<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
Commission file number: 0-9808
PLAINS RESOURCES INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2898764
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1600 Smith Street
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 654-1414
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class: Name of each exchange on which registered:
<S> <C>
Common Stock, par value $.10 per share American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
------- -------
The aggregate value of the Common Stock held by non-affiliates of the
registrant (treating all executive officers and directors of the registrant,
for this purpose, as if they may be affiliates of the registrant) was
approximately $246,133,643 on February 7, 1997 (based on $15 1/4 per share,
the last sale price of the Common Stock as reported on the American Stock
Exchange Composite Tape on such date).
16,537,324 shares of the registrant's Common Stock were outstanding as of
February 7, 1997.
DOCUMENTS INCORPORATED BY REFERENCE. The information required in Part III of
this Annual Report on Form 10-K is incorporated by reference to the
Registrant's definitive proxy statement to be filed pursuant to Regulation 14A
for the Registrant's Annual Meeting of Stockholders.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
===============================================================================
<PAGE> 2
PART I
Item 1. BUSINESS
Plains Resources Inc. (the "Company") is an independent energy company
engaged in the acquisition, exploitation, development, exploration and
production of crude oil and natural gas and the marketing, transportation,
terminalling and storage of crude oil. The Company's upstream oil and natural
gas activities are focused in the Los Angeles Basin of California (the "LA
Basin"), the Sunniland Trend of South Florida (the "Sunniland Trend"), the
Illinois Basin in southern Illinois (the "Illinois Basin") and the Gulf Coast
area of Louisiana. The Company's downstream marketing, terminalling and storage
activities are concentrated in Oklahoma, Texas and the Gulf Coast area of
Louisiana. Plains' upstream operations contributed approximately 90% of the
Company's Earnings before interest, taxes, depreciation, depletion and
amortization ("EBITDA") for the fiscal year ending December 31, 1996, while the
Company's downstream activities accounted for the remainder. References to the
Company in this Annual Report on Form 10-K (the "Report") include Plains
Resources Inc. and its subsidiaries, except as the context may otherwise
require.(1)
The Company's business strategy is to increase its proved reserves and
cash flow by exploiting and producing oil and natural gas from its existing
properties, acquiring additional underdeveloped oil properties and exploring
for significant new sources of reserves. The Company concentrates its
exploitation efforts on mature but underdeveloped crude oil producing
properties that meet the Company's targeted criteria. Generally, such
properties were previously owned by major integrated or large independent oil
and natural gas companies, have produced significant volumes since initial
discovery and have significant estimated remaining reserves in place.
Management believes that it has developed a proven record in acquiring and
exploiting underdeveloped crude oil properties where it believes substantial
reserve additions and cash flow increases can be made through improved
production practices and recovery techniques and relatively low risk
development drilling. An integral component of the Company's exploitation
effort is to increase unit operating margins, and therefore cash flow, by
reducing unit production expenses and increasing wellhead price realizations.
The Company seeks to complement these exploitation efforts by pursuing certain
higher risk exploration opportunities which offer potentially higher rewards.
In 1996, the Company formed a joint venture and five year strategic alliance
with 3DX Technologies Inc. ("3DX"), a publicly held company that specializes in
the application of 3-D seismic imaging, to pursue exploration projects. The
Company also seeks to capitalize on downstream opportunities that exist as a
result of inefficiencies within the crude oil markets and the U.S. pipeline and
transportation infrastructure. The Company's marketing of its own crude oil
production takes advantage of the marketing expertise attributable to its
downstream activities. As part of its business strategy, the Company
periodically evaluates, and from time to time has elected to sell, certain of
its mature producing properties that it considers to be nonstrategic or fully
valued. Such sales enable the Company to focus on its core properties, maintain
financial flexibility, control overhead and redeploy the sales proceeds to
activities that have potentially higher financial returns.
During the five-year period ended December 31, 1996, the Company
incurred aggregate acquisition, exploration, development and exploitation costs
of approximately $306.1 million, resulting in proved oil and natural gas
reserve additions (including revisions of estimates but excluding production)
of approximately 136.4 million BOE, or $2.24 BOE, through implementation of its
business strategy. See Item 2, "Properties--Oil and Natural Gas Reserves".
Approximately 87% of these expenditures were directed toward the acquisition,
exploitation and development of proved reserves while approximately 13% were
incurred on exploration activities.
