafter acquired, except for
sales or transfers not prohibited by under Section 7.5 hereof. Any Person,
other than Borrower, that is a Subsidiary of a Restricted Person may, however,
be merged into or consolidated with (i) another Subsidiary of such Restricted
Person, so long as a Guarantor is the surviving business entity, or (ii) such
Restricted Person, so long as such Restricted Person is the surviving business
entity. Plains MLP will not issue any securities other than (i) limited
partnership units and any options or warrants giving the holders thereof only
the right to acquire such units and (ii) general or subordinate partnership
interests issued to Resources or a wholly owned Subsidiary of Resources. No
Subsidiary of Plains MLP will issue any additional shares of its capital stock
or other securities or any options, warrants or other rights to acquire such
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additional shares or other securities except a direct Subsidiary of a Restricted
Person may issue additional shares or other securities to such Restricted
Person. No Subsidiary of Borrower which is a partnership will allow any
diminution of Borrower's interest (direct or indirect) therein.
Section 7.5. Limitation on Sales of Property. No Restricted Person will
sell, transfer, lease, exchange, alienate or dispose of any Collateral or any of
its material assets or properties or any material interest therein except:
(a) equipment which is worthless or obsolete or which is replaced by
equipment of equal suitability and value;
(b) inventory (including pipeline linefill) which is sold in the ordinary
course of business on ordinary trade terms;
(c) in other property which is sold for fair consideration not in the
aggregate in excess of $10,000,000 in any Fiscal Year, the sale of which will
not materially impair or diminish the value of the Collateral or any Restricted
Person's financial condition, business or operations; and
(d) sales or transfers, subject to the Security Documents, by a Subsidiary
of a Restricted Person (other than Borrower) to such Restricted Person or to a
wholly-owned Subsidiary of such Restricted Person that is a Guarantor.
No Restricted Person will sell, transfer or otherwise dispose of capital stock
of or interest in any of its Subsidiaries except to Borrower, or to another
wholly-owned Subsidiary of Borrower. No Restricted Person will discount, sell,
pledge or assign any notes payable to it, accounts receivable or future income.
So long as no Default then exists, Administrative Agent will, at Borrower's
request and expense, execute a release, satisfactory to Borrower and
Administrative Agent, of any Collateral so sold, transferred, leased, exchanged,
alienated or disposed of pursuant to the clause (a) or (c) of this Section.
Section 7.6. Limitation on Dividends and Redemptions. No Restricted
Person will declare or pay any dividends on, or make any other distribution in
respect of, any class of its capital stock or any partnership or other interest
in it, nor will any Restricted Person directly or indirectly make any capital
contribution to or purchase, redeem, acquire or retire any shares of the capital
stock of or partnership interests in any Restricted Person (whether such
interests are now or hereafter issued, outstanding or created), or cause or
permit any reduction or retirement of the capital stock of any Restricted
Person, while any Loan is outstanding. Notwithstanding the foregoing, (i)
Subsidiaries of Plains MLP shall not be restricted from declaring and paying
dividends or making any other distribution to Plains MLP or any wholly owned
Subsidiary of Plains MLP, (ii) no Restricted Person shall be restricted from
making capital contributions to a wholly owned Subsidiary of such Restricted
Person that is a Guarantor, and (iii) so long as no Default or Event of Default
has occurred or is continuing or would result therefrom, Plains MLP shall not be
restricted from using Available Cash (other than amounts required to be applied
as otherwise required in any Loan Document) for the purpose of (A) paying
distributions in respect of its partnership units and (B) purchasing its
partnership units on the open market in connection
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with the Incentive and Option Plans, provided that the aggregate amount of such
purchases may not exceed ______________.
Section 7.7. Limitation on Investments and New Businesses. No Restricted
Person will (a) make any expenditure or commitment or incur any obligation or
enter into or engage in any transaction except in the ordinary course of
business, (b) engage directly or indirectly in any business or conduct any
operations except in connection with or incidental to its present businesses and
operations, (c) make any acquisitions of or capital contributions to or other
Investments in any Person, other than Permitted Investments and Permitted
Acquisitions, or (d) make any acquisitions of properties other than Permitted
Acquisitions.
Section 7.8. Limitation on Credit Extensions. Except for Permitted
Investments, no Restricted Person will extend credit, make advances or make
loans other than normal and prudent extensions of credit to customers buying
goods and services in the ordinary course of business or to another Restricted
Person in the ordinary course of business, which extensions shall not be for
longer periods than those extended by similar businesses operated in a normal
and prudent manner.
Section 7.9. Transactions with Affiliates. No Restricted Person will
engage in any material transaction with any of its Affiliates except: (a)
transactions among Plains MLP and its wholly owned Subsidiaries, (b)
transactions governed by the Affiliate Agreements, and (c) transactions entered
into in the ordinary course of business of such Restricted Person on terms which
are no less favorable to such Restricted Person than those which would have been
obtainable at the time in arm's-length transactions with Persons other than such
Affiliates.
Section 7.10. Prohibited Contracts. Except as expressly provided for in
the Loan Documents, no Restricted Person will, directly or indirectly, enter
into, create, or otherwise allow to exist any contract or other consensual
restriction on the ability of any Subsidiary of Plains MLP, including but not
limited to Borrower and any Subsidiary of Borrower to: (a) pay dividends or
make other distributions to Borrower or Plains MLP, (b) redeem equity interests
held in it by Borrower or Plains MLP, (c) repay loans and other indebtedness
owing by it to Borrower or Plains MLP, or (d) transfer any of its assets to
Borrower or Plains MLP. No Restricted Person will enter into any "take-or-pay"
contract or other contract or arrangement for the purchase of goods or services
which obligates it to pay for such goods or service regardless of whether they
are delivered or furnished to it. No Restricted Persons will amend, modify or
release any of the Affiliate Agreements. No Restricted Person will amend or
permit any amendment to any contract or lease which releases, qualifies, limits,
makes contingent or otherwise detrimentally affects the rights and benefits of
Administrative Agent or any Lender under or acquired pursuant to any Security
Documents. No ERISA Affiliate will incur any obligation to contribute to any
"multiemployer plan" as defined in Section 4001 of ERISA that is subject to
Title IV of ERISA.
Section 7.11. Current Ratio. The ratio of (i) the sum of Plains MLP's
Consolidated current assets plus the All American Revolver Availability to (ii)
Plains MLP's Consolidated current liabilities will never be less than 1.0 to
1.0. For purposes of this section, Plains MLP's Consolidated current
liabilities will be calculated without including (a) any payments of principal
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on the Notes which are required to be repaid within one year from the time of
calculation and (b) all Liabilities arising under permitted Hedging Contracts.
Section 7.12. Debt Coverage Ratio. At the end of any Fiscal Quarter, the
ratio of (a) Consolidated Indebtedness to (b) Consolidated EBITDA for the four
Fiscal Quarter period ending with such Fiscal Quarter will not be greater than
5.0 to 1.0.
Section 7.13. Interest Coverage Ratio. At the end of any Fiscal Quarter,
the ratio of (a) Consolidated EBITDA to (b) Interest Expense for the four-Fiscal
Quarter period ending with such Fiscal Quarter will not be less than 3.0 to 1.0.
Section 7.14. Fixed Charge Coverage Ratio. At the end of any Fiscal
Quarter, the ratio of (a) the sum of Consolidated EBITDA plus Consolidated Lease
Rentals to (b) the sum of Interest Expense plus Consolidated Lease Rentals plus
any principal payments due on any Indebtedness during the next four-Fiscal
Quarter period (exclusive of principal payments due on the Loans or on any
Indebtedness under the Operating Credit Agreement) plus capital expenditure
required to maintain the assets and properties of the Restricted Persons in
accordance with the covenants contained in each Loan Document, in each case for
the four-Fiscal Quarter period ending with such Fiscal Quarter will not be less
than 1.25 to 1 for any such period.
Section 7.15. Debt to Capital Ratio. The ratio of (a) all Consolidated
Indebtedness to (b) the sum of Consolidated Indebtedness plus Consolidated Net
Worth will never be greater than .60 to 1.0 at any time.
Section 7.16. Open Inventory Position. Borrower shall not at any time
have an Open Position (exclusive of line fill carried in the All American
Pipeline) greater than 600,000 barrels.
ARTICLE VIII - Events of Default and Remedies
Section 8.1. Events of Default. Each of the following events constitutes
an Event of Default under this Agreement:
(a) Any Restricted Person fails to pay the principal component of any Loan
or any reimbursement obligation with respect to any Letter of Credit when due
and payable, whether at a date for the payment of a fixed installment or as a
contingent or other payment becomes due and payable or as a result of
acceleration or otherwise;
(b) Any Restricted Person fails to pay any Obligation (other than the
Obligations in subsection (a) above) when due and payable, whether at a date for
the payment of a fixed installment or as a contingent or other payment becomes
due and payable or as a result of acceleration or otherwise, within three
Business Days after the same becomes due;
(c) Any event defined as a "default" or "event of default" in any Loan
Document occurs, and the same is not remedied within the applicable period of
grace (if any) provided in such Loan Document;
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(d) Any Restricted Person fails to duly observe, perform or comply with
any covenant, agreement or provision of Section 6.4 or Article VII;
(e) Any Restricted Person fails (other than as referred to in subsections
(a), (b), (c) or (d) above) to duly observe, perform or comply with any
covenant, agreement, condition or provision of any Loan Document to which it is
a party, and such failure remains unremedied for a period of thirty (30) days
after notice of such failure is given by Administrative Agent to Borrower;
(f) Any representation or warranty previously, presently or hereafter made
in writing by or on behalf of any Restricted Person in connection with any Loan
Document shall prove to have been false or incorrect in any material respect on
any date on or as of which made, or any Loan Document at any time ceases to be
valid, binding and enforceable as warranted in Section 5.5 for any reason other
than its release or subordination by Administrative Agent;
(g) Any Restricted Person shall default in the payment when due of any
principal of or interest on any of its other Indebtedness in excess of
$2,500,000 in the aggregate (other than Indebtedness the validity of which is
being contested in good faith by appropriate proceedings and for which adequate
reserves with respect thereto are maintained on the books of such Restricted
Person in accordance with GAAP), or any event specified in any note, agreement,
indenture or other document evidencing or relating to any such Indebtedness
shall occur if the effect of such event is to cause, or (with the giving of any
notice or the lapse of time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause, such Indebtedness to become due, or to be prepaid in full (whether by
redemption, purchase, offer to purchase or otherwise), prior to its stated
maturity;
(h) Either (i) any "accumulated funding deficiency" (as defined in Section
412(a) of the Code) in excess of $500,000 exists with respect to any ERISA Plan,
whether or not waived by the Secretary of the Treasury or his delegate, or (ii)
any Termination Event occurs with respect to any ERISA Plan and the then current
value of such ERISA Plan's benefit liabilities exceeds the then current value of
such ERISA Plan's assets available for the payment of such benefit liabilities
by more than $500,000 (or in the case of a Termination Event involving the
withdrawal of a substantial employer, the withdrawing employer's proportionate
share of such excess exceeds such amount);
(i) General Partner or any Restricted Person:
(i) has entered against it of a judgment, decree or order for relief
by a Tribunal of competent jurisdiction in an involuntary proceeding
commenced under any applicable bankruptcy, insolvency or other similar Law
of any jurisdiction now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended, or has any such proceeding
commenced against it, in each case, which remains undismissed for a period
of sixty days; or
(ii) commences a voluntary case under any applicable bankruptcy,
insolvency or similar Law now or hereafter in effect, including the federal
Bankruptcy Code, as from time to time amended; or applies for or consents
to the entry of an order for relief in an
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involuntary case under any such Law; or makes a general assignment for the
benefit of creditors; or is generally unable to pay (or admits in writing
its inability to so pay) its debts as such debts become due; or takes
corporate or other action to authorize any of the foregoing; or
(iii) has entered against it the appointment of or taking possession
by a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets in a proceeding
brought against or initiated by it, and such appointment or taking
possession is neither made ineffective nor discharged within sixty days
after the making thereof, or such appointment or taking possession is at
any time consented to, requested by, or acquiesced to by it; or
(iv) has entered against it the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of any part of the Collateral of a value in excess of
$1,000,000 in a proceeding brought against or initiated by it, and such
appointment or taking possession is neither made ineffective nor discharged
within sixty days after the making thereof, or such appointment or taking
possession is at any time consented to, requested by, or acquiesced to by
it; or
(v) has entered against it a final judgment for the payment of money
in excess of $1,000,000 (in each case not covered by insurance satisfactory
to Administrative Agent in its discretion), unless the same is stayed or
discharged within thirty days after the date of entry thereof or an appeal
or appropriate proceeding for review thereof is taken within such period
and a stay of execution pending such appeal is obtained; or
(vi) suffers a writ or warrant of attachment or any similar process
to be issued by any Tribunal against all or any substantial part of its
assets or any part of the Collateral of a value in excess of $1,000,000,
and such writ or warrant of attachment or any similar process is not stayed
or released within thirty days after the entry or levy thereof or after any
stay is vacated or set aside;
(j) General Partner shall default in the payment when due of any principal
of or interest on any of its Indebtedness in excess of $1,000,000 in the
aggregate, or any event specified in any note, agreement, indenture or other
document evidencing or relating to any such Indebtedness shall occur if the
effect of such event is to cause, or (with the giving of any notice or the lapse
of time or both) to permit the holder or holders of such Indebtedness (or a
trustee or agent on behalf of such holder or holders) to cause, such
Indebtedness to become due, or to be prepaid in full (whether by redemption,
purchase, offer to purchase or otherwise), prior to its stated maturity;
(k) Any Change in Control occurs; or
(l) Any Material Market Open Position Loss occurs.
Upon the occurrence of an Event of Default described in subsection (i)(i),
(i)(ii) or (i)(iii) of this section with respect to Borrower or Plains MLP, all
of the Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and
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nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration of any
kind, all of which are hereby expressly waived by Borrower and each Restricted
Person who at any time ratifies or approves this Agreement. Upon any such
acceleration, any obligation of any Lender to make any further Loans and any
obligation of LC Issuer to issue Letters of Credit hereunder shall be
permanently terminated. During the continuance of any other Event of Default,
Administrative Agent at any time and from time to time may (and upon written
instructions from Majority Lenders, Administrative Agent shall), without notice
to Borrower or any other Restricted Person, do either or both of the following:
(1) terminate any obligation of Lenders to make Loans hereunder and any
obligation of LC Issuer to issue Letters of Credit hereunder, and (2) declare
any or all of the Obligations immediately due and payable, and all such
Obligations shall thereupon be immediately due and payable, without demand,
presentment, notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower and each Restricted Person who at any time
ratifies or approves this Agreement.
Section 8.2. Remedies. If any Default shall occur and be continuing,
each Lender Party may protect and enforce its rights under the Loan Documents by
any appropriate proceedings, including proceedings for specific performance of
any covenant or agreement contained in any Loan Document, and each Lender Party
may enforce the payment of any Obligations due it or enforce any other legal or
equitable right which it may have. All rights, remedies and powers conferred
upon Lender Parties under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at Law or in equity.
ARTICLE IX - Administrative Agent
Section 9.1. Appointment and Authority. Each Lender Party hereby
irrevocably authorizes Administrative Agent, and Administrative Agent hereby
undertakes, to receive payments of principal, interest and other amounts due
hereunder as specified herein and to take all other actions and to exercise such
powers under the Loan Documents as are specifically delegated to Administrative
Agent by the terms hereof or thereof, together with all other powers reasonably
incidental thereto. The relationship of Administrative Agent to the other
Lender Parties is only that of one commercial lender acting as administrative
agent for others, and nothing in the Loan Documents shall be construed to
constitute Administrative Agent a trustee or other fiduciary for any Lender
Party or any holder of any participation in a Note nor to impose on
Administrative Agent duties and obligations other than those expressly provided
for in the Loan Documents. With respect to any matters not expressly provided
for in the Loan Documents and any matters which the Loan Documents place within
the discretion of Administrative Agent, Administrative Agent shall not be
required to exercise any discretion or take any action, and it may request
instructions from Lenders with respect to any such matter, in which case it
shall be required to act or to refrain from acting (and shall be fully protected
and free from liability to all Lender Parties in so acting or refraining from
acting) upon the instructions of Majority Lenders (including itself), provided,
however, that Administrative Agent shall not be required to take any action
which
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exposes it to a risk of personal liability that it considers unreasonable
or which is contrary to the Loan Documents or to applicable Law. Upon receipt
by Administrative Agent from Borrower of any communication calling for action on
the part of Lenders or upon notice from Borrower or any Lender to Administrative
Agent of any Default or Event of Default, Administrative Agent shall promptly
notify each other Lender thereof.
Section 9.2. Exculpation, Administrative Agent's Reliance, Etc. Neither
Administrative Agent nor any of its directors, officers, agents, attorneys, or
employees shall be liable for any action taken or omitted to be taken by any of
them under or in connection with the Loan Documents, INCLUDING THEIR NEGLIGENCE
OF ANY KIND, except that each shall be liable for its own gross negligence or
willful misconduct. Without limiting the generality of the foregoing,
Administrative Agent (a) may treat the payee of any Note as the holder thereof
until Administrative Agent receives written notice of the assignment or transfer
thereof in accordance with this Agreement, signed by such payee and in form
satisfactory to Administrative Agent; (b) may consult with legal counsel
(including counsel for Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any other
Lender Party and shall not be responsible to any other Lender Party for any
statements, warranties or representations made in or in connection with the Loan
Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of the
Loan Documents on the part of any Restricted Person or to inspect the property
(including the books and records) of any Restricted Person; (e) shall not be
responsible to any other Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan Document or any
instrument or document furnished in connection therewith; (f) may rely upon the
representations and warranties of each Restricted Person or Lender Party in
exercising its powers hereunder; and (g) shall incur no liability under or in
respect of the Loan Documents by acting upon any notice, consent, certificate or
other instrument or writing (including any facsimile, telegram, cable or telex)
believed by it to be genuine and signed or sent by the proper Person or Persons.
Section 9.3. Credit Decisions. Each Lender Party acknowledges that it
has, independently and without reliance upon any other Lender Party, made its
own analysis of Borrower and the transactions contemplated hereby and its own
independent decision to enter into this Agreement and the other Loan Documents.
Each Lender Party also acknowledges that it will, independently and without
reliance upon any other Lender Party and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Loan Documents.
Section 9.4. Indemnification. EACH LENDER AGREES TO INDEMNIFY
ADMINISTRATIVE AGENT (TO THE EXTENT NOT REIMBURSED BY BORROWER WITHIN TEN (10)
DAYS AFTER DEMAND) FROM AND AGAINST SUCH LENDER'S PERCENTAGE SHARE OF ANY AND
ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES,
ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS
(INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF
ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES
AND COSTS")
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WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST ADMINISTRATIVE AGENT GROWING OUT OF, RESULTING FROM OR IN ANY
OTHER WAY ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN DOCUMENTS AND THE
TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT THEREOF) AT ANY TIME
ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (WHETHER ARISING IN CONTRACT OR IN
TORT OR OTHERWISE AND INCLUDING ANY VIOLATION OR NONCOMPLIANCE WITH ANY
ENVIRONMENTAL LAWS BY ANY PERSON OR ANY LIABILITIES OR DUTIES OF ANY PERSON WITH
RESPECT TO HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY ADMINISTRATIVE AGENT,
provided only that no Lender shall be obligated under this section to indemnify
Administrative Agent for that portion, if any, of any liabilities and costs
which is proximately caused by Administrative Agent's own individual gross
negligence or willful misconduct, as determined in a final judgment. Cumulative
of the foregoing, each Lender agrees to reimburse Administrative Agent promptly
upon demand for such Lender's Percentage Share of any costs and expenses to be
paid to Administrative Agent by Borrower under Section 10.4(a) to the extent
that Administrative Agent is not timely reimbursed for such expenses by Borrower
as provided in such section. As used in this section the term "Administrative
Agent" shall refer not only to the Person designated as such in Section 1.1 but
also to each director, officer, agent, attorney, employee, representative and
Affiliate of such Person.
Section 9.5. Rights as Lender. In its capacity as a Lender,
Administrative Agent shall have the same rights and obligations as any Lender
and may exercise such rights as though it were not Administrative Agent.
Administrative Agent may accept deposits from, lend money to, act as trustee
under indentures of, and generally engage in any kind of business with any
Restricted Person or their Affiliates, all as if it were not Administrative
Agent hereunder and without any duty to account therefor to any other Lender.
Section 9.6. Sharing of Set-Offs and Other Payments. Each Lender Party
agrees that if it shall, whether through the exercise of rights under Security
Documents or rights of banker's lien, set off, or counterclaim against Borrower
or otherwise, obtain payment of a portion of the aggregate Obligations owed to
it which, taking into account all distributions made by Administrative Agent
under Section 3.1, causes such Lender Party to have received more than it would
have received had such payment been received by Administrative Agent and
distributed pursuant to Section 3.1, then (a) it shall be deemed to have
simultaneously purchased and shall be obligated to purchase interests in the
Obligations as necessary to cause all Lender Parties to share all payments as
provided for in Section 3.1, and (b) such other adjustments shall be made from
time to time as shall be equitable to ensure that Administrative Agent and all
Lender Parties share all payments of Obligations as provided in Section 3.1;
provided, however, that nothing herein
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contained shall in any way affect the right of any Lender Party to obtain
payment (whether by exercise of rights of banker's lien, set-off or counterclaim
or otherwise) of indebtedness other than the Obligations. Borrower expressly
consents to the foregoing arrangements and agrees that any holder of any such
interest or other participation in the Obligations, whether or not acquired
pursuant to the foregoing arrangements, may to the fullest extent permitted by
Law and, subject to the provisions of Section 6.16, exercise any and all rights
of banker's lien, set-off, or counterclaim as fully as if such holder were a
holder of the Obligations in the amount of such interest or other participation.
If all or any part of any funds transferred pursuant to this section is
thereafter recovered from the seller under this section which received the same,
the purchase provided for in this section shall be deemed to have been rescinded
to the extent of such recovery, together with interest, if any, if interest is
required pursuant to the order of a Tribunal to be paid on account of the
possession of such funds prior to such recovery.
Section 9.7. Investments. Whenever Administrative Agent in good faith
determines that it is uncertain about how to distribute to Lender Parties any
funds which it has received, or whenever Administrative Agent in good faith
determines that there is any dispute among Lender Parties about how such funds
should be distributed, Administrative Agent may choose to defer distribution of
the funds which are the subject of such uncertainty or dispute. If
Administrative Agent in good faith believes that the uncertainty or dispute will
not be promptly resolved, or if Administrative Agent is otherwise required to
invest funds pending distribution to Lender Parties, Administrative Agent shall
invest such funds pending distribution; all interest on any such Investment
shall be distributed upon the distribution of such Investment and in the same
proportion and to the same Persons as such Investment. All moneys received by
Administrative Agent for distribution to Lender Parties (other than to the
Person who is Administrative Agent in its separate capacity as a Lender Party)
shall be held by Administrative Agent pending such distribution solely as
Administrative Agent for such Lender Parties, and Administrative Agent shall
have no equitable title to any portion thereof.
Section 9.8. Benefit of Article IX. The provisions of this Article are
intended solely for the benefit of Lender Parties, and no Restricted Person
shall be entitled to rely on any such provision or assert any such provision in
a claim or defense against any Lender (other than in relation to the reference
to Section 6.16 contained in Section 9.6 or the right to reasonably approve a
successor Administrative Agent under Section 9.9). Lender Parties may waive or
amend such provisions as they desire without any notice to or consent of
Borrower or any other Restricted Person.
Section 9.9. Resignation. Administrative Agent may resign at any time by
giving written notice thereof to Lenders and Borrower. Each such notice shall
set forth the date of such resignation. Upon any such resignation Majority
Lenders shall have the right to appoint a successor Administrative Agent,
subject to the approval of Borrower, which approval will not be unreasonably
withheld. A successor must be appointed for any retiring Administrative Agent,
and such Administrative Agent's resignation shall become effective when such
successor accepts such appointment. If, within thirty days after the date of
the retiring Administrative Agent's resignation, no successor Administrative
Agent has been appointed and has accepted such appointment, then the retiring
Administrative Agent may appoint a successor Administrative Agent, which shall
be a commercial bank organized or licensed to conduct a banking or trust
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business under the Laws of the United States of America or of any state thereof.
Upon the acceptance of any appointment as Administrative Agent hereunder by a
successor Administrative Agent, the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. After any retiring Administrative Agent's resignation hereunder
the provisions of this Article IX shall continue to inure to its benefit as to
any actions taken or omitted to be taken by it while it was Administrative Agent
under the Loan Documents.
Section 9.10. Other Agents. Neither the Syndication Agent nor the
Documentation Agent, in such capacities, shall have any duties or
responsibilities or incur any liabilities under this Agreement or the other Loan
Documents.
ARTICLE X - Miscellaneous
Section 10.1. Waivers and Amendments; Acknowledgments.