- ----------------
(1) As used in this Report, "Mcf" means thousand cubic feet, "MMcf" means
million cubic feet, "Bcf" means billion cubic feet, "Bbl" means barrel,
"MBbl" means thousand barrels, "MMBbl" means million barrels, "Btu" means
British Thermal Unit, "MBtus" means thousand Btus, "BOE" means net barrel of
oil equivalent and "MCFE" means Mcf of natural gas equivalent. Natural gas
equivalents and crude oil equivalents are determined using the ratio of six
Mcf of natural gas to one Bbl of crude oil, condensate or natural gas
liquids. A "gross acre" is an acre in which an interest is owned. The number
of "net acres" is the sum of the fractional working interests owned in gross
acres. "Net" oil and natural gas wells are obtained by multiplying "gross"
oil and natural gas wells by the Company's working interest in the
applicable properties. "Present Value of Proved Reserves" means the present
value (discounted at 10%) of estimated future cash flows from proved oil and
natural gas reserves reduced by estimated future operating expenses,
development expenditures and abandonment costs (net of salvage value)
associated therewith (before income taxes), calculated using product prices
in effect on the date of determination, and "Standardized Measure" is such
amount further reduced by the present value (discounted at 10%) of estimated
future income taxes on such cash flows. "NYMEX" means New York Mercantile
Exchange.
2
<PAGE> 3
In order to manage its exposure to commodity price risk, the Company
routinely hedges a portion of its crude oil production. For 1997, the Company
has entered into various fixed price and floating price collar arrangements.
Such arrangements generally provide the Company with downside price protection
on approximately 14,000 barrels of oil per day at a NYMEX crude oil spot price
("NYMEX Crude Oil Price") of approximately $19.00 per barrel, but permit the
Company to receive the benefit of increases in the NYMEX Crude Oil Price up to
$24.00 per barrel on 4,000 of such barrels. Thus, based on the Company's average
fourth quarter 1996 oil production rate, these arrangements generally provide
the Company with downside price protection for 80% of its production and upside
price participation for 43% of its production up to $24.00 per barrel, while 20%
of such production and excess volumes, if any, remain unhedged. In addition, the
Company also has a fixed price arrangement on 4,500 barrels per day in 1998 at a
NYMEX Crude Oil Price of $19.24 per barrel. On February 7, 1997, the NYMEX Crude
Oil Price was $22.23 per barrel.
The following table sets forth certain information with respect to the
Company's reserves over the last five years. Such reserve volumes and values
were determined under the method prescribed by the Securities and Exchange
Commission (the " SEC"), which requires the application of year-end oil and
natural gas prices for each year, held constant throughout the projected
reserve life. See Item 2 "Properties--Oil and Natural Gas Reserves" and Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER UNIT AMOUNTS)
<S> <C> <C> <C> <C> <C>
Present Value of Proved Reserves ................. $155,360 $134,539 $229,371 $366,780 $764,774(1)
Proved Reserves
Crude oil and natural gas
liquids (Bbls) ................................ 33,390 38,810 61,459 94,408 115,996
Natural gas (Mcf) .............................. 39,861 49,397 51,009 43,110 37,273
Oil equivalent (BOE) ........................... 40,034 47,043 69,960 101,593 122,208(1)
Reserve Replacement Ratio(2) ..................... 1,105% 269% 619% 647%(3) 454%
Reserve Replacement Cost per BOE ................. $ 2.35 $ 5.39 $ 1.49 $ 2.14 $ 1.76
Total upstream capital costs incurred ............ $ 68,209 $ 61,769 $ 40,849 $ 84,012 $ 51,255
Percentage of total upstream capital
costs attributable to:
Acquisition .................................... 56% 40% 48% 71% 7%
Development .................................... 17% 43% 38% 27% 88%
Exploration .................................... 27% 17% 14% 2% 5%
NYMEX Crude Oil Price
at December 31, ................................ $ 19.50 $ 14.17 $ 17.76 $ 19.55 $ 25.92
</TABLE>
(1) By comparison, calculating these amounts using the NYMEX Crude Oil Price
in effect at December 31, 1995 ($19.55 per barrel) would result in a
Present Value of Proved Reserves of $452 million and estimated net proved
reserves of 112 million BOE.
(2) The Reserve Replacement Ratio is calculated by dividing (a) the sum of
reserves added during each respective year through purchases of reserves
in place, extensions, discoveries and other additions and the effects of
revisions, if any ("Reserve Additions"), by (b) each respective year's
production.
(3) Pro forma as if the acquisition of the Illinois Basin Properties occurred
on January 1, 1995. Such acquisition closed in December 1995 with an
effective date of November 1, 1995.
(4) Reserve Replacement Cost per BOE for a year is calculated by dividing
upstream costs incurred for such year by such year's Reserve Additions.
ACQUISITION AND EXPLOITATION
Acquisition and Exploitation Strategy
The Company is continually engaged in the exploitation and development of
its existing property base and the evaluation and pursuit of additional
underdeveloped properties for acquisition. The Company focuses on mature but
underdeveloped producing crude oil properties in areas where the Company
believes substantial reserve additions and cash flow increases can be made
through relatively low-risk drilling, improved production practices and
recovery techniques and improved operating margins. Generally, the Company
seeks to increase production rates and improve a property's operating margin by
reducing unit production costs and enhancing the marketing arrangements of the
oil production.