(a) Waivers and Amendments. No failure or delay (whether by course of
conduct or otherwise) by any Lender in exercising any right, power or remedy
which such Lender Party may have under any of the Loan Documents shall operate
as a waiver thereof or of any other right, power or remedy, nor shall any single
or partial exercise by any Lender Party of any such right, power or remedy
preclude any other or further exercise thereof or of any other right, power or
remedy. No waiver of any provision of any Loan Document and no consent to any
departure therefrom shall ever be effective unless it is in writing and signed
as provided below in this section, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for which given
and to the extent specified in such writing. No notice to or demand on any
Restricted Person shall in any case of itself entitle any Restricted Person to
any other or further notice or demand in similar or other circumstances. This
Agreement and the other Loan Documents set forth the entire understanding
between the parties hereto with respect to the transactions contemplated herein
and therein and supersede all prior discussions and understandings with respect
to the subject matter hereof and thereof, and no waiver, consent, release,
modification or amendment of or supplement to this Agreement or the other Loan
Documents shall be valid or effective against any party hereto unless the same
is in writing and signed by (i) if such party is Borrower, by Borrower, (ii) if
such party is Administrative Agent or LC Issuer, by such party, and (iii) if
such party is a Lender, by such Lender or by Administrative Agent on behalf of
Lenders with the written consent of Majority Lenders (which consent has already
been given as to the termination of the Loan Documents as provided in Section
10.9). Notwithstanding the foregoing or anything to the contrary herein,
Administrative Agent shall not, without the prior consent of each individual
Lender, execute and deliver on behalf of such Lender any waiver or amendment
which would: (1) waive any of the conditions specified in Article IV (provided
that Administrative Agent may in its discretion withdraw any request it has made
under Section 4.3(g)), (2) increase the Maximum Facility Amount of such Lender
or subject such Lender to any additional obligations, (3) reduce any fees
payable to such Lender hereunder, or the principal of, or interest on, such
Lender's Note, (4) change any date fixed for any payment of any such fees,
principal or interest, (5) amend the definition herein of "Borrowing Base" or
any of the terms used in that definition, (6) amend the definition herein of
"Majority Lenders" or otherwise
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change the aggregate amount of Percentage Shares which is required for
Administrative Agent, Lenders or any of them to take any particular action under
the Loan Documents, (7) release Borrower from its obligation to pay such
Lender's Note or any Guarantor from its guaranty of such payment, or (8) release
any Collateral, except such releases relating to sales of property permitted
under Section 7.5.
(b) Acknowledgments and Admissions. Borrower hereby represents, warrants,
acknowledges and admits that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Agreement and
the other Loan Documents to which it is a party, without reliance on any
representation, warranty, covenant or undertaking by Administrative Agent or any
other Lender Party, whether written, oral or implicit, other than as expressly
set out in this Agreement or in another Loan Document delivered on or after the
date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by any Lender Party as to the Loan Documents except
as expressly set out in this Agreement or in another Loan Document delivered on
or after the date hereof, (iv) no Lender Party has any fiduciary obligation
toward Borrower with respect to any Loan Document or the transactions
contemplated thereby, (v) the relationship pursuant to the Loan Documents
between Borrower and the other Restricted Persons, on one hand, and each Lender
Party, on the other hand, is and shall be solely that of debtor and creditor,
respectively, (vi) no partnership or joint venture exists with respect to the
Loan Documents between any Restricted Person and any Lender Party, (vii)
Administrative Agent is not Borrower's Administrative Agent, but Administrative
Agent for Lenders, (viii) should an Event of Default or Default occur or exist,
each Lender Party will determine in its sole discretion and for its own reasons
what remedies and actions it will or will not exercise or take at that time,
(ix) without limiting any of the foregoing, Borrower is not relying upon any
representation or covenant by any Lender Party, or any representative thereof,
and no such representation or covenant has been made, that any Lender Party
will, at the time of an Event of Default or Default, or at any other time,
waive, negotiate, discuss, or take or refrain from taking any action permitted
under the Loan Documents with respect to any such Event of Default or Default or
any other provision of the Loan Documents, and (x) all Lender Parties have
relied upon the truthfulness of the acknowledgments in this section in deciding
to execute and deliver this Agreement and to become obligated hereunder.
(c) Representation by Lenders. Each Lender hereby represents that it will
acquire its Note for its own account in the ordinary course of its commercial
lending business; however, the disposition of such Lender's property shall at
all times be and remain within its control and, in particular and without
limitation, such Lender may sell or otherwise transfer its Note, any
participation interest or other interest in its Note, or any of its other rights
and obligations under the Loan Documents subject to compliance with Sections
10.5(b) through (f), inclusive, and applicable Law.
(d) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
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THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 10.2. Survival of Agreements; Cumulative Nature. All of
Restricted Persons' various representations, warranties, covenants and
agreements in the Loan Documents shall survive the execution and delivery of
this Agreement and the other Loan Documents and the performance hereof and
thereof, including the making or granting of the Loans and the delivery of the
Notes and the other Loan Documents, and shall further survive until all of the
Obligations are paid in full to each Lender Party and all of Lender Parties'
obligations to Borrower are terminated. All statements and agreements contained
in any certificate or other instrument delivered by any Restricted Person to any
Lender Party under any Loan Document shall be deemed representations and
warranties by Borrower or agreements and covenants of Borrower under this
Agreement. The representations, warranties, indemnities, and covenants made by
Restricted Persons in the Loan Documents, and the rights, powers, and privileges
granted to Lender Parties in the Loan Documents, are cumulative, and, except for
expressly specified waivers and consents, no Loan Document shall be construed in
the context of another to diminish, nullify, or otherwise reduce the benefit to
any Lender Party of any such representation, warranty, indemnity, covenant,
right, power or privilege. In particular and without limitation, no exception
set out in this Agreement to any representation, warranty, indemnity, or
covenant herein contained shall apply to any similar representation, warranty,
indemnity, or covenant contained in any other Loan Document, and each such
similar representation, warranty, indemnity, or covenant shall be subject only
to those exceptions which are expressly made applicable to it by the terms of
the various Loan Documents.
Section 10.3. Notices. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be in
writing, unless otherwise specifically provided in such Loan Document (provided
that Administrative Agent may give telephonic notices to the other Lender
Parties), and shall be deemed sufficiently given or furnished if delivered by
personal delivery, by facsimile or other electronic transmission, by delivery
service with proof of delivery, or by registered or certified United States
mail, postage prepaid, to Borrower and Restricted Persons at the address of
Borrower specified on the signature pages hereto and to each Lender Party at its
address specified on the signature pages hereto (unless changed by similar
notice in writing given by the particular Person whose address is to be
changed). Any such notice or communication shall be deemed to have been given
(a) in the case of personal delivery or delivery service, as of the date of
first attempted delivery during normal business hours at the address provided
herein, (b) in the case of facsimile or other electronic transmission, upon
receipt, or (c) in the case of registered or certified United States mail, three
days after deposit in the mail; provided, however, that no Borrowing Notice or
Continuation/Conversion Notice shall become effective until actually received by
Administrative Agent.
Section 10.4. Payment of Expenses; Indemnity.
(a) Payment of Expenses. Whether or not the transactions contemplated by
this Agreement are consummated, Borrower will promptly (and in any event, within
30 days after any invoice or other statement or notice) pay: (i) all transfer,
stamp, mortgage, documentary or other similar taxes, assessments or charges
levied by any governmental or revenue authority in respect
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of this Agreement or any of the other Loan Documents or any other document
referred to herein or therein, (ii) all reasonable costs and expenses incurred
by or on behalf of Administrative Agent (including attorneys' fees, consultants'
fees and engineering fees, travel costs and miscellaneous expenses) in
connection with (1) the negotiation, preparation, execution and delivery of the
Loan Documents, and any and all consents, waivers or other documents or
instruments relating thereto, (2) the filing, recording, refiling and re-
recording of any Loan Documents and any other documents or instruments or
further assurances required to be filed or recorded or refiled or re-recorded by
the terms of any Loan Document, (3) the borrowings hereunder and other action
reasonably required in the course of administration hereof, (4) monitoring or
confirming (or preparation or negotiation of any document related to) Borrower's
compliance with any covenants or conditions contained in this Agreement or in
any Loan Document, and (iii) all reasonable costs and expenses incurred by or on
behalf of any Lender Party (including attorneys' fees, consultants' fees and
accounting fees) in connection with the defense or enforcement of any of the
Loan Documents (including this section) or the defense of any Lender Party's
exercise of its rights thereunder. In addition to the foregoing, until all
Obligations have been paid in full, Borrower will also pay or reimburse
Administrative Agent for all reasonable out-of-pocket costs and expenses of
Administrative Agent or its agents or employees in connection with the
continuing administration of the Loans and the related due diligence of
Administrative Agent, including travel and miscellaneous expenses and fees and
expenses of Administrative Agent's outside counsel, reserve engineers and
consultants engaged in connection with the Loan Documents.
(b) Indemnity. Borrower agrees to indemnify each Lender Party, upon
demand, from and against any and all liabilities, obligations, claims, losses,
damages, penalties, fines, actions, judgments, suits, settlements, costs,
expenses or disbursements (including reasonable fees of attorneys, accountants,
experts and advisors) of any kind or nature whatsoever (in this section
collectively called "liabilities and costs") which to any extent (in whole or in
part) may be imposed on, incurred by, or asserted against such Lender Party
growing out of, resulting from or in any other way associated with any of the
Collateral, the Loan Documents and the transactions and events (including the
enforcement or defense thereof) at any time associated therewith or contemplated
therein whether arising in contract or in tort or otherwise and including any
violation or noncompliance with any Environmental Laws by any Lender Party or
any other Person or any liabilities or duties of any Lender Party or any other
Person with respect to Hazardous Materials found in or released into the
environment).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND
COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM
OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY,
provided only that no Lender Party shall be entitled under this section to
receive indemnification for that portion, if any, of any liabilities and costs
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment. If any Person (including
Borrower or any of its Affiliates) ever alleges such gross negligence or willful
misconduct by any Lender Party, the indemnification provided for in this section
shall nonetheless
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be paid upon demand, subject to later adjustment or reimbursement, until such
time as a court of competent jurisdiction enters a final judgment as to the
extent and effect of the alleged gross negligence or willful misconduct. As used
in this section the term "Lender Party" shall refer not only to each Person
designated as such in Section 1.1 but also to each director, officer, agent,
attorney, employee, representative and Affiliate of such Persons.
Section 10.5. Joint and Several Liability; Parties in Interest;
Assignments.
(a) All Obligations which are incurred by two or more Restricted Persons
shall be their joint and several obligations and liabilities. All grants,
covenants and agreements contained in the Loan Documents shall bind and inure to
the benefit of the parties thereto and their respective successors and permitted
assigns; provided, however, that no Restricted Person may assign or transfer any
of its rights or delegate any of its duties or obligations under any Loan
Document without the prior consent of all Lenders. Neither Borrower nor any
Affiliates of Borrower shall directly or indirectly purchase or otherwise retire
any Obligations owed to any Lender nor will any Lender accept any offer to do
so, unless each Lender shall have received substantially the same offer with
respect to the same Percentage Share of the Obligations owed to it. If Borrower
or any Affiliate of Borrower at any time purchases some but less than all of the
Obligations owed to all Lender Parties, such purchaser shall not be entitled to
any rights of any Lender under the Loan Documents unless and until Borrower or
its Affiliates have purchased all of the Obligations.
(b) No Lender shall sell any participation interest in its commitment
hereunder or any of its rights under its Loans or under the Loan Documents to
any Person unless the agreement between such Lender and such participant at all
times provides: (i) that such participation exists only as a result of the
agreement between such participant and such Lender and that such transfer does
not give such participant any right to vote as a Lender or any other direct
claims or rights against any Person other than such Lender, (ii) that such
participant is not entitled to payment from any Restricted Person under Sections
3.2 through 3.6 of amounts in excess of those payable to such Lender under such
sections (determined without regard to the sale of such participation), and
(iii) unless such participant is an Affiliate of such Lender, that such
participant shall not be entitled to require such Lender to take any action
under any Loan Document or to obtain the consent of such participant prior to
taking any action under any Loan Document, except for actions which would
require the consent of all Lenders under subsection (a) of Section 10.1. No
Lender selling such a participation shall, as between the other parties hereto
and such Lender, be relieved of any of its obligations hereunder as a result of
the sale of such participation. Each Lender which sells any such participation
to any Person (other than an Affiliate of such Lender) shall give prompt notice
thereof to Administrative Agent and Borrower; provided, however, that no
liability shall arise if any Lender fails to give such notice to Borrower.
(c) Except for sales of participations under the immediately preceding
subsection, no Lender shall make any assignment or transfer of any kind of its
commitments or any of its rights under its Loans or under the Loan Documents,
except for assignments to an Eligible Transferee, or, subject to the provisions
of subsection (g) below, to an Affiliate and then only if such assignment is
made in accordance with the following requirements:
(i) Each such assignment shall apply to all Obligations owing to the
assignor Lender hereunder and to the unused portion of the assignor
Lender's commitments, so that after such assignment is made the assignor
Lender shall have
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a fixed (and not a varying) Percentage Share in its Loans and Note and be
committed to make that Percentage Share of all future Loans, the assignee
shall have a fixed Percentage Share in such Loans and Note and be committed
to make that Percentage Share of all future Loans, and the Percentage Share
of the Maximum Loan Amount of both the assignor and assignee shall equal or
exceed $5,000,000.
(ii) The parties to each such assignment shall execute and deliver to
Administrative Agent, for its acceptance and recording in the "Register"
(as defined below in this section), an Assignment and Acceptance in the
form of Exhibit J, appropriately completed, together with the Note subject
to such assignment and a processing fee payable by such assignor Lender
(and not at Borrower's expense) to Administrative Agent of $3,500. Upon
such execution, delivery, and payment and upon the satisfaction of the
conditions set out in such Assignment and Acceptance, then (i) Borrower
shall issue new Notes to such assignor and assignee upon return of the old
Notes to Borrower, and (ii) as of the "Settlement Date" specified in such
Assignment and Acceptance the assignee thereunder shall be a party hereto
and a Lender hereunder and Administrative Agent shall thereupon deliver to
Borrower and each Lender a schedule showing the revised Percentage Shares
of such assignor Lender and such assignee Lender and the Percentage Shares
of all other Lenders.
(iii) Each assignee Lender which is not a United States person (as
such term is defined in Section 7701(a)(30) of the Code) for Federal income
tax purposes, shall (to the extent it has not already done so) provide
Administrative Agent and Borrower with the "Prescribed Forms" referred to
in Section 3.6(d).
(d) Nothing contained in this section shall prevent or prohibit any Lender
from assigning or pledging all or any portion of its Loans and Note to any
Federal Reserve Bank as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any Operating Circular
issued by such Federal Reserve Bank; provided that (i) no such assignment or
pledge shall relieve such Lender from its obligations hereunder and (ii) all
related costs, fees and expenses incurred by such Lender in connection with such
assignment and the reassignment back to it, free of any interests of such
Federal Reserve Banks, shall be for the sole account of such Lender.
(e) By executing and delivering an Assignment and Acceptance, each
assignee Lender thereunder will be confirming to and agreeing with Borrower,
Administrative Agent and each other Lender Party that such assignee understands
and agrees to the terms hereof, including Article IX hereof.
(f) Administrative Agent shall maintain a copy of each Assignment and
Acceptance and a register for the recordation of the names and addresses of
Lenders and the Percentage Shares of, and principal amount of the Loans owing
to, each Lender from time to time (in this section called the "Register"). The
entries in the Register shall be conclusive, in the absence of manifest error,
and Borrower and each Lender Party may treat each Person whose name is recorded
in the Register as a Lender Party hereunder for all purposes. The Register
shall be available for
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inspection by Borrower or any Lender Party at any reasonable time and from time
to time upon reasonable prior notice.
(g) Any Lender may assign or transfer its commitment or its rights under
its Loans or under the Loan Documents to (i) any Affiliate that is wholly-owned
direct or indirect subsidiary of such Lender or of any Person that wholly owns,
directly or indirectly, such Lender, or (ii) if such Lender is a fund that
invests in bank loans, any other fund that invests in bank loans and is advised
or managed by (A) the same investment advisor as any Lender or (B) any Affiliate
of such investment advisor that is a wholly-owned direct or indirect subsidiary
of any Person that wholly owns, directly or indirectly, such investment advisor,
subject to the following additional conditions:
(x) any right of such Lender assignor and such assignee to vote as a
Lender, or any other direct claims or rights against any other Persons,
shall be uniformly exercised or pursued in the manner that such Lender
assignor would have so exercised such vote, claim or right if it had not
made such assignment or transfer.
(y) such assignee shall not be entitled to payment from any Restricted
Person under Sections 3.2 through 3.7 of amounts in excess of those payable
to such Lender assignor under such sections (determined without regard to
such assignment or transfer); and
(z) if such Lender assignor assigns or transfers to such assignee any of
such Lender's commitment, such assignee may become primarily liable for
such commitment, but such assignment or transfer shall not relieve or
release such Lender from such commitment.
Section 10.6. Confidentiality. Each Lender Party agrees (on behalf of
itself and each of its Affiliates, and each of its and their directors,
officers, agents, attorneys, employees, and representatives) that it (and each
of them) will take all reasonable steps to keep confidential any non-public
information supplied to it by or at the direction of any Restricted Person so
identified when delivered, provided, however, that this restriction shall not
apply to information which (a) has at the time in question entered the public
domain, (b) is required to be disclosed by Law (whether valid or invalid) of any
Tribunal, (c) is disclosed to any Lender Party's Affiliates, auditors,
attorneys, or agents, (d) is furnished to any other Lender Party or to any
purchaser or prospective purchaser of participations or other interests in any
Loan or Loan Document (provided each such purchaser or prospective purchaser
first agrees to hold such information in confidence on the terms provided in
this section), or (d) is disclosed in the course of enforcing its rights and
remedies during the existence of an Event of Default.
Section 10.7. Governing Law; Submission to Process. EXCEPT TO THE EXTENT
THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT,
THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS
OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS OF THE UNITED
STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. BORROWER
HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST BORROWER WITH RESPECT
TO THIS AGREEMENT, THE NOTES OR ANY OF THE LOAN
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DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS LENDER PARTIES MAY
ELECT, AND, BY EXECUTION AND DELIVERY HEREOF, BORROWER ACCEPTS AND CONSENTS FOR
ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-
EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. BORROWER AGREES THAT SECTIONS
5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL
APPLY TO THE LOAN DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY
ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON
CONVENIENS. IN FURTHERANCE OF THE FOREGOING, BORROWER HEREBY IRREVOCABLY
DESIGNATES AND APPOINTS CORPORATION SERVICE COMPANY, 80 STATE STREET, ALBANY,
NEW YORK 12207, AS AGENT OF BORROWER TO RECEIVE SERVICE OF ALL PROCESS BROUGHT
AGAINST BORROWER WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW
YORK, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL
ALSO, IF PERMITTED BY LAW, BE SENT BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS
SET FORTH BELOW, BUT THE FAILURE OF BORROWER TO RECEIVE SUCH COPIES SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS AFORESAID. BORROWER SHALL
FURNISH TO LENDER PARTIES A CONSENT OF CORPORATION SERVICE COMPANY AGREEING TO
ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT. NOTHING HEREIN
SHALL AFFECT THE RIGHT OF LENDER PARTIES TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER PARTIES TO BRING PROCEEDINGS
AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON
CORPORATION SERVICE COMPANY SHALL RESIGN OR OTHERWISE CEASE TO ACT AS BORROWER'S
AGENT, BORROWER HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY DESIGNATE AND
APPOINT A NEW AGENT ACCEPTABLE TO ADMINISTRATIVE AGENT TO SERVE IN SUCH CAPACITY
AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR
CORPORATION SERVICE COMPANY FOR ALL PURPOSES HEREOF AND (B) PROMPTLY DELIVER TO
AGENT THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO ADMINISTRATIVE
AGENT) OF SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY.
Section 10.8. Limitation on Interest. Lender Parties, Restricted Persons
and the other parties to the Loan Documents intend to contract in strict
compliance with applicable usury Law from time to time in effect. In
furtherance thereof such persons stipulate and agree that none of the terms and
provisions contained in the Loan Documents shall ever be construed to provide
for interest in excess of the maximum amount of interest permitted to be charged
by applicable Law from time to time in effect. Neither any Restricted Person
nor any present or future guarantors, endorsers, or other Persons hereafter
becoming liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess of
the maximum amount that may be lawfully charged under applicable Law from time
to time in effect, and the provisions of this section shall control over all
other provisions of the Loan Documents which may be in conflict or apparent
conflict herewith.
Section 10.9. Termination; Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing or outstanding
elect in a written notice delivered to Administrative Agent to terminate this
Agreement. Upon receipt by Administrative Agent of such
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a notice, if no Obligations are then owing or outstanding this Agreement and all
other Loan Documents shall thereupon be terminated and the parties thereto
released from all prospective obligations thereunder. Notwithstanding the
foregoing or anything herein to the contrary, any waivers or admissions made by
any Restricted Person in any Loan Document, any Obligations under Sections 3.2
through 3.6, and any obligations which any Person may have to indemnify or
compensate any Lender Party shall survive any termination of this Agreement or
any other Loan Document. At the request and expense of Borrower, Administrative
Agent shall prepare and execute all necessary instruments to reflect and effect
such termination of the Loan Documents. Administrative Agent is hereby
authorized to execute all such instruments on behalf of all Lenders, without the
joinder of or further action by any Lender.
Section 10.10. Severability. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable Law.
Section 10.11. Counterparts. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Agreement.
Section 10.12. Waiver of Jury Trial, Punitive Damages, etc. TO THE
EXTENT PERMITTED BY LAW, LENDER PARTIES AND BORROWER HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF SUCH PERSONS OR BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR LENDER PARTIES' ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
BORROWER AND EACH LENDER PARTY HEREBY FURTHER (A) IRREVOCABLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES," AS DEFINED BELOW, (B) CERTIFIES
THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (C)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL,
EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE
ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR
DELIVER TO ANY OTHER PARTY HERETO.
Section 10.13. Amendment and Restatement. Upon satisfaction with each of
the conditions set forth in Sections 4.1 and 4.2, this Agreement shall be deemed
to amend and restate in its entirety the Existing Agreement, at which time each
Lender and each Restricted Person
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hereby agrees that (i) the Loans outstanding under the Existing Agreement and
all accrued and unpaid interest thereon, (ii) all Letters of Credit issued and
outstanding under the Existing Agreement, and (iii) all accrued and unpaid fees
under the Existing Agreement shall be deemed to be outstanding under and
governed by this Agreement.
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IN WITNESS WHEREOF, this Agreement is executed as of the date first written
above.
PLAINS MARKETING, L.P., Borrower
By: PLAINS ALL AMERICAN, INC.
By: ________________________________
Name:
Title:
Address:
500 Dallas Street
Suite 700
Houston, Texas 77002
Attention: Phil Kramer
Telephone: (713) 654-1414
Fax: (713) 654-1523
PLAINS ALL AMERICAN, L.P.
By: PLAINS ALL AMERICAN, INC.
By: ________________________________
Name:
Title:
Address:
500 Dallas Street
Suite 700
Houston, Texas 77002
Attention: Phil Kramer
Telephone: (713) 654-1414
Fax: (713) 654-1523
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ALL AMERICAN, L.P.
By: PLAINS ALL AMERICAN, INC.
By: ________________________________
Name:
Title:
Address:
500 Dallas Street
Suite 700
Houston, Texas 77002
Attention: Phil Kramer
Telephone: (713) 654-1414
Fax: (713) 654-1523
BANKBOSTON, N.A.,
Administrative Agent,
LC Issuer and Lender
By: _____________________________________
Name:
Title:
Address:
100 Federal Street
Boston, Massachusetts 02110
Attention: Terrence Ronan
Mail Code: 01-08-04
Telephone: (617) 434-5472
Fax: (617) 434-3652
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BANCBOSTON ROBERTSON STEPHENS INC.,
Syndication Agent
By: _____________________________________
Name:
Title:
Address:
100 Federal Street
Boston, Massachusetts 02110
Attention: Richard Makin
Mail Code: 01-11-04
Telephone: (617) 434-7381
Fax: (617) 434-0382
ING BARING FURMAN SELZ, LLC, Documentation
Agent
By: _____________________________________
Name:
Title:
Address:
135 East 57th Street
New York, New York 10022
Attention:
Telephone: (212)
Fax: (212)
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ING (U.S.) CAPITAL CORPORATION, Lender
By: _____________________________________
Name:
Title:
Address:
135 East 57th Street
New York, New York 10022
Attention:
Telephone: (212)
Fax: (212)
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EXHIBIT 10.3
CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
This Contribution, Conveyance and Assumption Agreement, dated as of
November ____, 1998, is entered into by and among PLAINS RESOURCES INC., a
Delaware corporation ("Plains Resources"), PLAINS ALL AMERICAN, INC., a Delaware
corporation ("PAAI"), PLAINS ALL AMERICAN PIPELINE, L.P., a Delaware limited
partnership (the "Partnership"), PLAINS MARKETING, L.P., a Delaware limited
partnership ("Plains Marketing"), ALL AMERICAN, L.P., a Texas limited
partnership ("All American L.P."), PAAI, LLC, a Delaware limited liability
company ("PAAI LLC") and Gathering LLC, a Texas limited liability company
("Gathering LLC").
RECITALS
WHEREAS, PAAI and Plains have formed the Partnership pursuant to the
Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") for the
purpose of serving as the sole limited partner of Plains Marketing;
WHEREAS, PAAI contributed $990.00 to the capital of the Partnership
and received a 1% general partner interest and a 49% limited partner interest
therein; and Plains contributed $990.00 to the capital of the Partnership and
received a 50% limited partner interest therein;
WHEREAS, Plains sold its 50% limited partner interest in the
Partnership to Philip Kramer (the "Organizational Limited Partner");
WHEREAS, PAAI and the Partnership have heretofore formed Plains
Marketing pursuant to the Delaware Act for the purpose of acquiring, owning and
operating the midstream crude oil business and assets of Plains Resources and
its subsidiaries (the "Business");
<PAGE>
WHEREAS, PAAI contributed $500 to the capital of Plains Marketing and
received a 1% general partner interest and a 49% limited partner interest
therein; and the Partnership contributed $500 to the capital of Plains Marketing
and received a 50% limited partner interest therein;
WHEREAS, All American Pipeline Company, a Texas corporation ("All
American"), has previously formed Gathering LLC, as a wholly owned subsidiary of
All American, and caused its subsidiary Celeron Gathering Corporation, a
Delaware corporation, to merge into Gathering LLC;
WHEREAS, PAAI has previously formed PAAI LLC, as a wholly-owned
subsidiary of PAAI to hold one share of All American stock;
WHEREAS, concurrently with the consummation of the transactions
contemplated hereby, All American will adopt articles of conversion and convert
to All American L.P. in which PAAI will hold a 1% general partner interest and a
98.999% limited partner interest (the "All American LP Interest") and PAAI LLC
will hold a .001% limited partner interest;
WHEREAS, concurrently with the consummation of the transactions
contemplated hereby, All American L.P. will assume $175 Million of PAAI's
outstanding debt and will distribute its ownership interest in Gathering LLC
(the "Gathering LLC Interest") to PAAI;
WHEREAS, concurrently with the consummation of the transactions
contemplated hereby, each of Plains Marketing & Transportation, Inc., a Delaware
corporation ("Plains Transportation"), Plains Terminal & Transfer Corporation, a
Delaware corporation ("Plains Terminal"), PLX Crude Lines Inc., a Delaware
corporation ("PLX Crude") and PLX Ingleside, Inc., a Delaware corporation ("PLX
Crude Ingleside") will be merged with and into Plains Resources;
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WHEREAS, concurrently with the consummation of the transactions
contemplated hereby, Gathering LLC and All American L.P. will distribute to PAAI
certain excess working capital assets, and Celeron Trading & Transportation
Company, a Delaware corporation ("CT&T"), shall be merged with and into PAAI;
WHEREAS, concurrently with the consummation of the transactions
contemplated hereby, PAAI and the Partnership have entered into that certain
Amended and Restated Agreement of Limited Partnership of Plains Marketing (the
"Operating Partnership Agreement");
WHEREAS, concurrently with the consummation of the transactions
contemplated hereby, PAAI and the Organizational Limited Partner, have entered
into that certain Amended and Restated Agreement of Limited Partnership of the
Partnership (the "Partnership Agreement");
NOW, THEREFORE, in consideration of their mutual undertakings and
agreements hereunder, the parties to this Agreement undertake and agree as
follows:
ARTICLE I
DEFINITIONS; CONCURRENT TRANSACTIONS
1.1 DEFINITIONS. The following capitalized terms shall have the meanings
given below.
"AGREEMENT" means this Contribution, Conveyance and Assumption
Agreement.
"ALL AMERICAN L.P." has the meaning assigned to such term in the
opening paragraph of this Agreement.
"ALL AMERICAN LP INTEREST" has the meaning assigned to such term in
the Recitals to this Agreement.
"ALL AMERICAN WC ASSETS" means [describe working capital to be
distributed to PAAI by All American L.P.].
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"ASSETS" means the Plains Assets and the PAAI Assets.
"BUSINESS" has the meaning assigned to such term in the Recitals to
this Agreement.
"COMMON UNITS" has the meaning assigned to such term in the Recitals
to this Agreement.
"CONVEYANCE, ASSIGNMENT AND BILL OF SALE" means a Conveyance,
Assignment and Bill of Sale in recordable form from each of Plains Resources and
PAAI, as the case may be, to Plains Marketing, the form of which is attached
hereto as Exhibit A.
"CT&T ASSETS" means [describe Celeron Trading & Transportation Company
Assets].
"CUSHING TERMINAL" means the crude oil terminal and storage facility
located in Payne and Lincoln Counties, Oklahoma, including, without limitation,
the real property and other property interests described in that certain
Conveyance, Assignment and Bill of Sale (Cushing) of even date herewith from
Plains Resources to Plains Marketing (a copy of the form of which is attached
hereto as Exhibit ___) along with the assets described below that are a part of
or are used exclusively in connection with the crude oil terminal and storage
facility:
(i) storage tanks, stations, substations, terminal facilities and
related properties and assets;
(ii) all motor vehicles, tractors, trailers, tanks, railcars, other
vehicles, machinery and related equipment, whether owned or leased;
(iii) every contract, agreement, arrangement, grant, gift, trust or
other arrangement or understanding of any kind;
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(iv) any and all rights, claims and causes of action under warranties,
insurance policies, contracts and related rights;
(v) communication equipment, computer equipment and software and
leasehold interests therein;
(vi) all know-how, every trade secret, every customer list and all
other confidential information of every kind;
(vii) every customer relationship, employee relationship, supplier
relationship and other relationship of any kind;
(viii) every other proprietary right of any kind;
(ix) all governmental licenses, permits, approvals, franchises,
registrations and authorizations of every kind;
(x) copies of all of the books, records, papers and instruments,
including without limitation, accounting and financial records;
(xi) any and all monies, rents, revenues, accounts receivable or other
proceeds receivable;
(xii) all deposits, prepayments and prepaid expenses;
(xiii) all unbilled receivables;
(xiv) all trade names, trademarks, service marks, logos, marks and
symbols of any kind, together with all goodwill associated therewith and
all other trade names, trademarks and service marks;
(xv) all rights, benefits, privileges and appurtenances pertaining to
any of the foregoing;
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excluding, however, any of such assets that constitute Plains Excluded
Assets.
"DELAWARE ACT" has the meaning assigned to such term in the Recitals
to this Agreement.
"EFFECTIVE TIME" means 9:00 a.m. Eastern Standard Time on November
___, 1998.
"EXISTING INDEBTEDNESS" means $325 Million Senior Secured Credit
Facility dated July 30, 1998 with ING Barings, as Administrative and Syndication
Agent, executed in connection with the acquisition of the Business by PAAI.
"GATHERING LLC INTEREST" has the meaning assigned to such term in the
Recitals to this Agreement.
"GATHERING LLC WC ASSETS" means [describe working capital assets to be
distributed to PAAI by Gathering LLC].
"INGLESIDE TERMINAL" means the crude oil terminal and storage facility
located in San Patricio County, Texas, including, without limitation, the real
property and other property interests described in that certain Conveyance,
Assignment and Bill of Sale (Ingleside) of even date herewith from Plains
Resources to Plains Marketing (a copy of the form of which is attached hereto as
Exhibit ___) along with the assets described below that are a part of or are
used exclusively in connection with the crude oil terminal and storage facility:
(i) storage tanks, stations, substations, terminal facilities and
related properties and assets;
(ii) all motor vehicles, tractors, trailers, tanks, railcars, other
vehicles, machinery and related equipment, whether owned or leased;
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(iii) every contract, agreement, arrangement, grant, gift, trust or
other arrangement or understanding of any kind;
(iv) any and all rights, claims and causes of action under warranties,
insurance policies, contracts and related rights;
(v) communication equipment, computer equipment and software and
leasehold interests therein;
(vi) all know-how, every trade secret, every customer list and all
other confidential information of every kind;
(vii) every customer relationship, employee relationship, supplier
relationship and other relationship of any kind;
(viii) every other proprietary right of any kind;
(ix) all governmental licenses, permits, approvals, franchises,
registrations and authorizations of every kind;
(x) copies of all of the books, records, papers and instruments,
including without limitation, accounting and financial records;
(xi) any and all monies, rents, revenues, accounts receivable or other
proceeds receivable;
(xii) all deposits, prepayments and prepaid expenses;
(xiii) all unbilled receivables;
(xiv) all trade names, trademarks, service marks, logos, marks and
symbols of any kind, together with all goodwill associated therewith and
all other trade names, trademarks and service marks;
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(xv) all rights, benefits, privileges and appurtenances pertaining to
any of the foregoing;
excluding, however, any of such assets that constitute Plains Excluded
Assets.
"LAWS" means any and all laws, statutes, ordinances, rules or
regulations promulgated by a governmental authority, orders of a governmental
authority, judicial decisions, decisions of arbitrators or determinations of any
governmental authority or court.
"OPERATING PARTNERSHIP AGREEMENT" has the meaning assigned to such
term in the Recitals to this Agreement.
"PAAI ASSETS" means the CT&T Assets and the Gathering LLC Interest.
"PAAI ASSUMED LIABILITIES" means all of PAAI's liabilities arising
from or relating to the PAAI Assets or the Business, as of the Effective Time,
of every kind, character and description, whether known or unknown, accrued or
contingent, and whether or not reflected on the books and records of PAAI as of
the Effective Time, excluding, however, any of such liabilities that constitute
PAAI Excluded Liabilities.
"PAAI EXCLUDED ASSETS" means the assets of PAAI described in Schedule
___ hereto.
"PAAI EXCLUDED LIABILITIES" means all of the liabilities of PAAI
described on Schedule ___ hereto.
"PAAI LLC" has the meaning assigned to such term in the Recitals to
this Agreement.
"PAAI OLP INTEREST" has the meaning assigned to such term in Section
2.2.
"PARTNERSHIP" has the meaning assigned to such term in the opening
paragraph of this Agreement.
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"PARTNERSHIP AGREEMENT" has the meaning assigned to such term in the
Recitals to this Agreement.
"PLAINS ASSETS" means (a) the Cushing Terminal and the Ingleside
Terminal and (b) to the extent same comprise a part of or are used exclusively
in connection with the operation of the Business, the assets described below:
(i) the real property and other property interests described in that
certain Conveyance, Assignment and Bill of Sale (Truck Terminals) of even
date herewith from Plains Resources to Plains Marketing;
(ii) storage tanks, stations, substations, terminal facilities and
related properties and assets;
(iii) all motor vehicles, tractors, trailers, tanks, railcars, other
vehicles, machinery and related equipment, whether owned or leased;
(iv) every contract, agreement, arrangement, grant, gift, trust or
other arrangement or understanding of any kind;
(v) any and all rights, claims and causes of action under warranties,
insurance policies, contracts or related rights;
(vi) communication equipment, computer equipment and software and
leasehold interests therein;
(vii) all know-how, every trade secret, every customer list and all
other confidential information of every kind;
(viii) every customer relationship, employee relationship, supplier
relationship and other relationship of any kind;
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(ix) every other proprietary right of any kind;
(x) all governmental licenses, permits, approvals, franchises,
registrations and authorizations of every kind;
(xi) copies of all of the books, records, papers and instruments,
including without limitation, accounting and financial records;
(xii) any and all monies, rents, revenues, accounts receivable or
other proceeds receivable;
(xiii) all deposits, prepayments and prepaid expenses;
(xiv) all unbilled receivables;
(xv) all trade names, trademarks, service marks, logos, marks and
symbols of any kind, together with all goodwill associated therewith and
all other trade names, trademarks and service marks;
(xvi) all rights, benefits, privileges and appurtenances pertaining
to any of the foregoing;
excluding, however, any of such assets that constitute Plains Excluded
Assets.
"PLAINS ASSUMED LIABILITIES" means all of Plain's liabilities arising
from or relating to the Plains Assets or the Business (including the Subsidiary
Debt), as of the Effective Time, of every kind, character and description,
whether known or unknown, accrued or contingent, and whether or not reflected on
the books and records of Plains Resources as of the Effective Time, excluding,
however, any of such liabilities that constitute Plains Excluded Liabilities.
"PLAINS EXCLUDED ASSETS" means those assets of Plains Resources
described on Schedule __ hereto.
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"PLAINS EXCLUDED LIABILITIES" means all of the liabilities described
on Schedule __ hereto [include $3 Million in Ingleside environmental liability
covered in Omnibus Agreement].
"PLAINS GRANTORS" means Plains Resources and PAAI.
"PLAINS MARKETING" has the meaning assigned to such term in the
opening paragraph of this Agreement.
"PLAINS MIDSTREAM SUBSIDIARIES" means, collectively, Plains
Transportation, Plains Terminal, PLX Crude and PLX Ingleside.
"RESTRICTION" has the meaning assigned to such term in Section 9.2.
"RESTRICTION-ASSET" has the meaning assigned to such term in Section
9.2.
"SPECIFIC CONVEYANCES" has the meaning assigned to such term in
Section 2.2.
"SUBORDINATED UNITS" has the meaning assigned to such term in the
recitals of this Agreement.
"SUBSIDIARY ASSETS" means the Plains Assets and the PAAI Assets.
"SUBSIDIARY DEBT" shall mean approximately $31.1 Million of
indebtedness bearing interest at 10 1/4% per annum and due in July of 1999, owed
by the Plains Midstream Subsidiaries to Plains Resources.
1.2 CONCURRENT TRANSACTIONS.
(a) All American L.P. hereby assumes and agrees to pay $175 Million of
Existing Indebtedness.
(b) All American L.P. hereby distributes 100% of its ownership
interest in Gathering LLC to PAAI.
(c) All American hereby distributes the All American WC Assets to
PAAI.
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(d) Gathering LLC hereby distributes the Gathering LLC WC Assets to
PAAI.
ARTICLE II
CONTRIBUTIONS AND SALE OF ASSETS
2.1 CONTRIBUTION OF ASSETS BY PAAI. PAAI hereby grants, contributes,
transfers and conveys to Plains Marketing, its successors and assigns, for its
and their own use forever, all right, title and interest in and to the PAAI
Assets in exchange for (i) a general partner interest and a limited partner
interest (the "PAAI OLP Interest") in Plains Marketing representing, in the
aggregate a 50% interest in the capital and profits of Plains Marketing and (ii)
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged and Plains Marketing hereby accepts the PAAI Assets, as a
contribution to the capital of Plains Marketing.
TO HAVE AND TO HOLD the PAAI Assets unto Plains Marketing, its
successors and assigns, together with all and singular the rights and
appurtenances thereto in any wise belonging, subject, however, to the terms and
conditions stated in this Agreement, forever.
2.2 CONTRIBUTION OF PAAI. PAAI hereby grants, contributes, transfers and
conveys to the Partnership, its successors and assigns, for its and their own
use forever, all right, title and interest of PAAI in and to the PAAI OLP
Interest and the All American LP Interest in exchange for (i) a 1% general
partner interest in the Partnership, (ii) Subordinated Units and Common Units
and (iii) other good and valuable consideration, the sufficiency of which is
hereby acknowledged and the Partnership hereby accepts the PAAI OLP Interest and
the All American LP Interest, as a contribution to the capital of the
Partnership.
TO HAVE AND TO HOLD the PAAI OLP Interest and the All American L.P.
Interest unto the Partnership, its successors and assigns, together with all and
singular the rights and appurtenances thereto in anywise belonging, subject,
however, to the terms and conditions stated in this Agreement, forever.
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2.3 CONTRIBUTION OF PAAI LLC. PAAI LLC hereby grants contributes,
transfers and conveys to the Partnership, its successors and assigns, for its
and their own use forever, all right, title and interest of PAAI LLC in and to
its .001% limited partner interest in All American LP in exchange for
Subordinated Units and other good and valuable consideration, the sufficiency of
which is hereby acknowledged and the Partnership hereby accepts the .001%
limited partner interest in All American LP, as a contribution to the capital of
the Partnership.
TO HAVE AND TO HOLD the .001% limited partner interest in All American
L.P. unto the Partnership, its successors and assigns, together with all and
singular the rights and appurtenances thereto in anywise belonging, subject,
however, to the terms and conditions stated in this Agreement, forever.
2.4 PUBLIC CASH CONTRIBUTION. The parties to this Agreement acknowledge a
cash contribution of $262 Million from the public in exchange for Common Units.
2.5 PARTNERSHIP CASH DISTRIBUTION. PAAI and Plains Marketing acknowledge
that the Partnership has distributed (i) cash in the amount of $147.3 Million to
PAAI as a reimbursement for certain capital expenditures and (ii) cash in the
amount of $114.7 Million to Plains Marketing.
2.6 SALE OF ASSETS BY PLAINS RESOURCES. Plains Resources hereby sells and
conveys to Plains Marketing, its successors and assigns, for its and their own
use forever, all right, title and interest in and to the Plains Assets in
exchange for (i) the right to receive $93.7 Million in cash, (ii) the assumption
certain liabilities by Plains Marketing as provided in Section 4.1 and (iii)
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged.
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TO HAVE AND TO HOLD the Plains Assets unto Plains Marketing, its
successors and assigns, together with all and singular, the rights and
appurtenances thereto in any wise belonging, subject, however, to the terms and
conditions stated in this Agreement, forever.
2.7 PAAI USE OF PROCEEDS. The parties to this Agreement acknowledge that
PAAI has used a portion of the cash received from the Partnership in Section 2.5
above to discharge $110 Million of indebtedness incurred to acquire the Business
and has distributed the balance of cash to Plains Resources.
2.8 CONTRIBUTION OF THE PARTNERSHIP. The Partnership hereby grants,
contributes, transfers and conveys to Plains Marketing, its successors and
assigns, for its and their own use forever, all right, title and interest of the
Partnership in and to the All American LP Interest as a contribution to the
capital of Plains Marketing.
TO HAVE AND TO HOLD the All American LP Interest unto Plains
Marketing, its successors and assigns, together with all and singular the rights
and appurtenances thereto in anywise belonging, subject, however, to the terms
and conditions stated in this Agreement, forever.
2.9 CONTRIBUTION OF PAAI. PAAI hereby grants, contributes, transfers and
conveys to Plains Marketing, its successors and assigns, for its and their own
use forever, all right, title and interest of PAAI in and to all but .001% of
its general partner interest in All American L.P. as a contribution to the
capital of Plains Marketing.
TO HAVE AND TO HOLD the general partner interest in All American L.P.
unto Plains Marketing, its successors and assigns, together with all and
singular the rights and appurtenances hereto in anywise belonging, subject,
however, to the terms and conditions stated in this Agreement, forever.
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2.10 SPECIFIC CONVEYANCES. To further evidence the asset conveyances
recited in this Article II and more fully and effectively convey record title
with respect to the real property included in the Subsidiary Assets, the Plains
Grantors have each executed and delivered to Plains Marketing a Conveyance,
Assignment and Bill of Sale (the "Specific Conveyances"). The Specific
Conveyances shall evidence and perfect the sale and contribution made by this
Agreement and shall not constitute a second conveyance of the Subsidiary Assets
or interests therein and shall be subject to the terms of this Agreement. The
Specific Conveyances are not intended to modify, and shall not modify, any of
the terms, covenants and conditions herein set forth and are not intended to
create, and shall not create, any additional covenants or warranties of or by
either of the Plains Grantors.
ARTICLE III
ADDITIONAL TRANSACTIONS
3.1 MERGER OF GATHERING LLC AND PLAINS MARKETING. The parties to this
Agreement acknowledge that Gathering LLC has been merged with and into Plains
Marketing.
3.2 PAAI CONTRIBUTION TO PAAI LLC. PAAI hereby grants, contributes,
transfers and conveys to PAAI LLC, its successors and assigns, for its and their
own use forever, all right, title and interest of PAAI in and to all of the
Subordinated Units and Common Units held by PAAI as a contribution to the
capital of the PAAI LLC.
TO HAVE AND TO HOLD the Subordinated Units and Common Units unto PAAI
LLC, its successors and assigns, together with all and singular the rights and
appurtenances thereto in anywise belonging, subject, however, to the terms and
conditions stated in this Agreement, forever.
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3.3 ALL AMERICAN LP REFINANCING. The parties to this Agreement
acknowledge that All American LP shall refinance the Existing Indebtedness
assumed in Section 1.2(a) above.
ARTICLE IV
ASSUMPTION OF CERTAIN LIABILITIES
4.1. ASSUMPTION OF CERTAIN PLAINS LIABILITIES BY PLAINS MARKETING. In
connection with the sale and transfer of the Plains Assets to Plains Marketing
by Plains Resources, Plains Marketing hereby assumes and agrees to duly and
timely pay, perform and discharge the Plains Assumed Liabilities, to the full
extent that Plains Resources has been heretofore or would have been in the
future, were it not for the execution and delivery of this Agreement, obligated
to pay, perform and discharge the Plains Assumed Liabilities; provided, however,
that said assumption and agreement to duly and timely pay, perform and discharge
the Plains Assumed Liabilities shall not increase the obligation of Plains
Marketing with respect to the Plains Assumed Liabilities beyond that of Plains
Resources, waive any valid defense that was available to Plains Resources with
respect to the Plains Assumed Liabilities or enlarge any rights or remedies of
any third party under any of the Plains Assumed Liabilities.
4.2. ASSUMPTION OF CERTAIN PAAI LIABILITIES BY PLAINS MARKETING. In
connection with the contribution and transfer of the PAAI Assets to Plains
Marketing by PAAI, Plains Marketing hereby assumes and agrees to duly and timely
pay, perform and discharge the PAAI Assumed Liabilities, to the full extent that
PAAI has been heretofore or would have been in the future, were it not for the
execution and delivery of this Agreement, obligated to pay, perform and
discharge the PAAI Assumed Liabilities; provided, however, that said assumption
and agreement to duly and timely pay, perform and discharge the PAAI Assumed
Liabilities shall not increase the obligation of Plains
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Marketing with respect to the PAAI Assumed Liabilities beyond that of PAAI,
waive any valid defense that was available to PAAI with respect to the PAAI
Assumed Liabilities or enlarge any rights or remedies of any third party under
any of the PAAI Assumed Liabilities.
ARTICLE V
INDEMNIFICATION
5.1. INDEMNIFICATION WITH RESPECT TO PLAINS EXCLUDED LIABILITIES. Plains
Resources shall indemnify, defend and hold harmless the Partnership, Plains
Marketing, their respective officers and directors and their respective
successors and assigns from and against any and all claims, demands, costs,
liabilities (including, without limitation, liabilities arising by way of active
or passive negligence) and expenses (including court costs and reasonable
attorneys' fees) of every kind, character and description, whether known or
unknown, accrued or contingent, and whether or not reflected on the books and
records of Plains Resources as of the Effective Time, arising from or relating
to (i) the Plains Excluded Liabilities or (ii) any failure of Plains Resources
to comply with any applicable bulk sales law of any jurisdiction in connection
with the transfer of the Plains Assets to Plains Marketing.
5.2. INDEMNIFICATION WITH RESPECT TO PAAI EXCLUDED LIABILITIES. PAAI shall
indemnify, defend and hold harmless the Partnership, Plains Marketing, their
respective officers and directors and their respective successors and assigns
from and against any and all claims, demands, costs, liabilities (including,
without limitation, liabilities arising by way of active or passive negligence)
and expenses (including court costs and reasonable attorneys' fees) of every
kind, character and description, whether known or unknown, accrued or
contingent, and whether or not reflected on the books and records of PAAI as of
the Effective Time, arising from or relating to (i) the PAAI
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Excluded Liabilities or (ii) any failure of PAAI to comply with any applicable
bulk sales law of any jurisdiction in connection with the transfer of the PAAI
Assets to Plains Marketing.
5.3. INDEMNIFICATION WITH RESPECT TO PLAINS ASSUMED LIABILITIES. Plains
Marketing shall indemnify, defend and hold harmless Plains Resources, its
officers and directors, its successors and assigns from and against any and all
claims, demands, costs, liabilities (including, without limitation, liabilities
arising by way of active or passive negligence) and expenses (including court
costs and reasonable attorneys' fees) of every kind, character and description,
whether known or unknown, accrued or contingent, and whether or not reflected on
the books and records of Plains Resources as of the Effective Time, arising from
or relating to the Plains Assumed Liabilities.
5.4. INDEMNIFICATION WITH RESPECT TO PAAI ASSUMED LIABILITIES. Plains
Marketing shall indemnify, defend and hold harmless PAAI, its officers and
directors, its successors and assigns from and against any and all claims,
demands, costs, liabilities (including, without limitation, liabilities arising
by way of active or passive negligence) and expenses (including court costs and
reasonable attorneys' fees) of every kind, character and description, whether
known or unknown, accrued or contingent, and whether or not reflected on the
books and records of PAAI as of the Effective Time, arising from or relating to
the PAAI Assumed Liabilities.
ARTICLE VI
TITLE MATTERS
6.1. ENCUMBRANCES. The contribution and sale of the Assets made under
this Agreement are made expressly subject to (a) all recorded and unrecorded
liens, encumbrances, agreements, defects, restrictions, adverse claims and all
laws, rules, regulations, ordinances, judgments and orders of governmental
authorities or tribunals having or asserting jurisdiction over the Assets or the
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Business and operations conducted thereon or therewith, in each case to the
extent the same are valid, enforceable and affect the Assets, including, without
limitation, all matters that a current survey or visual inspection of the Assets
would reflect, (b) the Plains Assumed Liabilities, (c) the PAAI Assumed
Liabilities and (d) all matters contained in the Specific Conveyances.
6.2. DISCLAIMER OF WARRANTIES; SUBROGATION; WAIVER OF BULK SALES LAWS.
(a) THE PLAINS GRANTORS ARE CONVEYING THE ASSETS "AS IS" WITHOUT
REPRESENTATION OR WARRANTY, WHETHER EXPRESS, IMPLIED OR STATUTORY (ALL OF
WHICH THE PLAINS GRANTORS HEREBY DISCLAIM), AS TO (i) TITLE, (ii) FITNESS
FOR ANY PARTICULAR PURPOSE OR MERCHANTABILITY OR DESIGN OR QUALITY, OR
(iii) ANY OTHER MATTER WHATSOEVER. THE PROVISIONS OF THIS SECTION 6.2 HAVE
BEEN NEGOTIATED BY Plains Marketing AND THE PLAINS GRANTORS AFTER DUE
CONSIDERATION AND ARE INTENDED TO BE A COMPLETE EXCLUSION AND NEGATION OF
ANY REPRESENTATIONS OR WARRANTIES OF THE PLAINS GRANTORS, WHETHER EXPRESS,
IMPLIED OR STATUTORY, WITH RESPECT TO THE ASSETS THAT MAY ARISE PURSUANT TO
ANY LAW NOW OR HEREAFTER IN EFFECT, OR OTHERWISE, EXCEPT AS EXPRESSLY SET
FORTH HEREIN.