Once the Company identifies a prospective property for acquisition, it
conducts a technical review of existing production and operating practices in
an effort to identify any previously unrecognized value. If the initial studies
3
<PAGE> 4
indicate undeveloped potential, the various producing and potentially
productive formations in the area are mapped in detail. Historical production
data is evaluated to determine if additional wells or other capital
expenditures appear necessary to optimize the recovery of reserves from the
property. Geologic and engineering information and operating practices utilized
by operators on offsetting leases are analyzed to identify potential additional
exploitation and development opportunities. A market study is also performed
analyzing product markets, available pipeline connections, access to trading
locations and existing contractual arrangements with the goal of maximizing
sales and profit margins from the area. See "--Product Markets and Major
Customers". A comprehensive plan of exploitation is then prepared and used as a
basis for the Company's offer to purchase.
The Company typically seeks to acquire a majority interest in the
properties it has identified and to act as operator of those properties. The
Company has in the past and may in the future hedge a significant portion of
the acquired production, thereby partially mitigating product price volatility
which could have an adverse impact on exploitation opportunities. If the
Company is successful in purchasing such properties, it then implements its
exploitation plan by modifying production practices, realigning existing
waterflood patterns, drilling wells and performing workovers, recompletions and
other production and reserve enhancements. After the initial acquisition, the
Company may also seek to increase its interest in the properties through
acquisitions of offsetting acreage, farmout drilling arrangements and the
purchase of minority interests in the properties.
By modifying production practices, realigning existing waterflood patterns,
drilling wells and performing workovers, recompletions and other production
enhancements, the Company seeks to increase volumes and expand its reserve
base. The results of such activities are reflected in additions and revisions
to proved reserves. During the five year period ending December 31, 1996, net
additions and revisions to proved reserves totaled 76.2 million BOE or
approximately 338% of cumulative net production for such period. Such reserves
were added at an aggregate average cost of $2.11 per BOE. This activity
excludes reserves added as a result of the Company's acquisition activities.
Reserve additions related solely to the Company's acquisition activities
totaled 60.2 million BOE and were added at an aggregate average cost of $2.42
per BOE.
The Company's properties in its three core areas represent approximately
98% of total proved reserves at December 31, 1996. Such properties were
previously owned and operated by major integrated oil and natural gas companies
and are comprised of underdeveloped crude oil properties believed by the
Company to have significant upside potential that can be evaluated through
development and exploitation activities. During 1997, the Company estimates it
will spend approximately $48 million on the development and exploitation of its
LA Basin, Sunniland Trend and Illinois Basin Properties. Set forth below is a
discussion of such properties:
Current Exploitation Projects
LA Basin Properties. Prior to its acquisition by the Company in May 1992,
Stocker was a sole purpose company formed in 1990 to acquire substantially all
of Chevron's producing oil properties in the LA Basin. Including transaction
costs, the aggregate purchase price paid by the Company for Stocker was
approximately $23 million, consisting of a combination of cash, Common Stock
and warrants. Following the initial acquisition, the Company expanded its
holdings in this area by acquiring additional interests within the existing
fields. In late 1993, the Company acquired all of Texaco Exploration and
Production, Inc.'s interest in the Vickers Lease for approximately $5 million.
The Vickers Lease was located immediately adjacent to one of the Company's
existing properties and was subsequently consolidated into Stocker's existing
operations. All of the Company's properties in the LA Basin are collectively
referred to herein as the "LA Basin Properties". The LA Basin Properties consist
of long-life reserves discovered at various times between 1924 and 1966, and
through December 31, 1996, the LA Basin Properties have produced over 400 MMBbls
of oil and 350 Bcf of natural gas. Since mid-1992, the Company has performed
various exploitation activities, including drilling additional wells, returning
previously marginal wells to economic production, optimizing waterflood
operations, improving artificial lift and facility equipment, reducing unit
production expenses and improving marketing margins. Through these acquisition
and exploitation activities, average daily production from this area, net to the
Company's interest, has increased from approximately 6,650 BOE per day in May
1992 to an average of 9,200 BOE per day during 1996.