(b) The contribution of the Assets made under this Agreement is made
with full rights of substitution and subrogation of Plains Marketing, and
all persons claiming by, through and under Plains Marketing, to the extent
assignable, in and to all covenants and warranties by the predecessors-in-
title of the Plains Grantors, and with full subrogation of
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all rights accruing under applicable statutes of limitation and all rights
of action of warranty against all former owners of the Assets.
(c) The Plains Grantors and Plains Marketing agree that the
disclaimers contained in this Section 6.2 are "conspicuous" disclaimers.
Any covenants implied by statute or law by the use of the words "grant,"
"convey," "bargain," "sell," "assign," "transfer," "deliver," or "set over"
or any of them or any other words used in this Agreement are hereby
expressly disclaimed, waived and negated.
(d) Each of the parties hereto hereby waives compliance with any
applicable bulk sales law or any similar law in any applicable jurisdiction
in respect of the transactions contemplated by this Agreement.
ARTICLE VII
FURTHER ASSURANCES
7.1. FURTHER ASSURANCES. From time to time after the date hereof, and
without any further consideration, Plains Resources or PAAI, as the case may be,
shall execute, acknowledge and deliver all such additional deeds, assignments,
bills of sale, conveyances, instruments, notices, releases, acquittances and
other documents, and will do all such other acts and things, all in accordance
with applicable law, as may be necessary or appropriate (i) more fully to assure
Plains Marketing, its successors and assigns, all of the properties, rights,
titles, interests, estates, remedies, powers and privileges by this Agreement
granted to Plains Marketing or intended so to be and (ii) more fully and
effectively to vest in the Partnership and its successors and assigns beneficial
and record title to the interests hereby contributed and assigned to the
Partnership or intended so to be and to more fully and effectively carry out the
purposes and intent of this Agreement.
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7.2. PARTNERSHIP AND OPERATING PARTNERSHIP ASSURANCES. From time to time
after the date hereof, and without any further consideration, the Partnership
and Plains Marketing shall execute, acknowledge and deliver all such additional
instruments, notices and other documents, and will do all such other acts and
things, all in accordance with applicable law, as may be necessary or
appropriate to more fully and effectively carry out the purposes and intent of
this Agreement.
ARTICLE VIII
POWER OF ATTORNEY
The Plains Grantors hereby constitute and appoint Plains Marketing, its
successors and assigns, their true and lawful attorney-in-fact with full power
of substitution for it and in its name, place and stead or otherwise on behalf
of the Plains Grantors, their successors and assigns, and for the benefit of
Plains Marketing, its successors and assigns, to demand and receive from time to
time the Assets and to execute in the name of the Plains Grantors and their
successors and assigns instruments of conveyance, instruments of further
assurance and to give receipts and releases in respect of the same, and from
time to time to institute and prosecute in the name of Plains Marketing or the
Plains Grantors for the benefit of Plains Marketing, as may be appropriate, any
and all proceedings at law, in equity or otherwise which Plains Marketing, its
successors and assigns may deem proper in order to collect, assert or enforce
any claims, rights or titles of any kind in and to the Assets, and to defend and
compromise any and all actions, suits or proceedings in respect of any of the
Assets and to do any and all such acts and things in furtherance of this
Agreement as Plains Marketing, its successors or assigns shall deem advisable.
The Plains Grantors hereby declare that the appointment hereby made and the
powers hereby granted are coupled with an interest and are
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and shall be irrevocable and perpetual and shall not be terminated by any act of
the Plains Grantors, their successors or assigns or by operation of law.
ARTICLE IX
MISCELLANEOUS
9.1. ORDER OF COMPLETION OF TRANSACTIONS; EFFECTIVE TIME.
(a) The transactions provided for in Articles I, II and III of this
Agreement shall be completed on the date of this Agreement in the following
order:
First, the transactions provided for in Article I shall be completed;
Second, the transactions provided for in Article II shall be
completed; and
Third, the transactions provided for in Article III shall be
completed.
(b) The contribution of the Assets to Plains Marketing shall be
effective for all purposes as of the Effective Time.
9.2. CONSENTS; RESTRICTION ON ASSIGNMENT. If there are prohibitions
against or conditions to the conveyance of one or more portions of the Assets
without the prior written consent of third parties, including, without
limitation, governmental agencies (other than consents of a ministerial nature
which are normally granted in the ordinary course of business), which if not
satisfied would result in a breach of such prohibitions or conditions or would
give an outside party the right to terminate Plains Marketing's rights with
respect to such portion of the Assets (herein called a "Restriction"), then any
provision contained in this Agreement to the contrary notwithstanding, the
transfer of title to or interest in each such portion of the Assets (herein
called the "Restriction-Asset") pursuant to this Agreement shall not become
effective unless and until such Restriction is satisfied, waived or no longer
applies. When and if such a Restriction is so satisfied, waived or no
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longer applies, to the extent permitted by applicable law and any applicable
contractual provisions, the assignment of the Restriction-Asset subject thereto
shall become effective automatically as of the Effective Time, without further
action on the part of Plains Marketing or either of the Plains Grantors. The
Plains Grantors and Plains Marketing agree to use their best efforts to obtain
satisfaction of any Restriction on a timely basis. The description of any
portion of the Assets as a "Restriction-Asset" shall not be construed as an
admission that any Restriction exists with respect to the transfer of such
portion of the Assets. In the event that any Restriction-Asset exists, the
Plains Grantors agree to hold such Restriction-Asset in trust for the exclusive
benefit of Plains Marketing and to otherwise use their best efforts to provide
Plains Marketing with the benefits thereof, and the Plains Grantors will enter
into other agreements, or take such other action as they deem necessary, in
order to help ensure that Plains Marketing has the assets and concomitant rights
necessary to enable it to operate the Assets contributed to Plains Marketing in
all material respects as they were operated prior to the Effective Time.
9.3. COSTS. Plains Marketing shall pay all sales, use and similar taxes
arising out of the contributions, conveyances and deliveries to be made
hereunder, and shall pay all documentary, filing, recording, transfer, deed, and
conveyance taxes and fees required in connection therewith. In addition, Plains
Marketing shall be responsible for all costs, liabilities and expenses
(including court costs and reasonable attorneys' fees) incurred in connection
with the satisfaction or waiver of any Restriction pursuant to Section 9.2.
9.4. HEADINGS: REFERENCES: INTERPRETATION. All Article and Section
headings in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any of the provisions hereof.
The words "hereof," "herein" and "hereunder" and
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words of similar import, when used in this Agreement, shall refer to this
Agreement as a whole, including, without limitation, all Schedules and Exhibits
attached hereto, and not to any particular provision of this Agreement. All
references herein to Articles, Sections, Schedules and Exhibits shall, unless
the context requires a different construction, be deemed to be references to the
Articles and Sections of this Agreement and the Schedules and Exhibits attached
hereto, and all such Schedules and Exhibits attached hereto are hereby
incorporated herein and made a part hereof for all purposes. All personal
pronouns used in this Agreement, whether used in the masculine, feminine or
neuter gender, shall include all other genders, and the singular shall include
the plural and vice versa. The use herein of the word "including" following any
general statement, term or matter shall not be construed to limit such
statement, term or matter to the specific items or matters set forth immediately
following such word or to similar items or matters, whether or not non-limiting
language (such as "without limitation," "but not limited to," or words of
similar import) is used with reference thereto, but rather shall be deemed to
refer to all other items or matters that could reasonably fall within the
broadest possible scope of such general statement, term or matter.
9.5. SUCCESSORS AND ASSIGNS. The Agreement shall be binding upon and
inure to the benefit of the parties signatory hereto and their respective
successors and assigns.
9.6. NO THIRD PARTY RIGHTS. The provisions of this Agreement are
intended to bind the parties signatory hereto as to each other and are not
intended to and do not create rights in any other person or confer upon any
other person any benefits, rights or remedies and no person is or is intended to
be a third party beneficiary of any of the provisions of this Agreement.
9.7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the parties hereto.
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9.8. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas applicable to contracts made
and to be performed wholly within such state without giving effect to conflict
of law principles thereof, except to the extent that it is mandatory that the
law of some other jurisdiction, wherein the Assets are located, shall apply.
9.9. SEVERABILITY. If any of the provisions of this Agreement are held
by any court of competent jurisdiction to contravene, or to be invalid under,
the laws of any political body having jurisdiction over the subject matter
hereof, such contravention or invalidity shall not invalidate the entire
Agreement. Instead, this Agreement shall be construed as if it did not contain
the particular provision or provisions held to be invalid, and an equitable
adjustment shall be made and necessary provision added so as to give effect to
the intention of the parties as expressed in this Agreement at the time of
execution of this Agreement.
9.10. DEED; BILL OF SALE; ASSIGNMENT. To the extent required by
applicable law, this Agreement shall also constitute a "deed," "bill of sale" or
"assignment" of the Assets.
9.11. AMENDMENT OR MODIFICATION. This Agreement may be amended or
modified from time to time only by the written agreement of all the parties
hereto.
9.12 INTEGRATION. This Agreement supersedes all previous understandings
or agreements between the parties, whether oral or written, with respect to its
subject matter. This document is an integrated agreement which contains the
entire understanding of the parties. No understanding, representation, promise
or agreement, whether oral or written, is intended to be or shall be included in
or form part of this Agreement unless it is contained in a written amendment
hereto executed by the parties hereto after the date of this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
PLAINS RESOURCES INC., a Delaware corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
PLAINS MARKETING, L.P., a Delaware limited
partnership
By: Plains All American Inc., a Delaware
corporation, as general partner
By:______________________________________
Name:____________________________________
Title:___________________________________
PLAINS ALL AMERICAN PIPELINE, L.P., a
Delaware limited partnership
By: Plains All American Inc., a Delaware
corporation, as general partner
By:_______________________________________
Name:_____________________________________
Title:____________________________________
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ALL AMERICAN, L.P., a Texas limited partnership
By: Plains All American Inc., a Delaware
corporation, as general partner
By:______________________________________
Name:____________________________________
Title:___________________________________
PLAINS ALL AMERICAN INC., a
Delaware corporation
By:__________________________________________
Name:________________________________________
Title:_______________________________________
PAAI, LLC, a Delaware limited liability company
By:__________________________________________
Name:________________________________________
Title:_______________________________________
GATHERING LLC, a Texas limited liability company
By:__________________________________________
Name:________________________________________
Title:_______________________________________
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EXHIBIT 10.4
Draft: 10/22/98
PLAINS ALL AMERICAN INC.
1998 LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plains All American Inc. 1998 Long-Term Incentive Plan (the "Plan") is
intended to promote the interests of Plains All American Pipeline, L.P., a
Delaware limited partnership (the "Partnership"), by providing to employees and
directors of Plains All American Inc. (the "Company") and its Affiliates who
perform services for the Partnership incentive compensation awards for superior
performance that are based on Units. The Plan is also contemplated to enhance
the ability of the Company and its Affiliates to attract and retain the services
of individuals who are essential for the growth and profitability of the
Partnership and to encourage them to devote their best efforts to the business
of the Partnership, thereby advancing the interests of the Partnership and its
partners.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Award" means an Option or Restricted Unit granted under the Plan.
"Board" means the Board of Directors of the Company.
"Committee" means the Compensation Committee of the Board or such other
committee of the Board appointed to administer the Plan.
"DER" means a contingent right, granted in tandem with a specific
Restricted Unit, to receive an amount in cash equal to the cash distributions
made by the Partnership with respect to a Unit during the period such Restricted
Unit is outstanding.
"Director" means a "non-employee director" of the Company, as defined in
Rule 16b-3.
<PAGE>
"Employee" means any employee of the Company or an Affiliate, as determined
by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the closing sales price of a Unit on the
applicable date (or if there is no trading in the Units on such date, on the
next preceding date on which there was trading) as reported in The Wall Street
Journal (or other reporting service approved by the Committee). In the event
Units are not publicly traded at the time a determination of fair market value
is required to be made hereunder, the determination of fair market value shall
be made in good faith by the Committee.
"Option" means an option to purchase Units granted under the Plan.
"Participant" means any Employee or Director granted an Award under the
Plan.
"Partnership Agreement" means the Amended and Restated Agreement of Limited
Partnership of Plains All American Pipeline, L.P.
"Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.
"Restricted Period" means the period established by the Committee with
respect to an Award during which the Award either remains subject to forfeiture
or is not exercisable by the Participant. Notwithstanding anything in the Plan
to the contrary, the Restricted Period with respect to any Award granted to an
Employee may not terminate prior to the end of the Subordination Period (as
defined in the Partnership Agreement).
"Restricted Unit" means a phantom unit granted under the Plan which upon or
following vesting entitles the Participant to receive a Unit.
"Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the Exchange
Act, or any successor rule or regulation thereto as in effect from time to time.
"SEC" means the Securities and Exchange Commission, or any successor
thereto.
"Unit" means a Common Unit of the Partnership.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting
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thereof at which a quorum is present, or acts unanimously approved by the
members of the Committee in writing, shall be the acts of the Committee. Subject
to the following, the Committee, in its sole discretion, may delegate any or all
of its powers and duties under the Plan, including the power to grant Awards
under the Plan, to the Chief Executive Officer of the Company, subject to such
limitations on such delegated powers and duties as the Committee may impose.
Upon any such delegation all references in the Plan to the "Committee", other
than in Section 7, shall be deemed to include the Chief Executive Officer;
provided, however, that such delegation shall not limit the Chief Executive
Officer's right to receive Awards under the Plan. Notwithstanding the foregoing,
the Chief Executive Officer may not grant Awards to, or take any action with
respect to any Award previously granted to, a person who is an officer subject
to Rule 16b-3 or a member of the Board. Subject to the terms of the Plan and
applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to a Participant; (iii) determine the number of Units to be
covered by Awards; (iv) determine the terms and conditions of any Award; (v)
determine whether, to what extent, and under what circumstances Awards may be
settled, exercised, canceled, or forfeited; (vi) interpret and administer the
Plan and any instrument or agreement relating to an Award made under the Plan;
(vii) establish, amend, suspend, or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (viii) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, the Partnership, any Affiliate, any Participant,
and any beneficiary of any Award.
SECTION 4. UNITS AVAILABLE FOR AWARDS.
(a) UNITS AVAILABLE. Subject to adjustment as provided in Section 4(c),
the number of Units with respect to which Awards may be granted under the Plan
is 975,000. If any Award is forfeited or otherwise terminates or is canceled
without the delivery of Units, then the Units covered by such Award, to the
extent of such forfeiture, termination or cancellation, shall again be Units
with respect to which Awards may be granted.
(b) SOURCES OF UNITS DELIVERABLE UNDER AWARDS. Any Units delivered
pursuant to an Award shall consist, in whole or in part, of Units acquired in
the open market, from any Affiliate, the Partnership or any other Person, or any
combination of the foregoing, as determined by the Committee in its discretion.
(c) ADJUSTMENTS. In the event that the Committee determines that any
distribution (whether in the form of cash, Units, other securities, or other
property), recapitalization, split, reverse split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of Units
or other securities of the Partnership, issuance of warrants or other rights to
purchase Units
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or other securities of the Partnership, or other similar transaction or event
affects the Units such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Units (or other securities or property) with respect
to which Awards may be granted, (ii) the number and type of Units (or other
securities or property) subject to outstanding Awards, and (iii) the grant or
exercise price with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; provided,
that the number of Units subject to any Award shall always be a whole number.
SECTION 5. ELIGIBILITY.
Any Employee and Director shall be eligible to be designated a Participant.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee shall have the authority to determine the
Employees and Directors to whom Options shall be granted, the number of Units to
be covered by each Option, the purchase price therefor and the conditions and
limitations applicable to the exercise of the Option, including the following
terms and conditions and such additional terms and conditions, as the Committee
shall determine, that are not inconsistent with the provisions of the Plan.
(i) EXERCISE PRICE. The purchase price per Unit purchasable under an
Option shall be determined by the Committee at the time the Option is
granted but shall not be less than its Fair Market Value as of the date of
grant.
(ii) TIME AND METHOD OF EXERCISE. The Committee shall determine the
Restricted Period, i.e., the time or times at which an Option may be
exercised in whole or in part, and the method or methods by which payment
of the exercise price with respect thereto may be made or deemed to have
been made which may include, without limitation, cash, check acceptable to
the Company, a "cashless-broker" exercise (through procedures approved by
the Company), other securities or other property, a note from the
Participant (in a form acceptable to the Company), or any combination
thereof, having a Fair Market Value on the exercise date equal to the
relevant exercise price.
(iii) TERM. Subject to earlier termination as provided in the grant
agreement or the Plan, each Option shall expire on the 10th anniversary of
its date of grant.
(iv) FORFEITURE. Except as otherwise provided in the terms of the
Option grant, upon termination of a Participant's employment with the
Company and its Affiliates or membership on the Board, whichever is
applicable, for any reason during the applicable Restricted Period, all
Options shall be forfeited by the Participant. The Committee may, in
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its discretion, waive in whole or in part such forfeiture with respect to a
Participant's Options.
(b) RESTRICTED UNITS. The Committee shall have the authority to determine
the Employees and Directors to whom Restricted Units shall be granted, the
number of Restricted Units to be granted to each such Participant, the duration
of the Restricted Period, the conditions under which the Restricted Units may
become vested or forfeited, and such other terms and conditions as the Committee
may establish with respect to such Awards, including whether DERs are granted
with respect to such Restricted Units.
(i) DERS. To the extent provided by the Committee, in its discretion,
a grant of Restricted Units may include a tandem DER grant, which may
provide that such DERs shall be paid directly to the Participant, be
credited to a bookkeeping account (with or without interest in the
discretion of the Committee) subject to the same restrictions as the tandem
Award, or be subject to such other provisions or restrictions as determined
by the Committee in its discretion. Notwithstanding the foregoing however,
DERs shall not be granted with respect to any Award prior to the end of the
Subordination Period
(ii) FORFEITURE. Except as otherwise provided in the terms of the
Restricted Units grant, upon termination of a Participant's employment with
the Company and its Affiliates or membership on the Board, whichever is
applicable, for any reason during the applicable Restricted Period, all
Restricted Units shall be forfeited by the Participant. The Committee may,
in its discretion, waive in whole or in part such forfeiture with respect
to a Participant's Restricted Units.
(iii) LAPSE OF RESTRICTIONS. Upon the vesting of each Restricted
Unit, the Participant shall be entitled to receive from the Company one
Unit, subject to the provisions of Section 8(b).
(c) GENERAL.
(i) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award granted under the Plan
or any award granted under any other plan of the Company or any Affiliate,
including the Management Incentive Plan. Awards granted in addition to or
in tandem with other Awards or awards granted under any other plan of the
Company or any Affiliate may be granted either at the same time as or at a
different time from the grant of such other Awards or awards.
(ii) LIMITS ON TRANSFER OF AWARDS.
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(A) Except as provided in (C) below, each Option shall be
exercisable only by the Participant during the Participant's lifetime,
or by the person to whom the Participant's rights shall pass by will
or the laws of descent and distribution.
(B) Except as provided in (C) below, no Award and no right under
any such Award may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by
will or by the laws of descent and distribution and any such purported
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the Company or any
Affiliate.
(C) To the extent specifically provided by the Committee with
respect to an Option grant, an Option may be transferred by a
Participant without consideration to immediate family members or
related family trusts, limited partnerships or similar entities or on
such terms and conditions as the Committee may from time to time
establish.
(iii) TERM OF AWARDS. The term of each Award shall be for such
period as may be determined by the Committee.
(iv) UNIT CERTIFICATES. All certificates for Units or other
securities of the Partnership delivered under the Plan pursuant to any
Award or the exercise thereof shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the SEC, any stock
exchange upon which such Units or other securities are then listed, and any
applicable federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.
(v) CONSIDERATION FOR GRANTS. Awards may be granted for no cash
consideration or for such consideration as the Committee determines
including, without limitation, such minimal cash consideration as may be
required by applicable law.
(vi) DELIVERY OF UNITS OR OTHER SECURITIES AND PAYMENT BY PARTICIPANT
OF CONSIDERATION. Notwithstanding anything in the Plan or any grant
agreement to the contrary, delivery of Units pursuant to the exercise or
vesting of an Award may be deferred for any period during which, in the
good faith determination of the Committee, the Company is not reasonably
able to obtain Units to deliver pursuant to such Award without violating
the rules or regulations of any applicable law or securities exchange. No
Units or other securities shall be delivered pursuant to any Award until
payment in full of any amount required to be paid pursuant to the Plan or
the applicable Award grant agreement (including, without limitation, any
exercise price or tax withholding) is received by the Company. Such
payment may be made by such method or methods and in such form or forms as
the Committee shall determine, including, without limitation, cash, other
Awards, withholding of Units, cashless-
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broker exercises with simultaneous sale, or any combination thereof;
provided that the combined value, as determined by the Committee, of all
cash and cash equivalents and the Fair Market Value of any such Units or
other property so tendered to the Company, as of the date of such tender,
is at least equal to the full amount required to be paid to the Company
pursuant to the Plan or the applicable Award agreement.
SECTION 7. AMENDMENT AND TERMINATION.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award agreement or in the Plan:
(i) AMENDMENTS TO THE PLAN. Except as required by applicable law or
the rules of the principal securities exchange on which the Units are
traded and subject to Section 7(ii) below, the Board or the Committee may
amend, alter, suspend, discontinue, or terminate the Plan in any manner,
including increasing the number of Units available for Awards under the
Plan, without the consent of any partner, Participant, other holder or
beneficiary of an Award, or other Person; provided, however, that no
amendment may be made without the approval of a Unit Majority (as defined
in the Partnership Agreement) that would either accelerate, with respect to
an Award granted to an Employee, vesting to a date prior to the end of the
Subordination Period or permit DERs to be granted prior to the end of the
Subordination Period.
(ii) AMENDMENTS TO AWARDS. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Award theretofore granted,
provided no change, other than pursuant to Section 7(iii), in any Award
shall materially reduce the benefit to Participant without the consent of
such Participant.
(iii) ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(c) of the Plan) affecting the
Partnership or the financial statements of the Partnership, or of changes
in applicable laws, regulations, or accounting principles, whenever the
Committee determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
SECTION 8. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. No Person shall have any claim to be granted any
Award, and there is no obligation for uniformity of treatment of Participants.
The terms and conditions of Awards need not be the same with respect to each
recipient.
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(b) WITHHOLDING. The Company or any Affiliate is authorized to withhold
from any Award, from any payment due or transfer made under any Award or from
any compensation or other amount owing to a Participant the amount (in cash,
Units, other securities, Units that would otherwise be issued pursuant to such
Award or other property) of any applicable taxes payable in respect of the grant
of an Award, its exercise, the lapse of restrictions thereon, or any payment or
transfer under an Award or under the Plan and to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes.
(c) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate or to remain on the Board, as applicable. Further, the Company or
an Affiliate may at any time dismiss a Participant from employment, free from
any liability or any claim under the Plan, unless otherwise expressly provided
in the Plan or in any Award agreement.
(d) GOVERNING LAW. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware and applicable federal law.
(e) SEVERABILITY. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to the applicable laws, or if it cannot be construed or
deemed amended without, in the determination of the Committee, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(f) OTHER LAWS. The Committee may refuse to issue or transfer any Units or
other consideration under an Award if, in its sole discretion, it determines
that the issuance or transfer or such Units or such other consideration might
violate any applicable law or regulation, the rules of the principal securities
exchange on which the Units are then traded, or entitle the Partnership or an
Affiliate to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary.
(g) NO TRUST OR FUND CREATED. Neither the Plan nor the Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any general unsecured creditor of the Company or any
Affiliate.
(h) NO FRACTIONAL UNITS. No fractional Units shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine whether
cash, other securities, or other
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property shall be paid or transferred in lieu of any fractional Units or whether
such fractional Units or any rights thereto shall be canceled, terminated, or
otherwise eliminated.
(i) HEADINGS. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
SECTION 9. TERM OF THE PLAN.
The Plan shall be effective on the date of its approval by the Board and
shall continue until the date terminated by the Board or Units are no longer
available for grants of Awards under the Plan, whichever occurs first. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award granted prior to such termination, and the authority of the
Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under such Award,
shall extend beyond such termination date.
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EXHIBIT 10.5
PLAINS ALL AMERICAN INC.
MANAGEMENT INCENTIVE PLAN
SECTION 1. Objectives. The objectives of the Plains All American Inc.
Management Incentive Plan (the "Plan") are:
-- To communicate and focus management's attention on achieving the
business goals of Plains All American Pipeline, L.P. (the
"Partnership"),
-- To attract and retain highly qualified key employees upon whom
the success of the Partnership depends, and
-- To reward superior performance.
The Plan is intended to encourage management to achieve and surpass the business
objectives of the Partnership through establishing quarterly and/or annual
objectives, reviewing performance and awarding quarterly and/or annual bonuses
based on the achievement of such objectives.
SECTION 2. Administration. The Plan shall be administered by the
Compensation Committee of the Board of Directors (the "Committee") of Plains All
American Inc. (the "Company"). The Committee shall have such discretionary
authority to administer the Plan, to construe and interpret the Plan, to decide
all questions of eligibility, to determine the amount, manner and time of
payment of any payments hereunder and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
SECTION 3. Eligibility. Employees eligible under the Plan are the
officers of the Company and its affiliates who may have a substantial impact on
the performance of the Partnership. Each calendar year ("Plan Year") (generally
at or near the beginning of such Plan Year, or, with respect to an individual
hired or promoted after the beginning of the Plan Year, on or within a
reasonable period following the date such individual becomes an eligible
employee) the Committee shall select the employees who shall be participants for
that year and shall assign levels of participation to each such employee. The
incentive award opportunity with respect to an eligible employee shall be
designed to reflect the overall impact of the employee on the performance of the
Partnership.
SECTION 4. Basis for Determining the Incentive Award. (a) The incentive
award for any fiscal quarter or Plan Year shall be based upon the achievement of
financial and operating results of the Partnership for such fiscal quarter or
year as may be established by the Committee, in its sole discretion.
(b) The factors, and their respective weights, if applicable, used in
determining the target award for an eligible employee shall be established by
the Committee. The target award with respect to a participant may be expressed
as a percentage of the participant's base salary at the beginning
<PAGE>
of the Plan Year (or when he first became a participant for such Plan Year), a
dollar amount or a percentage of a bonus pool or other bonus formula. An
eligible employee's basis of participation in the Plan as a participant for a
Plan Year will be communicated to him in writing as early as possible following
his selection for the Plan Year.
SECTION 5. Performance Objectives. (a) The Committee shall establish in
advance the performance objectives for the applicable performance period.
Performance objectives are intended to further the success of the Partnership
and shall be:
-- Specific and based, in whole or in part, as determined by the
Committee, upon measurable results and/or subjective factors as
determined, and weighted, by the Committee, and
-- Challenging, but attainable.
(b) The basis and amount of the incentive award to be provided for
different levels of performance achievement will be established by the
Committee. A performance schedule shall be established by the Committee to
indicate the award payable at varying levels of performance. Performance
objectives may be revised at any time during a Plan Year by the Committee in
light of unanticipated or extraordinary events.
(c) Specific objectives will be based primarily on the Partnership's
business plans and levels of performance.
(d) The Committee may assign objectives that are appropriate to the impact
of each participant's position and different objectives may be assigned to
different participants or groups of participants.
SECTION 6. Performance. At the end of each fiscal quarter and/or Plan
Year, the determination of the achievement of the objectives established for
such fiscal quarter and/or Plan Year and the payment of awards earned will occur
as soon as practicable after the compilation of the financial and operating
results for such period. All financial and operating results will be reviewed
and approved by the Committee prior to the payment of earned awards.
SECTION 7. Award Payments. (a) Subject to (d) below, payment of earned
awards will be made or begin as soon as reasonably practical after the close of
each performance period following the approval of the Committee. Payments will
be subject to all applicable tax withholding requirements.
(b) If a participant's employment terminates during a performance period,
whether voluntarily or involuntarily, the participant shall forfeit all rights
to any incentive award for that performance period, unless the Committee, in its
discretion, elects to pay all or a portion of the award. If a participant's
employment terminates after the end of the performance period and before
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payment of the award for any reason other than death or retirement after 15
continuous years of employment with the Company and its affiliates, unless
waived by the Committee in its discretion, the participant shall forfeit the
incentive award payment, if any, he would otherwise have been eligible to
receive had he remained with the Company and its affiliates. However, if such
termination is due to the death of the participant, payment of the incentive
award, if any, the participant would have received had he lived and remained
with the Company and its affiliates shall be made to the participant's
beneficiary, in accordance with the designation filed by the participant with
the Company or, if no designation has been filed or such designation is
ineffective for any reason, the participant's estate.
(c) Earned awards shall be paid in cash, less applicable withholding
requirements.
(d) Annual awards (not fiscal quarter awards) to the extent earned for a
Plan Year shall be paid as follows, unless the Committee provides otherwise: (i)
40% of the award shall be payable by April 1 following the end of the Plan Year
and (ii) 20% of the award shall be payable as soon as reasonably practical on or
following each April 1 next following the year of the 40% payment until the
earned award is paid in full; provided, however, if a participant's employment
with the Company and its affiliates terminates prior to any such payment, all
such remaining payment(s) shall be forfeited, unless waived by the Committee, in
its discretion.
SECTION 8. Terminations or Amendment. The Plan may be terminated or
amended at any time by the Company.
SECTION 9. Effective Date. This Plan is effective as of ____________,
199__.
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EXHIBIT 10.6
DRAFT: 11/1/98
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement"), made as of the __________ day of
________, 1998 (the "Effective Date"), between Plains Resources Inc., a Delaware
corporation (the "Company"), and Harry N. Pefanis ("Employee").
W I T N E S S E T H:
1. EMPLOYMENT AND TERM OF EMPLOYMENT. The Company hereby employs the
Employee, and the Employee hereby agrees to serve the Company, on the terms and
conditions set forth herein. Subject to the provisions of Sections 7 and 8, the
term of this Agreement shall be for an initial period of three years from the
Effective Date hereof. Not more than 90 days and not less than 60 days prior to
the first anniversary of the Effective Date hereof and again during the same
period prior to each subsequent anniversary of the Effective Date hereof (each a
"Contract Anniversary Date"), the Employee may provide written notice (an
"Extension Notice") to the President and Chief Executive Officer of the Company
stating that he wishes to extend the remaining term of this Agreement for one
year. Unless the Employee receives, prior to the Contract Anniversary Date
immediately following delivery of such Extension Notice, a written response from
the Chairman of the Board of Directors of the Company (the "Board") (or, if
applicable, the Chairman of the Compensation Committee) to the effect that the
Board has voted not to extend the remaining term of this Agreement, then the
term of this Agreement shall be automatically extended for such one-year period.
Failure of the Employee to provide a timely Extension Notice as contemplated by
this Section 1 shall automatically cause the term of this Agreement to conclude
two years following the Contract Anniversary Date prior to which the Extension
Notice would have otherwise been provided. Notwithstanding the foregoing, on
the effective date of a "Change in Control of the Company", as defined in
Section 7(d), or on the Disposition Date, as defined in Section 7(e), the term
of this Agreement automatically shall be extended for three years from such
effective date or Disposition Date, as the case may be.
2. POSITION AND DUTIES. The Employee shall serve as an Executive Vice
President of the Company and the President and Chief Operating Officer of Plains
All American Inc. ("PAAI"), shall report to the President and Chief Executive
Officer of the Company, and shall have supervision and control over and
responsibility for (i) the marketing operations of the Company and its
subsidiaries, and (ii) the overall operations of PAAI, with such other powers
and duties as may from time to time be prescribed by the President and Chief
Executive Officer of the Company, provided that such duties are consistent with
the Employee's positions. The Employee shall, during the term of this
Agreement, devote such of his entire working time, attention, energies and
business efforts to his duties and responsibilities hereunder as are reasonably
necessary to carry out the duties and
<PAGE>
responsibilities generally appertaining to such offices, it being agreed
that the Employee's principal duties and responsibilities shall be serving as
President and Chief Operating Officer of PAAI and that the Company shall not
require the Employee to engage in activities that materially detract from the
Employee's ability to satisfactorily discharge his duties and responsibilities
as President and Chief Operating Officer of PAAI. The Employee shall not, during
the term of this Agreement, engage in any other business activity (regardless of
whether such business activity is pursued for gain, profit or other pecuniary
advantage) without the prior written approval of the President and Chief
Executive Officer of the Company (which approval shall not be unreasonably
withheld). Nothing in this Section 2 shall be deemed to restrict the Employee
from investing his personal assets as a passive investor in the publicly traded
securities of other companies.
3. PLACE OF PERFORMANCE. Subject to such business travel from time to
time as may be reasonably required in the discharge of his duties and
responsibilities under this Agreement, the Employee shall perform his
obligations hereunder at the Company's principal place of business in Houston,
Texas.
4. COMPENSATION.
(a) BASE SALARY AND BONUS. Subject to the provisions of Section 7 and
8, during the period of the Employee's employment hereunder, the Company shall
pay the Employee an aggregate base salary at an annual rate which shall be
determined from time to time by the Board or its Compensation Committee. The
Employee's initial base salary as of the date hereof, shall be $235,000 per
annum. Such initial base salary as the same may be increased from time to time
as provided herein shall be hereinafter referred to as the "Base Salary." The
Base Salary shall be paid in equal installments pursuant to the Company's
customary payroll policies in force at the time of payment (but in no event less
frequently than semi-monthly), less required payroll deductions. The Base
Salary shall be reviewed in January of each year and may be increased as of each
January 1st to reflect the Employee's performance and contribution, such
increases, if any, to be in such amounts as the Board or the Compensation
Committee shall determine is reasonable. During the term of this Agreement, the
Employee's Base Salary shall not be reduced below its then-current rate unless
the Board shall implement across-the-board salary reductions for all executive
officers of the Company, in which event the Employee's Base Salary shall not,
without his consent, be reduced to an amount which is less than the greater of
(i) $200,000 or (ii) 85% of the Base Salary in effect immediately prior to such
reduction. In addition to Base Salary, the Employee shall be entitled to
receive such incentive compensation payments as the Board or its Compensation
Committee may determine, including an annual bonus. Factors to be considered in
determining the amount of any such bonus will include the Employee's
contributions to the Company's upstream activities, the performance of Plains
All American Pipeline, L.P. and the correlation of the Employee's bonus to the
bonuses paid by PAAI to its other key employees pursuant to its annual incentive
programs.
(b) EXPENSES. During the term of his employment hereunder, the
Employee shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him (in
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<PAGE>
accordance with the policies and procedures established by the Company) in
performing services hereunder.
(c) FRINGE BENEFITS. The Employee shall be entitled to participate in
or receive benefits under any pension plan, profit-sharing plan, savings plan,
stock option plan, life insurance, health-and-accident plan or arrangement made
available by the Company to its executives and key management employees, subject
to and on a basis consistent with the terms, conditions, and overall
administration of such plans and arrangements. The Employee shall be entitled
to prompt payment or reimbursement by the Company for monthly dues and Company-
related charges at such social club or clubs as may be approved during the term
of this Agreement by the President and Chief Executive Officer of the Company or
his delegate. Except for proceeds from key-man life insurance purchased and
maintained by the Company, if applicable, for the purpose, among others, of
funding its obligations to the Employee or his estate under Section 8, nothing
paid to the Employee under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of compensation to the
Employee hereunder.
(d) WORKING FACILITIES. The Company shall furnish the Employee with a
private office, secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties.
(e) VACATIONS. The Employee shall be entitled to the number of paid
vacation days in each calendar year determined by the Company from time to time
for its senior executive officers, but not less than 15 business days in any
calendar year (prorated in any calendar year during which the Employee is
employed hereunder for less than the entire such year in accordance with the
number of days in such calendar year during which he is so employed). All such
vacation days shall accumulate from calendar year to calendar year during the
term of this contract (or any predecessor or successor contracts or
arrangements) in the event that the Employee shall be unable to utilize the full
allotment to which he may become entitled in any calendar year. The Employee
shall also be entitled to all other paid holidays given by the Company to its
senior executive officers.
5. OFFICES. In addition to his duties as set forth hereunder, the
Employee agrees to serve without additional compensation, if elected or
appointed thereto, in one or more offices or as a director of any of the
Company's subsidiaries, provided, however, that the Employee shall not be
required to serve as an officer or director of any such subsidiary if such
service would expose him to adverse financial consequences.
6. CONFIDENTIAL INFORMATION; NON-SOLICITATION. During the period of his
employment hereunder and, except as provided below, for the two-year period
following the termination of employment, the Employee shall not, without the
written consent of the Board or a person authorized thereby, (i) disclose to any
person, other than an employee of the Company or PAAI or a person to whom
disclosure is reasonably necessary or appropriate in connection with the
performance by the Employee of his duties as an executive of the Company and
PAAI, any confidential information obtained by him while in the employ of the
Company or PAAI with respect to the Company's or
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PAAI's business, including but not limited to technology, know-how, processes,
maps, geological and geophysical data, information regarding any of PAAI's or
its affiliates' pipeline terminalling and marketing customers, practices, or
operations, and other proprietary information, the disclosure of which he knows
or should know will be damaging to the Company or PAAI; provided however, that
confidential information shall not include any information known generally to
the public (other than as a result of unauthorized disclosure by the Employee),
any information of a type not otherwise considered confidential by persons
engaged in the same business or a business similar to that conducted by the
Company, or any information which the Employee may be required to disclose by
any applicable law, order, or judicial or administrative proceeding, (ii)
associate in any capacity whatsoever, whether as a promoter, owner, officer,
director, employee, partner, lessee, lessor, lender, agent, consultant, broker,
commission salesman or otherwise, in any business engaged in the marketing
business conducted by the Company or its subsidiaries of a type competitive,
directly or indirectly, with the business of the Company or its subsidiaries,
other than passive ownership of up to 5% of the outstanding shares of a publicly
traded company, or (iii) directly or indirectly, for whatever reason, whether
for his own account or for the account of any other person, firm, corporation or
other organization solicit, take away, hire, employ or endeavor to employ any
person who is an employee of the Company or any of its subsidiaries.
Notwithstanding the foregoing, if the Employee is terminated by the Company
other than for Cause prior to January 1, 2001, the noncompetition restrictions
in clause (ii) above shall terminate on the first anniversary of the Date of
Termination. If any portion of this Section 6 shall be invalid or unenforceable,
such invalidity or unenforceability shall in no way be deemed or construed to
affect in any way the enforceability of any other portion of this Section 6. If
any court in which the Company seeks to have the provision of this Section 6
specifically enforced determines that the activities, time or geographic area
hereinabove specified are too broad, such court may determine a reasonable
activity, time or geographic area.
7. TERMINATION.
(a) DEATH. The Employee's employment hereunder shall terminate upon
his death.
(b) DISABILITY. If, as a result of the Employee's incapacity due to
physical or mental illness, the Employee shall have been absent from his duties
hereunder on a full time basis for twelve consecutive months, and, within 30
days after Notice of Termination is given, shall not have returned to the
performance of his duties hereunder on a full-time basis, the Company may
terminate the Employee's employment hereunder.
(c) CAUSE. The Company may terminate the Employee's employment
hereunder for Cause. For the purpose of this Agreement, the Company shall have
"Cause" to terminate the Employee's employment hereunder only upon (i) the
willful engaging by the Employee in gross misconduct, or (ii) the nonappealable
conviction of the Employee of a felony involving moral turpitude. For purposes
of this paragraph, no act, or failure to act, on the Employee's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without
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<PAGE>
reasonable belief that his act or omission was in the best interests of the
Company or PAAI or otherwise likely to result in no material injury thereto.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of the
Board at a meeting duly called and held for the purpose (after reasonable notice
to the Employee and an opportunity for him, together with his counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
the Employee was guilty of conduct set forth above in clause (i) or (ii) and
specifying the particulars thereof in detail.
(d) TERMINATION BY THE EMPLOYEE. The Employee may terminate his
employment hereunder (i) for Good Reason, provided that a Notice of Termination
shall have been given by the Employee to the Company within 90 days following
the occurrence of the event constituting such Good Reason, (ii) if his health
should become impaired to an extent that makes the continued performance of his
duties hereunder hazardous to his physical or mental health or his life, or
(iii) at any time by giving three months' written notice to the Company of his
intention to terminate. For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following circumstances: (A) any removal of
the Employee from, or any failure to re-elect the Employee to, the positions
indicated in Section 2 hereof, except in connection with termination of the
Employee's employment either for Cause or as provided in Section 7(e), or (B) a
reduction in the Employee's rate of Base Salary other than as permitted by
Section 4(a), a material reduction in the Employee's fringe benefits, or any
other material failure by the Company to comply with Section 4 hereof, or (C)
failure of the Company to obtain the express assumption of and the agreement to
perform this Agreement by any successor as contemplated in Section 9 hereof.
Under certain circumstances set forth in Section 8, if the Employee terminates
employment on or following a Change in Control of the Company, he may be
entitled to additional benefits. A "Change in Control of the Company" shall
conclusively be deemed to have occurred (i) on the date when any person,
including any partnership, limited partnership, syndicate or other group deemed
a "person" for purposes of Section 13(d) or 14(d) of the Securities Exchange Act
of 1934, as amended, (A) becomes the beneficial owner, directly or indirectly,
of shares of the Company's capital stock having 25% or more of the total number
of votes that may be cast in the election of directors of the Company and (B)
seeks to elect or cause to be elected two or more members of the Board or
otherwise exerts or attempts to exert a controlling influence on the management
of the Company, or (ii) on the date the individuals who are Directors of the
Company on the date hereof constitute less than a majority of the Board unless
the election, or the nomination for election by the Company's stockholders, of
each new Director has been approved by a majority of the Directors still then in
office who are Directors of the Company on the date hereof; provided, however,
that a restructuring of the Company as a wholly-owned subsidiary of another
corporation in a transaction in which the owners of shares of capital stock of
the Company become the owners, in substantially identical proportions, of all or
substantially all of the shares of capital stock of such other corporation shall
not be deemed to be a "Change in Control of the Company" for purposes of the
foregoing clause (ii); and provided further that no "Change in Control of the
Company" shall be deemed to have occurred solely as a result of the issuance of
the authorized and unissued capital stock of the Company or of any parent of the
Company in connection with a financing or acquisition initiated by the Company
or such parent.
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<PAGE>
(e) DISPOSITION OF MARKETING OPERATIONS. If a Marketing Operations
Disposition (hereinafter defined) is consummated involving the Company's
principal marketing subsidiary, currently Plains Marketing & Transportation Inc.
and, effective upon the initial public offering of Common Units of Plains All
American Pipeline, L.P. ("PAAP"), PAAI (the "Principal Marketing Subsidiary"),
and an entity or person other than an entity or person of which more than 50% of
the equity interests are owned, directly or indirectly, by the Company (the
"Acquirer"), and as a condition to the Marketing Operations Disposition, the
Acquirer requires that the Employee be employed exclusively by the Acquirer or
an affiliate of the Acquirer, the Employee's termination of employment with the
Company on the date of consummation of the Marketing Operations Disposition (the
"Disposition Date") shall not entitle the Employee to any further payments or
benefits from the Company pursuant to this Agreement, provided the Acquirer
expressly assumes this Agreement pursuant to Section 9 hereof on the Disposition
Date "as if" it were a successor to the Company and all obligations of the
Company hereunder. Notwithstanding anything in this Agreement to the contrary,
a removal of the Employee from, or failure to re-elect the Employee to, the
positions indicated in Section 2 hereof on or in connection with a Marketing
Operations Disposition and the assumption of this Agreement by the Acquirer
shall not constitute a Good Reason event provided the Employee's status,
responsibilities and duties, including reporting responsibilities, with the
Acquirer and its affiliate, if applicable, are substantially comparable to those
positions indicated in Section 2. As used herein, "Marketing Operations
Disposition" shall mean (i) the sale or transfer of 50% or more of the capital
stock of the Principal Marketing Subsidiary, (ii) a merger or consolidation of
the Principal Marketing Subsidiary, (iii) the sale or transfer of all or
substantially all of the assets of the Principal Marketing Subsidiary or of
PAAP, or (iv) the Principal Marketing Subsidiary and any other 50% or more owned
entity of the Company ceasing to be the general partner of PAAP. If the
Acquirer either does not require the Employee to be employed exclusively by the
Acquirer or an affiliate of the Acquirer, or it fails to assume this Agreement
on the Disposition Date as provided above, a termination of the Employee's
employment on or within one year following the Disposition Date either by the
Company, other than pursuant to Sections 7(a), 7(b) or 7(c), or by the Employee
for a Good Reason shall be deemed a termination pursuant to this Section 7(e).
(f) NOTICE OF TERMINATION. Any termination by the Company pursuant
to subsection (b) or (c) above or by the Employee pursuant to subsection (d) or
(e) above shall be communicated by written Notice of Termination to the other
party hereto. For purposes of the Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated.
(g) DATE OF TERMINATION. The "Date of Termination" shall mean (i) if
the Employee's employment is terminated by his death, the date of his death,
(ii) if the Employee's employment is terminated pursuant to subsection (b)
above, 30 days after Notice of Termination is given (provided that the Employee
shall not have returned to the performance of his duties on a full-time basis
during such 30-day period), (iii) if the Employee's employment is terminated
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<PAGE>
pursuant to subsection (c) or (d)(iii) above, the date specified in the Notice
of Termination, (iv) if the Employee's employment is terminated pursuant to
subsection (e) above, the Disposition Date, and (v) if the Employee's employment
is terminated for any other reason, the date on which a Notice of Termination is
given.
8. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) If the Employee's employment shall be terminated by reason of his
death, the Company shall pay to such person as the Employee shall designate in a
notice filed with the Company, or, if no such person shall be designated, to his
estate as a lump sum death benefit, an amount equal to the highest annual rate
at which his Base Salary hereunder was paid prior to the date of death,
multiplied by the lesser of (i) two years or (ii) the number of days remaining
in the term of this Agreement as provided in Section 1 divided by 360 days per
year. So long as the Employee is employed hereunder, subject to availability at
a cost which does not reflect any abnormal health or other risks, the Company
may purchase and maintain insurance on the life of the Employee with death
benefits thereunder payable to the Employee's designated beneficiary or estate
which are at least equal to the death benefit provided for in the preceding
sentence. Such death benefit shall be exclusive of and in addition to any
payments the Employee's widow, beneficiaries or estate may be entitled to
receive pursuant to any pension or employee benefit plan maintained by the
Company for its executive officers generally.
(b) During any period that the Employee fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness, the
Employee shall continue to receive his full Base Salary at the rate in effect
prior to the date of such incapacity until the Date of Termination if the
Employee's employment is terminated pursuant to Section 7(b) hereof.
(c) If the Employee's employment shall be terminated for Cause as
provided in Section 7(c) hereof, the Company shall pay the Employee his full
Base Salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given and the Company shall have no further payment
obligations to the Employee under this Agreement.
(d) If the Company shall terminate the Employee's employment other
than pursuant to Sections 7(a), 7(b), 7(c) or 7(e) hereof or if the Employee
shall terminate his employment pursuant to Section 7(d)(i) or 7(d)(ii) hereof,
then
(i) the Company shall pay the Employee his full Base Salary plus any
accumulated vacation pay through the Date of Termination at the rate in effect
at the time Notice of Termination is given; and
(ii) in lieu of any further payments to the Employee for periods
subsequent to the Date of Termination, the Company shall make a severance
payment to the Employee not later than the tenth business day following the Date
of Termination, in a lump sum amount equal to the highest annual rate at which
his Base Salary hereunder was paid prior to the Date of Termination
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<PAGE>
multiplied by the lesser of (A) two years or (B) the number of days remaining in
the term of this Agreement as provided in Section 1 divided by 360 days per
year; provided, however, that if the Employee shall terminate his employment
pursuant to Section 7(d)(i) on or within one year following a Change in Control
of the Company, then such lump sum amount shall equal three times the aggregate
of (x) the highest annual rate at which the Employee's Base Salary was paid
prior to Date of Termination plus (y) the highest amount of any annual bonus
paid to the Employee during the three years prior to the Date of Termination.
The Employee shall not be required to mitigate the amount of any payment
provided for in this Section 8 by seeking other employment or otherwise.
(e) If the Employee terminates this Agreement pursuant to Section
7(d)(iii) hereof, the Employee shall receive his full Base Salary through the
Date of Termination including any accrued vacation days at the rate then in
effect and the Company shall have no further payment obligations to the Employee
under this Agreement.
(f) If the Employee's employment with the Company is terminated
pursuant to Section 7(e), then the Company shall make a severance payment to the
Employee not later than the tenth business day following the Date of Termination
in a lump sum amount equal to three times the aggregate of (x) the highest
annual rate at which the Employee's Base Salary was paid prior to Date of
Termination plus (y) the highest amount of any annual bonus paid to the Employee
during the three years prior to the Date of Termination.
(g) Unless the Employee is terminated for Cause or the Employee's
employment is terminated pursuant to Section 7(a) or 7(d)(iii) hereof, the
Employee shall be entitled to continue to participate, for a period which is the
lesser of two years from the Date of Termination or the remaining term of this
Agreement, in such health and accident plan or arrangement as is made available
by the Company to its executive officers generally. The Employee shall not be
entitled to participate in any other employee benefit plan or arrangement of the
Company following the Date of Termination except as expressly provided by the
terms of any such plan.
(h) The Company will reimburse the Employee for the federal excise
tax, if any, which is due pursuant to Section 4999 of the Internal Revenue Code
of 1986, as amended, on the compensation payments (but not this reimbursement
payment) described in this Agreement.
9. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonably satisfactory to the Employee, to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a
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breach of this Agreement and shall entitle the Employee to compensation from the
Company in the same amount and on the same terms as he would be entitled to
hereunder if he had terminated his employment for Good Reason, except that for
purposes of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid, and shall also include any
Acquirer as defined in Section 7(e), which executes and delivers the agreement
provided for in this Section 9 (or Section 7(e), if applicable) or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Employee's devisee, legatee, or other designee or, if
there be no such designee, to the Employee's estate.
10. INDEMNIFICATION. The Company shall, to the fullest extent permitted
by law, indemnify and hold harmless the Employee against any loss, liability,
claim, damage and expense, including the cost of defense, incurred in the course
of the Employee's employment hereunder. The Company's liability hereunder shall
be reduced by the amount of insurance proceeds paid to or on behalf of the
Employee with respect to an event giving rise to indemnification hereunder.
This indemnification shall survive the death or other termination of employment
of the Employee and the termination of this Agreement. Any legal fees incurred
by the Employee in the enforcement of this or any other provision of this
Agreement shall be promptly reimbursed by the Company as the same are incurred.
11. SURVIVAL. The provisions of Sections 6, 8, and 10 shall survive the
termination of employment of the Employee. In addition, all obligations of the
Company to make payments hereunder shall survive any termination of this
Agreement.
12. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
parties at their addresses set forth below, or to such other addresses as either
party may have furnished to the other in writing in accordance herewith except
that notices of change of address shall be effective only upon receipt.
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If to the Company:
Plains Resources Inc.
500 Dallas Street, Suite 700
Houston, Texas 77002
Attention: General Counsel
If to the Employee:
Harry N. Pefanis
4103 University Blvd.
Houston, Texas 77005
13. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of Texas.
14. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the parties in respect of its subject matter and supersedes all prior oral and
written agreements and understandings between the parties with respect to such
subject matter and supersedes all subsequent agreements or understandings
between the parties with respect to all employee benefit plans or arrangements
in effect on the date hereof or hereafter adopted to the extent that such plans
or arrangements conflict with the terms of this Agreement.
15. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any provision of this Agreement, which shall remain in full force and effect.
16. HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PLAINS RESOURCES INC.
By: ____________________________
Chairman of the Compensation
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Committee of the Board of Directors
HARRY N. PEFANIS
_____________________________
Employee
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EXHIBIT 10.7
CRUDE OIL MARKETING AGREEMENT
This CRUDE OIL MARKETING AGREEMENT (this "Agreement"), dated November ___,
1998, is by and between PLAINS RESOURCES INC., a Delaware corporation
("Resources"), PLAINS ILLINOIS INC., a Delaware corporation ("Plains Illinois"),
STOCKER RESOURCES, L.P., a California limited partnership ("Stocker"), CALUMET
FLORIDA, INC., a Delaware corporation ("Calumet"), and PLAINS MARKETING, L.P., a
Delaware limited partnership ("Buyer"). Resources, Plains Illinois, Stocker,
and Calumet are sometimes referred to herein individually as a "Seller" and
collectively as the "Sellers." Sellers and Buyer are sometimes referred to
herein individually as a "Party" and collectively as the "Parties."
Recitals:
A. Sellers own and produce crude oil from properties located within the
lower 48 states of the United States.
B. Sellers desire to sell and Buyer desires to purchase all of the crude
oil which is produced and owned by Sellers from such properties.
NOW, THEREFORE, the Parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Agreement" means this Agreement and all exhibits, schedules, amendments,
modifications, and supplements to this Agreement.
"Anniversary Date" has the meaning assigned in Article 3.
"Barrel" means forty-two (42) United States gallons of Crude Oil measured
in accordance with the General Provisions.
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"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the state of Texas shall not be regarded as a Business Day.
"Buyer Specified Event" has the meaning assigned in Section 8.1.
"Change of Control" has the meaning assigned in that certain Omnibus
Agreement, dated as of the Closing Date (as defined therein), among Resources,
Buyer, General Partner, Plains All American Pipeline, L.P., a Delaware limited
partnership, and All American, L.P., a Delaware limited partnership.
"Conflicts Committee" means a committee of the Board of Directors of the
General Partner composed entirely of two or more directors who are neither
shareholders, officers nor employees of the General Partner nor officers,
directors or employees of any Affiliate of the General Partner.
"Corporate Governance Documents" means, with respect to any Person, the
Certificate or Articles of Incorporation, or Partnership Agreement (or their
equivalents), the by-laws (or their equivalents), and the other corporate
governance documents of such Person.
"Crude Oil" means crude oil meeting the specifications set forth in the
General Provisions.
"Defaulting Party" means (a) in the case of a Buyer Specified Event, Buyer,
and (b) in the case of a Seller Specified Event, any Seller affected by such
Seller Specified Event.
"Delivery Point" has the meaning assigned in Section 2.3.
"Effective Date" means the date of execution of this Agreement.
"Existing Contract" has the meaning assigned in Section 2.2(g).
"Force Majeure" has the meaning assigned in Article 9.
"General Partner" means Plains All American Inc., a Delaware corporation,
and its predecessors, successors and permitted assigns as general partner of the
Buyer.
"General Provisions" has the meaning assigned in Section 2.6.
"Governmental Requirements" means all judgments, orders, writs,
injunctions, decrees, awards, laws, ordinances, statutes, regulations, rules,
franchises, permits, certificates, licenses, authorizations, and the like of any
government, or any commission, board, court, agency, instrumentality, or
political subdivision thereof.
"Marketing Area" means the lower 48 states of the United States.
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"Marketing and Administrative Fee" has the meaning assigned in Section 2.4.
"Non-defaulting Party" means (i) in the case of a Buyer Specified Event,
any Seller which is affected by such Buyer Specified Event, and (ii) in the case
of a Seller Specified Event, Buyer.
"Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.
"Platt's P+ Average" means the arithmetic average of the Platt's Prices for
P-Plus WTI during a Trading Cycle.
"Platt's Difference" means the arithmetic average for a Trading Cycle of
the difference between the Platt's Prices of the applicable grade of crude to be
exchanged (i.e. WTS, LLS, HLS, Eugene Island, Bonito, etc.) and the prompt month
WTI.
"Platt's Prices" means the average of the price range of a particular grade
of crude oil as published in the Crude Price Assessments table of Platt's
Oilgram Price Report.
"Purchase Price" has the meaning assigned in Section 2.4.
"Sales Price" has the meaning assigned in Section 2.4.
"Seller Specified Event" has the meaning assigned in Section 8.2.
"Specified Event" means a Buyer Specified Event or a Seller Specified
Event, as the case may be.
"Trading Cycle" means for a particular month of delivery, a cycle
beginning on the 26/th/ day of the second month preceding such month of delivery
through the 25/th/ day of the month preceding such month of delivery.
"Trade Location" has the meaning assigned in Section 2.4(b).
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale. Buyer hereby agrees to purchase and receive and
Sellers hereby agree to sell and deliver all of the Crude Oil produced and owned
by Sellers from properties located within the Marketing Area. Currently, such
properties are set forth on Exhibit A attached hereto and incorporated herein.
Exhibit A shall be promptly updated to add or delete, as the case may be, Crude
Oil production dedicated to this Agreement.
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2.2 Addition or Release of Properties or Sellers. Crude Oil producing
properties and Sellers shall be added or released from the terms and provisions
of this Agreement upon the occurrence of the following events:
(a) If a Person who owns Crude Oil producing properties within the
Marketing Area becomes an Affiliate of Resources, Resources shall cause such
Affiliate to become a Seller hereunder by executing and delivering a
ratification of this Agreement to Buyer as soon as practicable after the date
such Person became an Affiliate of Resources.
(b) If a Seller acquires additional Crude Oil properties within the
Marketing Area, such additional properties and the Crude Oil owned and produced
therefrom by such Seller shall become subject to this Agreement as soon as
practicable after the date of acquisition of such properties.
(c) If a Seller, other than Resources, ceases to be an Affiliate of
Resources, this Agreement shall terminate with respect to such Seller, its
properties, and the Crude Oil produced therefrom, with such termination to be
effective as soon as practicable following the date such Seller gives written
notice to Buyer that it has ceased to be an Affiliate of Resources.
(d) If a Seller sells, transfers or otherwise disposes of any of its
properties or the interests therein which are within the Marketing Area, such
properties or interests shall cease to be subject to this Agreement as soon as
practicable following the date of such sale, transfer or disposition; but in no
event shall such properties or interests cease to be subject to this Agreement
prior to the termination of any agreement Buyer has previously entered into for
the sale of Crude Oil attributable to production from such properties or
interests.
(e) If a Seller and Buyer determine that it is impracticable for Buyer
to purchase Crude Oil from any property owned by such Seller within the
Marketing Area, such Seller and Buyer may, by mutual written agreement with the
concurrence of the Conflicts Committee, terminate this Agreement with respect to
such properties. Thereafter, neither such Seller nor Buyer shall have any
further obligations under this Agreement with respect to such properties.
(f) Upon the occurrence of any of the foregoing events under
subparagraphs (a), (b), (c), (d) or (e) above, the affected Seller shall give
written notice to Buyer as soon as practicable and Exhibit A shall be revised to
reflect the effect of such event. Upon request by any Party affected by such
event, all Parties hereto shall execute and deliver to the requesting Party such
documents and instruments as may be reasonably necessary to evidence additions
or releases of Parties or properties to this Agreement.
(g) Notwithstanding the provisions of subparagraphs (a) and (b) above,
the addition of any Seller or properties to this Agreement shall be subject to
any crude oil sales contract to which such Seller or properties are bound at the
time such Seller or properties would otherwise
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become subject to this Agreement (an "Existing Contract"). Accordingly, no Crude
Oil shall be sold hereunder in contravention of an Existing Contract by such
Seller or from such properties until the Existing Contract has expired or been
terminated.
2.3 Delivery. Delivery shall be made from the lease tankage on the
properties, or such other point as is mutually agreed to and reflected on
Exhibit A (a "Delivery Point"), into transportation facilities designated by
Buyer.
2.4 Price. The price to be paid by Buyer for Crude Oil sold hereunder
(the "Purchase Price") shall be equal to the Sales Price for each Barrel as
determined in this Section 2.4, less the sum of (i) a marketing and
administrative fee of $.20 for each Barrel sold (the "Marketing and
Administrative Fee") and (ii) with respect to Crude Oil which is not sold by
Buyer at a Delivery Point, the reasonable out-of-pocket expenses (if any)
incurred by Buyer to transport or exchange each Barrel of such Crude Oil.
(a) For Crude Oil which Buyer resells at a Delivery Point, the Sales Price
shall be the price received by Buyer for each Barrel sold at the Delivery Point.
(b) For Crude Oil which Buyer either (i) transports to a location other
than a Delivery Point (a "Trade Location") or (ii) exchanges for other Crude Oil
at a Trade Location, the Sales Price shall be determined as follows:
(x) if such Crude Oil is not aggregated with other Crude Oil owned by
Buyer, the Sales Price shall be equal to the price received by Buyer
for each Barrel sold at the Trade Location; or
(y) if such Crude Oil is aggregated with other Crude Oil owned by
Buyer, the Sales Price shall be equal to the sum of (i) the posted
price received by Buyer for each Barrel sold at the Trade Location and
(ii) a premium equal to the Platt's P+ Average and plus or minus, as
applicable, the Platt's Difference at the Trade Location. If the
Platt's P+ Average or the Platt's Difference is not published, then the
price shall be the weighted average for each Barrel of Buyer's sales at
such Trade Location.
2.5 Payment. Payments by Buyer for Crude Oil purchased hereunder shall be
based on the applicable Purchase Price, the volumes delivered by Sellers, and
100% of the interest shown on Exhibit A attached hereto, less state taxes which
are withheld by Buyer. All payments shall be wired to Resources for the account
of the Sellers in accordance with written instructions from Resources. Such wire
transfers shall be made on the twentieth day of the month following the month of
actual receipt of Crude Oil; provided that, if the twentieth day of the month
falls on a Sunday or a banking holiday, payment will be made on the following
Business Day, or if the twentieth day of the month falls on a Saturday, payment
will be made on the preceding Business Day.
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2.6 General Provisions. Plains Marketing, L.P.'s General Provisions dated
November 1, 1998, is attached hereto as Exhibit B and is incorporated by
reference and made a part of this Agreement. If any conflict should arise
between the General Provisions and the information stated herein, this Agreement
shall apply.
ARTICLE 3
RENEGOTIATION
Prior to the third anniversary of this Agreement, and the end of each
successive three-year period thereafter (an "Anniversary Date"), either the
Sellers or Buyer may request, in writing, to renegotiate the Marketing and
Administrative Fee. Any such renegotiation request must be accompanied with
documentation supporting the request to either increase or decrease the
Marketing and Administrative Fee, and shall be in accordance with the following
procedures:
(a) At least 120 days prior to the applicable Anniversary Date, either the
Sellers or Buyer may request, in writing, to renegotiate the Marketing and
Administrative Fee.
(b) Sellers and Buyer shall renegotiate the Marketing and Administrative
Fee in good faith. If a revised Marketing and Administrative Fee has not been
agreed upon at least 75 days prior to the applicable Anniversary Date, then
Sellers may enter into negotiations for the sale of their Crude Oil with any
Person who is not an Affiliate of Sellers. If Sellers do not reach an agreement
with such non-affiliated Person at least 30 days prior to applicable
Anniversary Date, then this Agreement shall continue and the Marketing and
Administrative Fee shall be revised, effective the first day after the
applicable Anniversary Date, to equal the Marketing and Administrative Fee last
offered by Buyer.
(c) If Sellers are successful in reaching agreement with such non-
affiliated Person which provides for (i) a term of not less than one year nor
more than three years; (ii) a Marketing and Administrative Fee which is less
than the Marketing and Administrative Fee last offered by Buyer; and (iii)
additional services substantially similar to those provided for in Article 4
below, this Agreement shall terminate. Such termination shall be effective on
the next Anniversary Date and, thereafter, Sellers may sell their Crude Oil to
such non-affiliated Person during the term of their agreement with such Person.
Within 120 days prior to the end of the term of such other agreement, either the
Sellers or Buyer may request negotiations to resume this Agreement and to
negotiate a revised Marketing and Administrative Fee in accordance with the
procedures set forth above.
(d) Sellers' and Buyer's right to request a renegotiation of the Marketing
and Administrative Fee in order to resume this Agreement shall continue until
such time that this Agreement terminates pursuant to Article 5, or until such
time that Sellers have sold their Crude Oil production to a Person who is not an
Affiliate of Sellers for a period of five (5) consecutive years.
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Article 4
ADDITIONAL SERVICES
4.1 Additional Services. Upon request, Buyer agrees to provide Sellers
with the following services which shall be provided at no additional cost to
Sellers except for reimbursement of all reasonable out-of-pocket costs incurred
by Buyer to provide such services:
(a) Provide Sellers with (i) historical information related to
_______________ in the possession of, or accessible to, Buyer, and
(ii) Buyer's assessment of crude oil and natural gas prices to assist
Sellers in their hedging strategies and decisions.
(b) Execute hedges on behalf of, or for the benefit of, Sellers' crude oil
and natural gas production.
(c) Assist Sellers in their evaluation of potential acquisitions of oil and
gas properties.
(d) Assist Sellers in preparing information relating to their potential
disposition of any of their crude oil and natural gas properties.
(e) Market the production of their natural gas and natural gas liquids
produced in association with Sellers' crude oil production.
(f) Negotiate natural gas purchase agreements required for the operation of
Sellers' properties.
(g) Provide royalty distribution services.
4.2 SELLERS INDEMNITY. SELLERS AGREE TO RELEASE, PROTECT, DEFEND, INDEMNIFY
AND HOLD BUYER, THE GENERAL PARTNER, AND THEIR PARENTS, SUBSIDIARIES,
AFFILIATES, SUCCESSORS AND ASSIGNS, AND THEIR AGENTS, OFFICERS, DIRECTORS,
EMPLOYEES, REPRESENTATIVES AND CONTRACTORS (HEREINAFTER COLLECTIVELY REFERRED TO
AS THE "BUYER GROUP") HARMLESS FROM AND AGAINST ALL CLAIMS, LOSSES, COSTS,
DEMANDS, DAMAGES, SUITS, JUDGMENTS, PENALTIES, LIABILITIES, DEBTS, EXPENSES AND
CAUSES OF ACTION OF WHATSOEVER NATURE OR CHARACTER, INCLUDING BUT NOT LIMITED TO
REASONABLE ATTORNEY'S FEES AND OTHER COSTS AND EXPENSES, WHICH IN ANY WAY ARISE
OUT OF OR ARE RELATED TO THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, (I) THE
PERFORMANCE OR SUBJECT MATTER OF THIS AGREEMENT, (II) THE PERFORMANCE OF THE
SERVICES IN SECTION 4.1, (III) THE BREACH BY SELLERS OF ANY TERMS OF THIS
AGREEMENT, OR (IV) THE INGRESS, EGRESS OR PRESENCE ON ANY PREMISES, WHETHER
LAND, BUILDINGS, OR OTHERWISE, IN CONJUNCTION WITH THIS AGREEMENT (COLLECTIVELY,
THE "CLAIMS"), INCLUDING CLAIMS DUE TO PERSONAL INJURY, DEATH, OR LOSS OR DAMAGE
OF PROPERTY, WHETHER OR NOT CAUSED BY THE SOLE, JOINT AND/OR CONCURRENT
NEGLIGENCE, FAULT OR STRICT LIABILITY OF ANY MEMBER OF THE BUYER GROUP, BUT IN
NO EVENT DOES THIS INDEMNITY INCLUDE CLAIMS CAUSED BY THE BUYER GROUP'S OWN
GROSS NEGLIGENCE OR WILFUL MISCONDUCT.
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ARTICLE 5
TERM
The term of this Agreement shall commence on the date of this Agreement,
and unless sooner terminated as provided herein, shall continue in effect until
the earlier to occur of: (i) the time at which any Affiliate of Resources ceases
to be the general partner of Buyer, or (ii) a Change of Control of Resources.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of Sellers. Each Seller represents and
warrants to Buyer as of the date hereof that:
(a) Each Seller is a corporation or limited partnership duly organized,
validly existing, and in good standing under the laws of the state of their
respective formation, and has all requisite corporate or partnership power and
authority to execute, deliver, and perform this Agreement.
(b) The execution, delivery, and performance by each Seller of this
Agreement, and the consummation of the transactions contemplated herein, are
within its corporate or partnership power and authority and have been duly
authorized by all necessary corporate or partnership action.
(c) No authorization, consent, or approval of, or other action by, or
notice to, or filing with, any governmental authority, regulatory body, or any
other Person is required for the due authorization, execution, delivery, or
performance by any Seller of this Agreement, or the consummation of the
transactions contemplated herein, except those authorizations, consents, and
approvals which have been obtained and remain in full force and effect, and
those notices and filings which have been made and remain in full force and
effect.
(d) This Agreement has been duly executed and delivered by each Seller, and
is the legal, valid, and binding obligation of each Seller enforceable against
it in accordance with its terms, except that enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting the rights of creditors generally, and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
(e) Neither the execution, delivery, or performance by any Seller of this
Agreement, nor the consummation of the transactions contemplated herein, will
violate any provision of any Seller's Corporate Governance Documents, or any
agreement, indenture, or instrument to which any Seller is a party or by which
any of its property or assets are bound, or any provision of any existing
Governmental Requirement.
6.2 Representations and Warranties of Buyer. Buyer represents and
warrants to Sellers as of the date hereof that:
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(a) Buyer is a limited partnership duly organized, validly existing, and in
good standing under the laws of the state of Delaware, and has all requisite
power and authority to execute, deliver, and perform this Agreement.
(b) The execution, delivery, and performance by Buyer of this Agreement,
and the consummation of the transactions contemplated herein, are within Buyer's
partnership power and authority and have been duly authorized by all necessary
partnership action.
(c) No authorization, consent, or approval of, or other action by, or
notice to, or filing with, any governmental authority, regulatory body, or any
other Person is required for the due authorization, execution, delivery, or
performance by Buyer of this Agreement, or the consummation of the transactions
contemplated by this Agreement, except those authorizations, consents, and
approvals which have been obtained and remain in full force and effect, and
those notices and filings which have been made and remain in full force and
effect.
(d) This Agreement has been duly executed and delivered by Buyer, and is
the legal, valid, and binding obligation of Buyer enforceable against Buyer in
accordance with its terms, except that enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium, or other similar
laws affecting the rights of creditors generally, and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law).
(e) Neither the execution, delivery, or performance by Buyer of
this Agreement, nor the consummation of the transactions contemplated hereby,
will violate any provision of Buyer's Corporate Governance Documents, or any
agreement, indenture, or instrument to which Buyer is a party or by which any of
its property or assets are bound, or any provision of any existing Governmental
Requirement.
ARTICLE 7
CREDIT REQUIREMENTS
Purchases made by Buyer hereunder shall be on open account provided that:
(a) Buyer or its Affiliates are not in default in the payment when due of
any of its indebtedness in excess of $2,500,000 in the aggregate; and
(b) Buyer's sales of Crude Oil hereunder are in accordance with the credit
policies set forth by Resources' chief financial officer.
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ARTICLE 8
SPECIFIED EVENTS
8.1 Buyer Specified Events. Each of the following shall constitute a
Buyer Specified Event for all purposes of this Agreement:
(a) any amount due hereunder for the purchase of Crude Oil shall not be
paid in full when due and Buyer does not cause the cure of such failure on or
before the fifteenth (15th) Business Day after notice from a Seller of such
failure is received by Buyer;
(b) Buyer fails to receive and purchase Crude Oil production dedicated to
this Agreement for reasons other than Force Majeure or any action or inaction of
a Seller, and such failure is not remedied on or before the earlier of the
thirtieth (30th) day after (i) any officer of the General Partner becomes aware
of such failure or (ii) a Seller has given written notice of such failure to
Buyer;
(c) any representation and warranty made in Section 6.2 shall prove to have
been incorrect in any material respect when made, and (i) such default or breach
shall continue unremedied for a period of thirty (30) days after the earlier of
(x) any officer of the General Partner becomes aware of such default or (y) a
Seller has given written notice of such default to Buyer, and (ii) a Seller
reasonably determines that the continuation of such default or breach may
materially and adversely affect Buyer's ability to satisfy its obligations
hereunder;
(d) Buyer and Sellers fail to agree upon a revised Marketing and
Administrative Fee as provided in Article 3;
(e) Buyer (i) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (ii) becomes insolvent or is unable to pay its debts or
fails or admits in writing its inability generally to pay its debts as they
become due; (iii) makes a general assignment, arrangement or composition with or
for the benefit of its creditors; (iv) institutes or has instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or any other relief
under any bankruptcy or insolvency law or other similar law affecting creditors'
rights, or a petition is presented for its winding-up or liquidation, and, in
the case of any such proceeding or petition instituted or presented against it,
such proceeding or petition (A) results in a judgment or insolvency or
bankruptcy or the entry of an order for relief or the making of an order for its
winding-up or liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within thirty (30) days of the institution or
presentation thereof, (v) has a resolution passed for its winding-up or
liquidation (other than pursuant to a consolidation, amalgamation or merger);
(vi) seeks or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee, custodian or other
similar official for it, or for all or substantially all its assets; (vii) has a
secured party take possession of all or substantially all of its assets or has
an execution, attachment, sequestration or other legal process levied, enforced
or sued on or against all or substantially all of its assets and such secured
party maintains possession or any such process is not dismissed, discharged,
stayed or restrained in each case within thirty (30) days thereafter; (viii)
causes or is subject to any event with respect to it which, under the applicable
laws of any jurisdiction, has an analogous effect to any of the events specified
in clauses (i) to (vii) (inclusive); or (ix) takes any action in furtherance of,
or indicating its consent
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to, approval of, or acquiescence in, any of the foregoing acts.
8.2 Seller Specified Events. Each of the following shall constitute a
Seller Specified Event for all purposes of this Agreement:
(a) A Seller shall fail to deliver Crude Oil production subject to this
Agreement and such failure is not remedied by such Seller on or before the
fifteenth (15th) Business Day after notice from Buyer of such failure is
received by the Seller;
(b) Any representation and warranty made in Section 6.1 shall prove to have
been incorrect in any material respect when made, and (i) such default or breach
shall continue unremedied for a period of thirty (30) days after the earlier of
(x) any officer of a Seller becomes aware of such default or (y) Buyer has given
written notice of such default to a Seller, and (ii) Buyer reasonably determines
that the continuation of such default or breach may materially adversely affect
Seller's ability to satisfy its obligations hereunder;
(c) A Seller (i) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (ii) becomes insolvent or is unable to pay its debts or
fails or admits in writing its inability generally to pay its debts as they
become due; (iii) makes a general assignment, arrangement or composition with or
for the benefit of its creditors; (iv) institutes or has instituted against it a
proceeding seeking a judgment of insolvency or bankruptcy or any other relief
under any bankruptcy or insolvency law or other similar law affecting creditors'
rights, or a petition is presented for its winding-up or liquidation, and, in
the case of any such proceeding or petition instituted or presented against it,
such proceeding or petition (A) results in a judgment or insolvency or
bankruptcy or the entry of an order for relief or the making of an order for its
winding-up or liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within thirty (30) days of the institution or
presentation thereof, (v) has a resolution passed for its winding-up or
liquidation (other than pursuant to a consolidation, amalgamation or merger);
(vi) seeks or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, trustee, custodian or other
similar official for it or for all or substantially all its assets; (vii) has a
secured party take possession of all or substantially all of its assets or has
an execution, attachment, sequestration or other legal process levied, enforced
or sued on or against all or substantially all its assets and such secured party
maintains possession, or any such process is not dismissed, discharged, stayed
or restrained, in each case within thirty (30) days thereafter; (viii) causes or
is subject to any event with respect to it which, under the applicable laws of
any jurisdiction, had an analogous effect to any of the events specified in
clauses (i) to (vii) (inclusive); or (ix) takes any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the foregoing
acts;
(d) Sellers and Buyer fail to agree upon a revised Marketing and
Administrative Fee as provided in Article 3.
8.3 Early Termination. If any Specified Event shall have occurred and be
continuing, then the Non-defaulting Party may by notice to the Defaulting Party
designate a date (which date
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shall not be earlier than 60 days after receipt of such notice) on which this
Agreement shall terminate as between the Non-defaulting Party and the Defaulting
Party, and this Agreement shall terminate as between the Non-defaulting Party
and the Defaulting Party on such designated date whether or not such Specified
Event is then continuing; provided that the provisions of Section 8.4 shall
survive such termination.
8.4 Specified Damages. The Defaulting Party shall pay all damages and
expenses incurred by the Non-defaulting Party as a result of the termination of
this Agreement under Section 8.3 arising out of or in connection with any
collection, bankruptcy, insolvency, or other enforcement proceedings resulting
from the occurrence of the Specified Event giving rise to such termination.
Payment of such damages and expenses shall be the Defaulting Party's only
liability, and the Non-defaulting Party's sole remedy and exclusive claim, as a
result of the Specified Event and the resulting termination of this Agreement
under Section 8.3 as between the Non-defaulting Party and the Defaulting Party.
ARTICLE 9
FORCE MAJEURE
9.1 Excuse for Nonperformance. Subject to the other provisions of this
Agreement, the obligations of a Party under this Agreement (including the
obligation of Sellers to deliver Crude Oil), except the obligation to pay money
to the other Party, may be suspended for a reasonable period as a result of an
event of Force Majeure, to the extent that nonperformance is caused by Force
Majeure, and the affected Party shall be relieved of liability for failing to
perform from the inception of such event and during the continuance thereof and
the time of any such suspension of obligations shall be added to the term of
this Agreement.
9.2 Definition. An event of "Force Majeure" means war, riots,
insurrections, fire, explosions, sabotage, strikes, and other labor or
industrial disturbances, acts of God or the elements, Governmental Requirements,
disruption or breakdown of production or transportation facilities, delays of
pipeline carrier in receiving and delivering crude oil tendered, or any other
cause, whether similar or not, reasonably beyond the control of the affected
Party.
9.3 Notice and Cure. A Party affected by Force Majeure shall, as a
condition to invoking Force Majeure as an excuse for nonperformance under this
Agreement, promptly give notice of the occurrence of Force Majeure to the other
Party, with reasonably detailed information about the event of Force Majeure and
the effect it has had, and is anticipated to have, on the performance of the
invoking Party, and shall confirm such notice of Force Majeure and its
consequences in writing no later than two (2) Business Days after the occurrence
of such event of Force Majeure. The invoking Party shall exercise due diligence
in good faith to remedy the Force Majeure and resume full performance under this
Agreement as soon as reasonably practicable.
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<PAGE>
ARTICLE 10
GENERAL PROVISIONS
10.1 No Survival of Representations and Warranties. Notwithstanding
anything to the contrary herein, all representations and warranties provided by
Sellers and Buyer in Article 6 shall not survive the termination of this
Agreement.
10.2 Headings. The headings, captions, and arrangements contained in this
Agreement have been inserted for convenience only and shall not be deemed in any
manner to modify, explain, enlarge, or restrict any of the provisions hereof.
10.3 Rights and Remedies Cumulative. Except as provided in Section 8.4,
the rights and remedies of each of the Parties under this Agreement shall be
cumulative and non-exclusive of any other rights or remedies which each Party
may have under any other agreement or instrument, by operation of law, or
otherwise.
10.4 Entire Agreement; Supersedure. This Agreement constitutes the entire
agreement of the parties relating to the matters contained herein, superseding
all prior contracts or agreements, whether oral or written, relating to the
matters contained herein.
10.5 Severability. If any provision of this Agreement or the application
thereof to any Person or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected thereby and
shall be enforced to the greatest extent permitted by law.
10.6 Choice of Law; Submission to Jurisdiction. This Agreement shall be
subject to and governed by the laws of the State of Texas, excluding any
conflicts-of-law rule or principle that might refer the construction or
interpretation of this Agreement to the laws of another state. Each party
hereby submits to the jurisdiction of the state and federal courts in the State
of Texas and to venue in Houston, Harris County, Texas.
10.7 Binding Agreement. This Agreement is entered into for the benefit of
the Parties and their permitted successors and assigns. It shall be binding
upon and shall inure to the benefit of such Parties and their successors and
assigns.
10.8 No Agency. Except as otherwise provided in this Agreement, nothing
herein shall serve to create any agency, employment, master and servant
relationship, partnership, or joint venture between Sellers and Buyer, their
Affiliates, or any officer, director, employee or agent thereof.
10.9 Notice. All notices or requests or consents provided for or permitted
to be given pursuant to this Agreement must be in writing and must be given by
depositing same in the United States mail, addressed to the Person to be
notified, postpaid, and registered or certified with return
13
<PAGE>
receipt requested or by delivering such notice in person or by telecopier or
telegram to such party. Notice given by personal delivery or mail shall be
effective upon actual receipt. Notice given by telegram or telecopier shall be
effective upon actual receipt if received during the recipient's normal business
hours, or at the beginning of the recipient's next business day after receipt if
not received during the recipient's normal business hours. All notices to be
sent to a party pursuant to this Agreement shall be sent to or made at the
address set forth below, or at such other address as such party may stipulate to
the other parties in the manner provided in this Section 10.9.
If to Buyer: If to Sellers:
Plains Marketing, L.P. Plains Resources Inc.
500 Dallas, Suite 700 500 Dallas, Suite 700
Houston, Texas 77002 Houston, Texas 77002
Attention: President of Attention: President
Plains All American Inc.
10.10 Effect of Waiver or Consent. No waiver or consent, express or
implied, by any party to or of any breach or default by any Person in the
performance by such Person of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such Person of the same or any other obligations of such Person
hereunder. Failure on the part of a party to complain of any act of any Person
or to declare any Person in default, irrespective of how long such failure
continues, shall not constitute a waiver by such party of its rights hereunder
until the applicable statute of limitations period has run.
10.11 Assignment. No party shall have the right to assign its rights
or obligations under this Agreement without the consent of the other parties
hereto.
10.12 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all signatory parties had signed the
same document. All counterparts shall be construed together and shall
constitute one and the same instrument.
10.13 Amendment or Modification. This Agreement may be amended or
modified from time to time only by the written agreement of all the parties
hereto. Each such instrument shall be reduced to writing and shall be
designated on its face an "Amendment" or an "Addendum" to this Agreement.
10.14 Further Assurances. In connection with this Agreement and all
transactions contemplated by this Agreement, each signatory party hereto agrees
to execute and deliver such additional documents and instruments and to perform
such additional acts as may be necessary or appropriate to effectuate, carry out
and perform all of the terms, provisions and conditions of this Agreement and
all such transactions.
10.15 Withholding or Granting of Consent. Each party may, with respect
to any consent
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<PAGE>
or approval that it is entitled to grant pursuant to this Agreement, grant or
withhold such consent or approval in its sole and uncontrolled discretion, with
or without cause, and subject to such conditions as it shall deem appropriate.
10.16 U.S. Currency. All sums and amounts payable to or to be payable
pursuant to the provisions of this Agreement shall be payable in coin or
currency of the United States of America that, at the time of payment, is legal
tender for the payment of public and private debts in the United States of
America.
10.17 Laws and Regulations. Notwithstanding any provision of this
Agreement to the contrary, no party hereto shall be required to take any act, or
fail to take any act, under this Agreement if the effect thereof would be to
cause such party to be in violation of any applicable law, statute, rule or
regulation.
10.18 Construction of Agreement. In construing this Agreement:
(a) no consideration shall be given to the fact or presumption that
one Party had a greater or lesser hand in drafting this Agreement;
(b) examples shall not be construed to limit, expressly or by
implication, the matter they illustrate;
(c) the word "includes" and its derivatives means "includes, but is
not limited to" and corresponding derivative expressions;
(d) a defined term has its defined meaning throughout this
Agreement, regardless of whether it appears before or after the place
where it is defined;
(e) the plural shall be deemed to include the singular, and vice
versa;
(f) each gender shall be deemed to include the other genders;
(g) each reference to an article, section, or subsection refers to
an article, section, or subsection of this Agreement unless expressly
otherwise provided; and
(h) all references to a party shall include all successors and
permitted assigns of such party.
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<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
and year first above written.
BUYER:
PLAINS MARKETING, L.P.
By: Plains All American Inc.,
its General Partner
By: __________________________________
Name: __________________________________
Title: __________________________________
SELLERS:
PLAINS RESOURCES INC.
By: __________________________________
Name: __________________________________
Title: __________________________________
PLAINS ILLINOIS, INC.
By: __________________________________
Name: __________________________________
Title: __________________________________
STOCKER RESOURCES, L.P.
By: Stocker Resources, Inc., its General Partner
By: __________________________________
Name: __________________________________
Title: __________________________________
CALUMET FLORIDA, INC.
By: __________________________________
Name: __________________________________
Title: __________________________________
16
<PAGE>
EXHIBIT A
Sellers' Crude Oil Producing Properties
Within Marketing Area
<TABLE>
<CAPTION>
Seller Field State Delivery Point
- ------ ----- ----- --------------
<S> <C> <C> <C>
Stocker Resources, L.P. Inglewood (including San California Lease Tankage
Vicente at Packard drillsites)
Montebello California Lease Tankage
Arroyo Grande California Lease Tankage
Plains Illinois, Inc. Elnora Indiana Lease Tankage
Lawrence Illinois Lease Tankage
St. James Illinois Lease Tankage
West Kenner Illinois Lease Tankage
Calumet Florida, Inc. Racoon Point Florida Coastal Fuels
Sunniland (all fields) Terminal at Point
Bear Island Everglades
South Bear Island (all fields)
Sunoco
West Felda
</TABLE>
17
<PAGE>
EXHIBIT B
PLAINS OPERATING, L.P.
GENERAL PROVISIONS
November 1, 1998
SPECIFIC TERMS: The General Provisions set forth herein are incorporated by
reference and made a part of that certain Crude Oil Marketing Agreement dated
November __, 1998, by and among Buyer and Sellers (the "Agreement"). In the
event there is any inconsistency between these General Provisions and the
Agreement, the Agreement shall prevail. All capitalized terms not otherwise
defined in this Exhibit B shall have the meaning set forth for them in the
Agreement.
WARRANTY/INDEMNIFICATION: The Sellers warrant good title to or the right to
sell all Crude Oil delivered pursuant to the Agreement and warrant that such
shall be free from all royalties, liens, encumbrances, and all applicable
foreign, federal, state and local taxes that are imposed upon the production
and/or removal of Crude Oil from the premises through the Delivery Point.
Sellers also warrant that such Crude Oil has been produced, handled and
transported to the Delivery Point in accordance with all applicable laws, rules
and regulations of all local, state and federal authorities. Sellers further
warrant that all Crude Oil will be merchantable. Sellers further agree to
indemnify, defend and hold harmless Buyer, the General Partner, and their
parents, subsidiaries, Affiliates, successors and assigns, and their agents,
officers, directors, employees, representatives and contractors from and against
all loss, costs, damages or expenses of any nature by or on account of Buyer,
the General Partner, or their parents, subsidiaries, Affiliates, successors and
assigns, and their agents, officers, directors, employees, representatives or
contractors having made (i) 100% payment to Sellers or (ii) payment to interest
owners on behalf of Sellers based on information provided by Sellers.
TAXES: Sellers shall be responsible for all production, severance and other
related taxes incurred prior to delivery, provided that Buyer is hereby
authorized to withhold such taxes from payments to Sellers and remit such taxes
to the proper regulatory authority. Buyer shall be responsible for the payment
of any and all taxes now in effect or hereafter imposed on the Crude Oil after
the Delivery Point.
TITLE AND RISK OF LOSS: Title to, possession of and risk of loss of Crude Oil
shall pass to the Buyer as the Crude Oil passes from equipment owned or
controlled by the Sellers, or owned or controlled by a party designated to make
delivery on behalf of the Sellers, into equipment owned or controlled by Buyer,
or owned or controlled by a party designated to take delivery on behalf of
Buyer. Provided, however, that in cases of in line transfers, title to,
possession of and risk of loss of Crude Oil shall pass to Buyer as the Crude Oil
is deemed transferred. Such shall be deemed transferred to Buyer upon
completion of each in line transfer with quantity determined, when available, in
accordance with the transfer statement or other receipt issued by the carrier or
storage facility.
EQUAL DELIVERIES: For purposes of determining price, Crude Oil delivered during
any given month hereunder shall be deemed to have been delivered in equal daily
quantities during such month except as follows: Deliveries of Crude Oil at
lease locations based on meter tickets shall be deemed
18
<PAGE>
to have been delivered in equal daily quantities during the period covered by
the meter ticket and deliveries of Crude Oil at lease locations based on run
tickets, shall be deemed to have been delivered on the date recorded on each run
ticket issued by the designated carrier.
MEASUREMENTS AND TESTS: All measurements hereunder shall represent one hundred
percent (100%) volume with such volume and gravity adjusted to sixty degrees
(60) Fahrenheit temperature. Procedures for measuring and testing, except for
deliveries through positive displacement-type liquid meters, shall be according
to latest ASTM published methods then in effect. Procedures for such metered-
type delivery shall be according to the latest ASME-API published methods then
in effect. The Crude Oil delivered hereunder shall be merchantable and
acceptable to the carriers involved and full deduction shall be made for all
BS&W content according to the latest ASTM standard method then in effect. Any
Party shall have the right to have a representative present to witness all
gauges, tests and measurements; however, should any Party hereto fail to have a
representative present during such measuring and testing, the measurements and
tests of the other Party will be accepted.
CONFIRMATION OF DELIVERY: Confirmation of delivery shall be based on run
tickets evidencing such delivery or allocation statements issued by the carriers
involved.
DIVISION ORDERS: In the event any Party signs a division order in favor of the
other Party pertaining to the object of the Agreement, terms of the Agreement
shall supersede the terms of such division order to the extent that there may be
a conflict between the two.
DISPUTE-WITHHOLDING OF FUNDS: If a suit is filed that affects the interest of a
Seller, written notice shall be given to Buyer by such Seller together with a
copy of the complaint or petition filed. In the event of a claim or dispute that
affects title to the division interest credited to such Seller, Buyer is
authorized to withhold payments accruing to such interest, without interest
unless otherwise required by applicable statute, until the claim of dispute is
settled.
NOTICES: Sellers agree to notify Buyer in writing of any change of Payee,
including changes of interest contingent on payment of money or expiration of
time. No change is binding on Buyer until the recorded copy of the instrument
of change or documents satisfactorily evidencing such change are furnished to
Buyer at the time the change occurs. Any change shall be made effective on the
first day of the month following receipt of such notice by Buyer.
SET-OFF: In the event any Party shall fail to make timely delivery of any Crude
Oil, or other applicable products due and owing to the other Party, or in the
event any Party shall fail to make timely payment of any monies due and owing to
the other Party, the other Party may offset any deliveries or payments due under
this or any other agreement between the parties.
AUDIT: Any Party and their duly authorized representatives shall have access to
the accounting records and other documents maintained by the other Party which
relate to the Agreement, and shall have the right to audit such records at any
reasonable time or times within twenty-four (24) months of the date a statement
is rendered.
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<PAGE>
EXHIBIT 10.8
================================================================================
OMNIBUS AGREEMENT
among
PLAINS RESOURCES INC.
PLAINS ALL AMERICAN PIPELINE, L.P.
PLAINS MARKETING, L.P.
ALL AMERICAN, L.P.
and
PLAINS ALL AMERICAN INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Definitions................................................................... 1
1.1 Definitions............................................................... 1
ARTICLE II
Business Opportunities........................................................ 4
2.1 Restricted Businesses..................................................... 4
2.2 Permitted Exceptions...................................................... 4
2.3 Procedures................................................................ 4
2.4 Termination............................................................... 6
2.5 Scope of Restricted Business Prohibition.................................. 6
2.6 Enforcement............................................................... 6
ARTICLE III
Indemnification............................................................... 7
3.1 Wingfoot Indemnification.................................................. 7
3.2 Plains Resources Indemnification.......................................... 7
3.3 Limitations Regarding Indemnification..................................... 8
3.4 Indemnification Procedures................................................ 8
ARTICLE IV
Miscellaneous................................................................. 9
4.1 Choice of Law; Submission to Jurisdiction................................. 9
4.2 Notice.................................................................... 9
4.3 Entire Agreement; Supersedure............................................. 9
4.4 Effect of Waiver or Consent............................................... 9
4.5 Amendment or Modification................................................. 9
4.6 Assignment................................................................ 10
4.7 Counterparts.............................................................. 10
4.8 Severability.............................................................. 10
4.9 Gender, Parts, Articles and Sections...................................... 10
4.10 Further Assurances....................................................... 10
4.11 Withholding or Granting of Consent....................................... 10
4.12 U.S. Currency............................................................ 10
4.13 Laws and Regulations..................................................... 10
4.14 Negotiation of Rights of Limited Partners, Assignees, and Third Parties.. 10
</TABLE>
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<PAGE>
OMNIBUS AGREEMENT
THIS OMNIBUS AGREEMENT is entered into on, and effective as of, the Closing
Date among Plains Resources Inc., a Delaware corporation ("Plains Resources"),
Plains All American Pipeline, L.P., a Delaware limited partnership (the "MLP"),
Plains All American Inc., a Delaware corporation ("PAAI"), Plains Marketing,
L.P., a Delaware limited partnership ("Operating OLP"), and All American, L.P.,
a Delaware limited partnership ("All American OLP" and, together with Operating
OLP, the "OLPs").
R E C I T A L S:
1. Plains Resources, the MLP, the OLPs and PAAI, in its capacity as the
general partner of the MLP and the OLPs, desire by their execution of this
Agreement to evidence their understanding, as more fully set forth in Article II
of this Agreement, with respect to (a) those business opportunities that Plains
Resources will not avail itself of during the Applicable Period unless each of
the MLP and the OLPs has declined to engage in such business opportunity for its
own account and (b) the procedures whereby such business opportunities are to be
offered to the MLP and the OLPs and accepted or declined.
2. Plains Resources, PAAI, the MLP and the OLPs desire by their execution
of this Agreement to evidence their understanding, as more fully set forth in
Article III of this Agreement, with respect to certain indemnification
obligations of Plains Resources and PAAI in favor of the MLP and the OLPs.
In consideration of the premises and the covenants, conditions, and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. (a) Capitalized terms used herein but not defined
shall have the meanings given them in the MLP Agreement.
(b) As used in this Agreement, the following terms shall have the
respective meanings set forth below:
"Affiliate" shall have the meaning attributed to such term in the MLP
Agreement.
"Agreement" shall mean this Omnibus Agreement, as it may be amended,
modified, or supplemented from time to time.
<PAGE>
"Applicable Period" shall mean the period commencing on the Closing
Date and terminating on the date on which PAAI (or any Affiliate of Plains
Resources) ceases to be the general partner of the MLP and the OLPs.
"Change of Control" shall have the meaning attributed to such term in
Section 2.4.
"Closing Date" shall mean the date of the closing of the initial
public offering of common units representing limited partner interests in
the MLP.
"Conflicts Committee" shall have the meaning attributed to such term
in the MLP Agreement.
"Conveyance and Contribution Agreement" shall have the meaning
attributed to such term in the MLP Agreement.
"Environmental Laws" shall mean any federal, state or local law, rule,
regulation, or enforceable order, as in effect as of the date of this
Agreement, that regulates or imposes liability with respect to the health,
environment, ecology, or work place.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"General Partner" shall mean PAAI and its successors as general
partner of the MLP and the OLPs, unless the context otherwise requires.
"Hazardous Materials" shall mean those materials in any way regulated
by any Environmental Law.
"Losses" shall have the meaning attributed to such term in Section
2.3.
"Marketing Agreement" shall mean that Crude Oil Marketing Agreement
dated as of the date hereof among Plains Resources, Plains Illinois Inc.,
Stocker Resources, L.P., Calumet Florida, Inc. and Operating OLP.
"MLP Agreement" shall mean the Amended and Restated Agreement of
Limited Partnership of the MLP, dated as of the Closing Date, as such
agreement is in effect on the Closing Date, to which reference is hereby
made for all purposes of this Agreement. No amendment or modification to
the MLP Agreement subsequent to the Closing Date shall be given effect for
the purposes of this Agreement unless consented to by each of the parties
to this Agreement.
"NonAffiliate Purchaser" shall have the meaning attributed to such
term in Section 2.3.
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<PAGE>
"Offer" shall have the meaning attributed to such term in Section 2.3.
"Partnership Entities" shall mean the General Partner, the MLP, the
OLPs and any Affiliate controlled by the General Partner, the MLP or the
OLPs.
"Partnership Group" shall mean the MLP, the OLPs and any subsidiary of
any such entities.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, limited liability company, unincorporated organization or
any other entity.
"Plains Entities" shall mean Plains Resources and any of its
Affiliates, other than the Partnership Entities.
"Plains Facility" shall mean any storage or terminalling facility or
gathering line or system constituting part of the Plains Real Property.
"Plains Leased Property" shall mean all of the real and personal
properties leased by Plains Resources or the Plains Midstream Subsidiaries,
including rights-of-way, which leases were conveyed or assigned to the OLPs
by the Conveyance and Contribution Agreement.
"Plains Midstream Subsidiaries" shall mean Plains Marketing &
Transportation Inc., a Delaware corporation, Plains Terminal & Transfer
Corporation, a Delaware corporation, PLX Crude Lines Inc., a Delaware
corporation, and PLX Ingleside Inc., a Delaware corporation, each a wholly-
owned subsidiary of Plains Resources prior to their merger into Plains
Resources as of the date hereof.
"Plains Real Property" shall mean all of the real properties,
including the land, improvements and buildings located thereon, owned in
fee simple by Plains Resources or the Plains Midstream Subsidiaries, which
properties were conveyed to the OLPs by the Conveyance and Contribution
Agreement.
"Restricted Business" shall have the meaning attributed to such term
in Section 2.1.
"Second Offer" shall have the meaning attributed to such term in
Section 2.3.
"Voting Stock" means securities of any class of Plains Resources
entitling the holders thereof to vote on a regular basis in the election of
members of the board of directors of Plains Resources.
"Wingfoot" shall have the meaning attributed to such term in Section
3.1.
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<PAGE>
"Wingfoot Agreement" shall have the meaning attributed to such term in
Section 3.1.
ARTICLE II
BUSINESS OPPORTUNITIES
2.1 RESTRICTED BUSINESSES. During the Applicable Period, each of the
Plains Entities shall be prohibited from engaging in or acquiring any business
engaged in the following activities (a "Restricted Business"): (a) crude oil
storage, terminalling and gathering activities in any state in the United
States, except for Alaska and Hawaii, for any Person other than a Plains Entity
or Partnership Entity, (b) crude oil marketing activities, and (c)
transportation of crude oil by pipeline in any state in the United States,
except for Alaska and Hawaii, for any Person other than a Plains Entity. A
Restricted Business shall not include any activities required to be performed by
a Plains Entity as the operator pursuant to any operating agreement entered into
by such Plains Entity with respect to oil and gas properties owned jointly with
other Persons.
2.2 PERMITTED EXCEPTIONS. Notwithstanding any provision of Section 2.1
to the contrary, a Plains Entity may engage in a Restricted Business under the
following circumstances:
(a) The Restricted Business was engaged in by the Plains Entity on the
date of this Agreement.
(b) The Restricted Business is conducted pursuant to and in accordance
with the terms of the Marketing Agreement or any other arrangement entered into
with the MLP or either of the OLPs with the concurrence of the Conflicts
Committee.
(c) The value of the assets acquired in a transaction that comprise a
Restricted Business does not exceed $10 million, as determined by the Board of
Directors of Plains Resources.
(d) (i) The value of the assets acquired in a transaction that
comprise a Restricted Business exceed $10 million, as determined by the Board of
Directors of Plains Resources and (ii) the General Partner (with the approval of
the Conflicts Committee) has elected not to cause a member of the Partnership
Group to pursue such opportunity in accordance with the procedures set forth in
Section 2.3.
2.3 PROCEDURES. In the event that a Plains Entity acquires a Restricted
Business comprised of assets valued in excess of $10 million, as determined by
the Board of Directors of Plains Resources, then not later than 30 days after
the consummation of the acquisition by such Plains Entity of the Restricted
Business, such Plains Entity shall notify the General Partner of such purchase
and offer the Partnership the opportunity to purchase such Restricted Business.
As soon as practicable, but in any event, within 30 days after receipt of such
notification, the General Partner shall notify the Plains Entity that either (i)
the General Partner has elected, with the approval of the Conflicts Committee,
not to cause a member of the Partnership Group to purchase such Restricted
-4-
<PAGE>
Business, in which event the Plains Entity shall be free to continue to engage
in such Restricted Business, or (ii) the General Partner has elected to cause a
member of the Partnership Group to purchase such Restricted Business, in which
event the following procedures shall be followed:
(a) The Plains Entity shall submit a good faith offer to the General
Partner to sell the Restricted Business (the "Offer") to any member of the
Partnership Group on the terms and for the consideration stated in the Offer.
(b) The Plains Entity and the General Partner shall negotiate in good
faith, for 60 days after receipt of such Offer by the General Partner, the terms
on which the Restricted Business will be sold to a member of the Partnership
Group. The Plains Entity shall provide all information concerning the business,
operations and finances of such Restricted Business as may be reasonably
requested by the General Partner.
(i) If the Plains Entity and the General Partner agree on such terms
within 60 days after receipt by the General Partner of the Offer, a member
of the Partnership Group shall purchase the Restricted Business on such
terms as soon as commercially practicable after such agreement has been
reached.
(ii) If the Plains Entity and the General Partner are unable to agree
on the terms of a sale during such 60-day period, the Plains Entity shall
attempt to sell the Restricted Business to a Person that is not an
Affiliate of the Plains Entity (a "NonAffiliate Purchaser") within nine
months of the termination of such 60-day period. Any such sale to a
NonAffiliate Purchaser must be for a purchase price, as determined by the
Board of Directors of Plains Resources, not less than 95% of the purchase
price last offered by a member of the Partnership Group.
(c) If, after the expiration of such nine-month period, the Plains
Entity has not sold the Restricted Business to a NonAffiliate Purchaser, it
shall submit another Offer (the "Second Offer") to the General Partner within
seven days after the expiration of such nine-month period. The Plains Entity
shall provide all information concerning the business, operations and finances
of such Restricted Business as may be reasonably requested by the General
Partner.
(i) If the General Partner, with the concurrence of the Conflicts
Committee, elects not to cause a member of the Partnership Group to pursue
the Second Offer, the Plains Entity shall be free to continue to engage in
such Restricted Business.
(ii) If the General Partner shall elect to cause a member of the
Partnership Group to purchase such Restricted Business, then the General
Partner and the Plains Entity shall negotiate the terms of such purchase
for 60 days. If the Plains Entity and the General Partner agree on such
terms within 60 days after receipt by the General Partner of the Second
Offer, a member of the Partnership Group shall purchase the Restricted
Business on such terms as soon as commercially practicable after such
agreement has been reached.
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<PAGE>
(iii) If during such 60-day period, no agreement has been reached
between the Plains Entity and the General Partner or a member of the
Partnership, the Plains Entity and the General Partner will engage an
independent investment banking firm with a national reputation to determine
the value of the Restricted Business. Such investment banking firm will
determine the value of the Restricted Business within 30 days and furnish
the Plains Entity and the General Partner its opinion of such value. The
Plains Entity will pay the fees and expenses of such investment banking
firm. Upon receipt of such opinion, the General Partner will have the
option, subject to the approval of the Conflicts Committee, to (A) cause a
member of the Partnership Group to purchase the Restricted Business for an
amount equal to the value determined by such investment banking firm or (B)
decline to purchase such Restricted Business, in which event the Plains
Entity will be free to continue to engage in such Restricted Business.
2.4 TERMINATION. The provisions of this Article II may be terminated by
Plains Resources upon a "Change of Control" of Plains Resources. A Change of
Control of Plains Resources shall be deemed to have occurred upon the occurrence
of one or more of the following events: (i) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Plains Entities to any Person and its
Affiliates unless immediately following such sale, lease, exchange or other
transfer such assets are owned, directly or indirectly, by the Plains Entities;
(ii) the consolidation or merger of Plains Resources with or into another Person
pursuant to a transaction in which the outstanding Voting Stock of Plains
Resources is changed into or exchanged for cash, securities or other property,
other than any such transaction where (a) the outstanding Voting Stock of Plains
Resources is changed into or exchanged for Voting Stock of the surviving
corporation or its parent and (b) the holders of the Voting Stock of Plains
Resources immediately prior to such transaction own, directly or indirectly, not
less than a majority of the Voting Stock of the surviving corporation or its
parent immediately after such transaction; and (iii) a "person" or "group"
(within the meaning of Sections 13(d) or 14(d)(2) of the Exchange Act) being or
becoming the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) of more than 50% of all Voting Stock of Plains Resources, then
outstanding, except in a merger or consolidation which would not constitute a
Change of Control under clause (ii) above.
2.5 SCOPE OF RESTRICTED BUSINESS PROHIBITION. Except as provided in
this Article II and the Partnership Agreement, each Plains Entity shall be free
to engage in any business activity whatsoever, including those that may be in
direct competition with any Partnership Entity.
2.6 ENFORCEMENT. The Plains Entities agree and acknowledge that the
Partnership Group does not have an adequate remedy at law for the breach by the
Plains Entities of the covenants and agreements set forth in this Article II,
and that any breach by the Plains Entities of the covenants and agreements set
forth in Article II would result in irreparable injury to the Partnership Group.
The Plains Entities further agree and acknowledge that any member of the
Partnership Group may, in addition to the other remedies which may be available
to the Partnership Group, file a suit in equity to enjoin the Plains Entities
from such breach, and consent to the issuance of injunctive relief hereunder.
-6-
<PAGE>
ARTICLE III
INDEMNIFICATION
3.1 WINGFOOT INDEMNIFICATION. PAAI shall indemnify, defend and hold
harmless the MLP and the OLPs from and against Losses (as hereinafter defined)
to the extent that PAAI is entitled to and receives indemnification from
Wingfoot Ventures Seven, Inc., a Delaware corporation ("Wingfoot"), pursuant to
Article VIII of the Stock Purchase Agreement, dated as of March 15, 1998, among
Plains Resources, PAAI and Wingfoot, as amended and in effect from time to time
(the "Wingfoot Agreement"). "Losses" shall have the meaning set forth in the
Wingfoot Agreement.
3.2 PLAINS RESOURCES INDEMNIFICATION. Plains Resources shall indemnify,
defend and hold harmless the General Partner, the MLP and the OLPs from and
against Losses that are caused by, arise out of or are attributable to:
(a) Any enforcement proceeding under any federal, state or local
Environmental Law to the extent arising out of any action or omission to act by
Plains Resources or any of the Plains Midstream Subsidiaries prior to the date
of this Agreement with respect to any Plains Real Property, Plains Leased
Property, or Plains Facility, whether such proceeding arises before or after the
date of this Agreement.
(b) Any disposal, release, spill or leakage of Hazardous Materials to
the soil or surface or ground water to the extent that it has occurred prior to
the date of this Agreement (i) on any Plains Real Property during the period
owned by Plains Resources or any of the Plains Midstream Subsidiaries and (ii)
on any Plains Leased Property during the period Plains Resources or any of the
Plains Midstream Subsidiaries has been in possession of such Plains Leased
Property.
(c) Any release, spill, leakage or migration of Hazardous Materials
onto, under or upon the property of any Person (other than property owned,
leased or used by Plains Resources or any of the Plains Midstream Subsidiaries)
to the extent that it has occurred prior to the date of this Agreement as a
result of the operations of Plains Resources or any of the Plains Midstream
Subsidiaries.
(d) Hazardous Materials to the extent that they are demonstrated to
have been present on any Plains Real Property or Plains Leased Property on the
date of this Agreement.
(e) Hazardous Materials to the extent transported prior to the date of
this Agreement by Plains Resources or any of the Plains Midstream Subsidiaries
to any waste treatment, storage, disposal, reclaiming, or recycling site other
than (i) any site located on any Plains Real Property or any Plains Leased
Property, (ii) any site located on any property owned, leased or used by any
Partnership Entity, or (iii) any site used (whether before or after the date of
this Agreement) by any Partnership Entity, or (iv) any site used by Plains
Resources or any of the Plains Midstream Subsidiaries after the date of this
Agreement.
-7-
<PAGE>
3.3 LIMITATIONS REGARDING INDEMNIFICATION. Plains Resources shall have
no indemnification obligation under Section 3.2 for claims made after the third
anniversary of the date of this Agreement. The aggregate liability of Plains
Resources in respect of all Losses under Section 3.2 shall not exceed $3 million
(including up to $500,000 of reserves included in the MLP's working capital upon
closing of the MLP's initial public offering).
3.4 INDEMNIFICATION PROCEDURES.
(a) The Partnership Entities agree that within a reasonable period of
time after they become aware of facts giving rise to a claim for indemnification
pursuant to Section 3.2, they will provide notice thereof in writing to Plains
Resources specifying the nature of and specific basis for such claim.
(b) Plains Resources shall have the right to control all aspects of
the defense of (and any counterclaims with respect to) any claims brought
against the Partnership Entities that are covered by the indemnification set
forth in Section 3.2, including, without limitation, the selection of counsel,
determination of whether to appeal any decision of any court and the settling of
any such matter or any issues relating thereto; provided, however, that no such
settlement shall be entered into without the consent of the Partnership Entities
unless it includes a full release of the Partnership Entities from such matter
or issues, as the case may be.
(c) The Partnership Entities agree, at their own cost and expense, to
cooperate fully with Plains Resources with respect to all aspects of the
defense of any claims covered by the indemnification set forth in Section 3.2,
including, without limitation, the prompt furnishing to Plains of any
correspondence or other notice relating thereto that the General Partner or the
Partnership Entities may receive, permitting the names of the General Partner
and the Partnership Entities to be utilized in connection with such defense, the
making available to Plains Resources of any files, records or other information
of the General Partner or the Partnership Entities that Plains Resources
considers relevant to such defense and the making available to Plains Resources
of any employees of the Partnership Entities or the General Partner; provided,
however, that in connection therewith Plains Resources agrees to use reasonable
efforts to minimize the impact thereof on the operations of such Partnership
Entities. In no event shall the obligation of the Partnership Entities to
cooperate with Plains Resources as set forth in the immediately preceding
sentence be construed as imposing upon the Partnership Entities an obligation to
hire and pay for counsel in connection with the defense of any claims covered by
the indemnification set forth in this Article III; provided, however, that the
Partnership Entities may, at their own option, cost and expense, hire and pay
for counsel in connection with any such defense. Plains Resources agrees to
keep any such counsel hired by the Partnership Entities reasonably informed as
to the status of any such defense, but Plains Resources shall have the right to
retain sole control over such defense.
(d) In determining the amount of any loss, liability or expense for
which any of the Partnership Entities are entitled to indemnification under this
Agreement, the gross amount thereof will be reduced by any insurance proceeds
realized or to be realized by the Partnership
-8-
<PAGE>
Entities, and such correlative insurance benefit shall be net of any insurance
premium that becomes due as a result of such claim.
ARTICLE IV
MISCELLANEOUS
4.1 CHOICE OF LAW; SUBMISSION TO JURISDICTION. This Agreement shall be
subject to and governed by the laws of the State of Texas, excluding any
conflicts-of-law rule or principle that might refer the construction or
interpretation of this Agreement to the laws of another state. Each party
hereby submits to the jurisdiction of the state and federal courts in the State
of Texas and to venue in Houston, Harris County, Texas.
4.2 NOTICE. All notices or requests or consents provided for or
permitted to be given pursuant to this Agreement must be in writing and must be
given by depositing same in the United States mail, addressed to the Person to
be notified, postpaid, and registered or certified with return receipt requested
or by delivering such notice in person or by telecopier or telegram to such
party. Notice given by personal delivery or mail shall be effective upon actual
receipt. Notice given by telegram or telecopier shall be effective upon actual
receipt if received during the recipient's normal business hours, or at the
beginning of the recipient's next business day after receipt if not received
during the recipient's normal business hours. All notices to be sent to a party
pursuant to this Agreement shall be sent to or made at the address set forth
below such party's signature to this Agreement, or at such other address as such
party may stipulate to the other parties in the manner provided in this Section
4.2.
4.3 ENTIRE AGREEMENT; SUPERSEDURE. This Agreement constitutes the
entire agreement of the parties relating to the matters contained herein,
superseding all prior contracts or agreements, whether oral or written, relating
to the matters contained herein.
4.4 EFFECT OF WAIVER OR CONSENT. No waiver or consent, express or
implied, by any party to or of any breach or default by any Person in the
performance by such Person of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such Person of the same or any other obligations of such Person
hereunder. Failure on the part of a party to complain of any act of any Person
or to declare any Person in default, irrespective of how long such failure
continues, shall not constitute a waiver by such party of its rights hereunder
until the applicable statute of limitations period has run.
4.5 AMENDMENT OR MODIFICATION. This Agreement may be amended or
modified from time to time only by the written agreement of all the parties
hereto; provided, however, that the MLP and the OLPs may not, without the prior
approval of the Conflicts Committee, agree to any amendment or modification of
this Agreement that, in the reasonable discretion of the General Partner, will
adversely affect the holders of Common Units. Each such instrument shall be
reduced to writing and shall be designated on its face an "Amendment" or an
"Addendum" to this Agreement.
-9-
<PAGE>
4.6 ASSIGNMENT. No party shall have the right to assign its rights or
obligations under this Agreement without the consent of the other parties
hereto.
4.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if all signatory parties had signed the
same document. All counterparts shall be construed together and shall
constitute one and the same instrument.
4.8 SEVERABILITY. If any provision of this Agreement or the application
thereof to any Person or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected thereby and
shall be enforced to the greatest extent permitted by law.
4.9 GENDER, PARTS, ARTICLES AND SECTIONS. Whenever the context
requires, the gender of all words used in this Agreement shall include the
masculine, feminine and neuter, and the number of all words shall include the
singular and plural. All references to Article numbers and Section numbers
refer to Parts, Articles and Sections of this Agreement.
4.10 FURTHER ASSURANCES. In connection with this Agreement and all
transactions contemplated by this Agreement, each signatory party hereto agrees
to execute and deliver such additional documents and instruments and to perform
such additional acts as may be necessary or appropriate to effectuate, carry out
and perform all of the terms, provisions and conditions of this Agreement and
all such transactions.
4.11 WITHHOLDING OR GRANTING OF CONSENT. Each party may, with respect to
any consent or approval that it is entitled to grant pursuant to this Agreement,
grant or withhold such consent or approval in its sole and uncontrolled
discretion, with or without cause, and subject to such conditions as it shall
deem appropriate.
4.12 U.S. CURRENCY. All sums and amounts payable to or to be payable
pursuant to the provisions of this Agreement shall be payable in coin or
currency of the United States of America that, at the time of payment, is legal
tender for the payment of public and private debts in the United States of
America.
4.13 LAWS AND REGULATIONS. Notwithstanding any provision of this
Agreement to the contrary, no party hereto shall be required to take any act, or
fail to take any act, under this Agreement if the effect thereof would be to
cause such party to be in violation of any applicable law, statute, rule or
regulation.
4.14 NEGOTIATION OF RIGHTS OF LIMITED PARTNERS, ASSIGNEES, AND THIRD
PARTIES. The provisions of this Agreement are enforceable solely by the parties
to this Agreement, and no Limited Partner, Assignee or other Person shall have
the right, separate and apart from the MLP or the OLP, to enforce any provision
of this Agreement or to compel any party to this Agreement to comply with the
terms of this Agreement.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on, and
effective as of, the Closing Date.
PLAINS RESOURCES INC.
By: ________________________________________
Name:
Title:
Address for Notice:
500 Dallas, Suite 700
Houston, Texas 77002
Telecopy Number: (713) 654-1523
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC., its sole general
partner
By: _____________________________________
Name:
Title:
Address for Notice:
500 Dallas, Suite 700
Houston, Texas 77002
Telecopy Number: (713) 652-2730
PLAINS MARKETING, L.P.
By: PLAINS ALL AMERICAN INC., its sole general
partner
By: ____________________________________
Name:
Title:
-11-
<PAGE>
Address for Notice:
500 Dallas, Suite 700
Houston, Texas 77002
Telecopy Number: (713) 652-2730
ALL AMERICAN, L.P.
By: PLAINS ALL AMERICAN INC., its sole general
partner
By: ____________________________________
Name:
Title:
Address for Notice:
500 Dallas, Suite 700
Houston, Texas 77002
Telecopy Number: (713) 652-2730
PLAINS ALL AMERICAN INC.
By: __________________________________________
Name:
Title:
Address for Notice:
500 Dallas, Suite 700
Houston, Texas 77002
Telecopy Number: (713) 652-2730
-12-
<PAGE>
EXHIBIT 10.11
Deferred Payment
TRANSACTION GRANT AGREEMENT
[Plains All American, Inc. Letterhead]
_________________________, 199__
_________________
_________________
_________________
Re: Grant of MLP Phantom Units
Dear _________________:
I am pleased to inform you that the Company hereby grants to you
___________ MLP Phantom Units, with an equal number of distribution equivalent
rights ("DERs"). A MLP Phantom Unit is a right to receive, following vesting as
provided below, a Common Unit of Plains All American Pipeline, L.P. (the "MLP")
and a DER is a right to receive an amount in cash from the Company equal to the
distributions made by MLP with respect to a Common Unit during the period ending
on the earlier of December 31, 2003 or the date the tandem MLP Phantom Unit is
paid to you or forfeited. The terms of this grant are set forth below.
1. Subject to the further vesting provisions below, the MLP Phantom Units
will become vested (nonforfeitable) as follows:
(a) on December 31, 1999, (i) 2/9ths of the total number of MLP
Phantom Units granted you (the "Total Units") shall become vested if the
Operating Surplus of the MLP for 1999 equals or exceeds the sum of the
Minimum Quarterly Distributions ("MQDs") for such year with respect to the
Common Units, and (ii) an additional 1/9th of the Total Units shall become
vested if the Adjusted Operating Surplus of the MLP for 1999 equals or
exceeds the sum of the MQDs with respect to the Common Units and
Subordinated Units for 1999;
(b) on December 31, 2000, (i) an additional 2/9ths of the Total Units
shall become vested if the Operating Surplus of the MLP for 2000 equals or
exceeds the sum of the MQDs for such year with respect to the Common Units,
and (ii) an additional 1/9th of the Total Units shall become vested if the
Adjusted Operating Surplus of the MLP for 2000 equals or exceeds the sum of
the MQDs with respect to the Common Units and Subordinated Units for 2000;
<PAGE>
(c) on December 31, 2001, (i) an additional 2/9ths of the Total Units
shall become vested if the Operating Surplus of the MLP for 2001 equals or
exceeds the sum of the MQDs for such year with respect to the Common Units,
and (ii) an additional 1/9th of the Total Units shall become vested if the
Adjusted Operating Surplus of the MLP for 2001 equals or exceeds the sum of
the MQDs with respect to the Common Units and Subordinated Units for 2001;
(d) the MLP Phantom Units that would have vested at the end of 1999,
2000, or 2001 had the MQDs been paid such year(s) shall become vested on
the date any arrearages in MQDs for such year(s) are paid; and
(e) any MLP Phantom Units which have not vested pursuant subparagraphs
(a)(ii), (b)(ii), or (c)(ii) above as of December 31, 2001 shall become
vested upon, and in the same proportion as, the conversion of Subordinated
Units to Common Units.
The terms Adjusted Operating Surplus and Minimum Quarterly Distribution shall
have their meanings as set forth in the Amended and Restated Agreement of
Limited Partnership of Plains All American Pipeline, L.P.
2. In the event of your termination of employment with the Company and
its affiliates prior to any of the vesting dates for any reason other than your
death or a disability that entitles you to benefits under the long-term
disability plan of the Company ("Disability"), all of your MLP Phantom Units not
then vested shall automatically be forfeited unpaid as of your date of
termination.
3. In the event of your termination of employment with the Company and
its affiliates due to your death or Disability, your MLP Phantom Units shall
continue to vest as provided in paragraph 1 above.
4. Vested MLP Phantom Units will be paid by the Company as soon as
reasonably practicable following December 31, 2001 (and any subsequent vesting
date) or your termination of employment, whichever occurs first.
5. DERs with respect to the MLP Phantom Units will be credited (without
interest) to a Company ledger account (the "DER Account") for your benefit and
upon payment of any vested MLP Phantom Units, the amounts then credited to your
DER Account with respect to such vested units will be paid to you in cash. Any
amount credited to the DER Account with respect to unvested MLP Phantom Units
will be forfeited if and whenever such MLP Phantom Units are forfeited.
6. The Company will withhold any taxes due from your compensation as
required by law, which, in the sole discretion of the Committee, may include
withholding a number of MLP Common Units otherwise payable to you.
<PAGE>
[We look forward to...etc.]
[COMPANY]
By:____________________
<PAGE>
EXHIBIT 10.12
Payment on Vesting
TRANSACTION GRANT AGREEMENT
[Plains All American, Inc. Letterhead]
_________________________, 199__
_________________
_________________
_________________
Re: Grant of MLP Phantom Units
Dear _________________:
I am pleased to inform you that the Company hereby grants to you
___________ MLP Phantom Units, with an equal number of distribution equivalent
rights ("DERs"). A MLP Phantom Unit is a right to receive, upon vesting as
provided below, a Common Unit of Plains All American Pipeline, L.P. (the "MLP")
and a DER is a right to receive an amount in cash from the Company equal to the
distributions made by MLP with respect to a Common Unit during the period ending
on the earlier of December 31, 2003 or the date the tandem MLP Phantom Unit is
paid to you or forfeited. The terms of this grant are set forth below.
1. Subject to the further vesting provisions below, the MLP Phantom Units
will become vested (nonforfeitable) as follows:
(a) on December 31, 1999, (i) 2/9ths of the total number of MLP
Phantom Units granted you (the "Total Units") shall become vested if the
Adjusted Operating Surplus of the MLP for 1999 equals or exceeds the sum of
the Minimum Quarterly Distributions ("MQDs") for such year with respect to
the Common Units, and (ii) an additional 1/9th of the Total Units shall
become vested if the Adjusted Operating Surplus of the MLP for 1999 equals
or exceeds the sum of the MQDs with respect to the Common Units and
Subordinated Units for 1999;
(b) on December 31, 2000, (i) an additional 2/9ths of the Total Units
shall become vested if the Adjusted Operating Surplus of the MLP for 2000
equals or exceeds the sum of the MQDs for such year with respect to the
Common Units, and (ii) an additional 1/9th of the Total Units shall become
vested if the Adjusted Operating Surplus of the MLP
1
<PAGE>
for 2000 equals or exceeds the sum of the MQDs with respect to the Common
Units and Subordinated Units for 2000;
(c) on December 31, 2001, (i) an additional 2/9ths of the Total Units
shall become vested if the Adjusted Operating Surplus of the MLP for 2001
equals or exceeds the sum of the MQDs for such year with respect to the
Common Units, and (ii) an additional 1/9th of the Total Units shall become
vested if the Adjusted Operating Surplus of the MLP for 2001 equals or
exceeds the sum of the MQDs with respect to the Common Units and
Subordinated Units for 2001;
(d) the MLP Phantom Units that would have vested at the end of 1999,
2000, or 2001 had the MQDs been paid such year(s) shall become vested on
the date any arrearages in MQDs for such year(s) are paid; and
(e) any MLP Phantom Units which have not vested pursuant subparagraphs
(a)(ii), (b)(ii), or (c)(ii) above as of December 31, 2001 shall become
vested upon, and in the same proportion as, the conversion of Subordinated
Units to Common Units.
The terms Adjusted Operating Surplus and Minimum Quarterly Distribution shall
have their meanings as set forth in the Amended and Restated Agreement of
Limited Partnership of Plains All American Pipeline, L.P.
2. In the event of your termination of employment with the Company and
its affiliates for any reason other than your death or a disability that
entitles you to benefits under the long-term disability plan of the Company
("Disability"), all of your MLP Phantom Units not then vested shall
automatically be forfeited unpaid as of your date of termination.
3. In the event of your termination of employment with the Company and
its affiliates due to your death or Disability, your MLP Phantom Units shall
continue to vest as provided in paragraph 1 above.
4. Vested MLP Phantom Units will be paid by the Company as soon as
reasonably practicable following each vesting date.
5. DERs with respect to the MLP Phantom Units will be credited (without
interest) to a Company ledger account (the "DER Account") for your benefit and
upon payment of any vested MLP Phantom Units, the amounts then credited to your
DER Account with respect to such vested units will be paid to you in cash. Any
amount credited to the DER Account with respect to unvested MLP Phantom Units
will be forfeited if and whenever such MLP Phantom Units are forfeited.
6. The Company will withhold any taxes due from your compensation as
required by law, which, in the sole discretion of the Committee, may include
withholding a number of MLP Common Units otherwise payable to you.
2
<PAGE>
[We look forward to...etc.]
[COMPANY]
By:___________________________
3
<PAGE>
EXHIBIT NO. 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Plains All American Pipeline, L.P. has included our report
dated October 30, 1998 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Prospectus constituting part of its
Registration Statement on Form S-1 to be filed on or about November 2, 1998.
In addition, we are aware that Plains All American Pipeline, L.P. has included
our report dated October 31, 1998 on the pro forma consolidated balance sheet
as of September 30, 1998 and the pro forma consolidated income statements for
the nine-month periods ended September 30, 1997 and 1998 in the same
Registration Statement on Form S-1. We are also aware of our responsibilities
under the Securities Act of 1933.
Yours very truly,
PricewaterhouseCoopers LLP
Houston, Texas
November 2, 1998
<PAGE>
EXHIBIT NO. 15.2
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Plains All American Pipeline, L.P. has included our report
dated September 23, 1998 (issued pursuant to the provisions of Statement on
Auditing Standards No. 71) in the Prospectus constituting part of its
Registration Statement on Form S-1 to be filed on or about November 2, 1998.
We are also aware of our responsibilities under the Securities Act of 1933.
Yours very truly,
PricewaterhouseCoopers LLP
San Francisco, California
November 2, 1998
<PAGE>
Exhibit 21.1
List of Subsidiaries of Plains All American Pipeline, L.P.
- ----------------------------------------------------------
Plains Marketing, L.P., a Delaware limited partnership
All American, L.P., a Texas limited partnership
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-1 of Plains All
American Pipeline, L.P. of our reports dated September 14, 1998, October 31,
1998, October 31, 1998 and September 16, 1998 relating to the balance sheet of
Plains All American Inc., the balance sheet of Plains All American Pipeline,
L.P., the pro forma consolidated income statement of Plains All American
Pipeline, L.P., and the combined financial statements of Plains Resources Inc.
Midstream Subsidiaries, respectively, which appear in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
November 2, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to the Registration Statement on Form S-1 of Plains All
American Pipeline, L.P. of our report dated July 27, 1998 relating to the
consolidated financial statements of Wingfoot Ventures Seven, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
November 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PLAINS
ALL AMERICAN PIPELINE, L.P.'S BALANCE SHEET AS OF OCTOBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> OCT-23-1998
<PERIOD-END> OCT-30-1998
<CASH> 1,980
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,980
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,980
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,980
<TOTAL-LIABILITY-AND-EQUITY> 1,980
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