The Company has expended approximately $78.9 million in direct acquisition,
development and exploitation capital on the LA Basin Properties. From the
effective dates of acquisition through December 31, 1996, net production
4
<PAGE> 5
from such properties totaled 14.5 million BOE, generating cumulative net margin
(oil and natural gas revenue less production expenses) and proceeds from minor
property sales of approximately $109.6 million. Total estimated proved reserves
attributable to the LA Basin Properties have increased from 17.7 million BOE at
initial acquisition to approximately 74.2 million BOE at December 31, 1996. As
a result, the Company's aggregate reserve addition cost to date for the LA
Basin Properties is approximately $.89 per BOE. During 1996, the unit gross
margin for this area averaged $9.05 per BOE. Estimated future net revenues and
the Present Value of Proved Reserves at December 31, 1996, were estimated at
$1.0 billion and $447.7 million, respectively. The Company estimates it will
spend approximately $24 million during 1997 on the further development and
exploitation of the LA Basin Properties.
Sunniland Trend Properties. During the first quarter of 1993, the Company
acquired all of the capital stock of Calumet Florida, Inc. ("Calumet") for
approximately $5 million. Calumet was organized in February 1993 to purchase
and operate a 50% working interest in six producing fields in South Florida
located in the Sunniland Trend previously owned and operated by Exxon. During
1994, Calumet acquired the remaining 50% working interest in the Sunniland
Trend Properties, increasing its working interest to approximately 100% and
adding approximately five million barrels of oil to its proved reserve base at
the acquisition date. The Company's aggregate interest in such properties is
referred to as the "Sunniland Trend Properties". The aggregate purchase price
for the additional 50% interest was approximately $13.6 million, including the
issuance of a five-year warrant valued at $2 million to purchase 750,000 shares
of Common Stock at an exercise price of $6.00 per share. The Sunniland Trend
was discovered by Exxon in 1943 and the properties have produced approximately
90 MMBbls of oil through December 31, 1996. At the time of acquisition,
production from the properties was about 900 barrels of oil per day net to the
Company. As a result of development drilling on the property, the implementation
of exploitation activities designed primarily to repair failed wells and to
increase the fluid lift capacity of certain wells and the acquisition of the
remaining 50% working interest, the Company's net production increased to an
average of 4,700 barrels of oil per day during 1996.
The Company has expended approximately $48.8 million in direct acquisition,
development and exploitation capital on the Sunniland Trend Properties. From
the effective dates of acquisition through December 31, 1996, net production
from such properties totaled 4.4 million BOE, generating cumulative net margin
of approximately $31.9 million. Total estimated proved reserves attributable to
the Sunniland Trend Properties have increased from approximately 5 million BOE
at initial acquisition to approximately 23.9 million BOE at December 31, 1996.
As a result, the Company's aggregate reserve addition cost to date for the
Sunniland Trend Properties is approximately $1.72 per BOE. During 1996, the
unit gross margin for this area averaged $8.69 per BOE. At December 31, 1996,
estimated future net revenues and the Present Value of Proved Reserves were
estimated at $254.9 million and $166.9 million, respectively. During 1997, the
Company estimates it will spend approximately $15 million on the further
development and exploitation of the Sunniland Trend Properties. In addition,
the Company intends to conduct exploration activities in this trend during
1997. See "--Exploration--Current Exploration and Higher Risk Exploitation
Projects--Sunniland Trend".
Illinois Basin Properties. In December 1995, the Company acquired all of
Marathon's producing and nonproducing upstream oil and natural gas assets in
the Illinois Basin (the "Illinois Basin Properties"). This acquisition was
effective as of November 1, 1995. As a result of such acquisition, the Company
added approximately 17.3 MMBbls
5
<PAGE> 6
of oil to its proved reserve base. The aggregate purchase price,
including associated closing costs, was $51.5 million, comprised of 798,143
shares of the Common Stock valued at $6.5 million and $45.0 million cash. The
majority of the cash portion was funded with the proceeds of a $42 million bank
facility. The Illinois Basin Properties consist of long-life oil reserves. The
largest field included in the Illinois Basin Properties was discovered in 1905
and has produced over 400 MMBbls of oil through December 31, 1996.
The Company has expended approximately $57.2 million in direct acquisition,
development and exploitation capital on the Illinois Basin Properties. From the
effective date of acquisition through December 31, 1996, net production from
such properties totaled 1.5 million BOE, generating cumulative net margin of
approximately $14.3 million. The Company intends to aggressively exploit these
properties to evaluate additional reserve potential identified during its
acquisition analysis. The Company's exploitation plan for the Illinois Basin
Properties includes improving the unit gross margin by decreasing unit
production expenses and increasing price realizations as well as increasing
production volumes. During 1996, production averaged 3,500 BOE per day, unit
production expenses decreased 30% from prior levels and the historical discount
from the NYMEX benchmark crude oil price was decreased approximately 70%,
thereby increasing price realizations. The Company also began implementing
projects designed to increase production volumes through activities similar to
those employed in its LA Basin Properties. Unit production expenses for these
properties, which averaged $12.00 per BOE in the fourth quarter of 1995
averaged approximately $8.42 per BOE during 1996. As a result of these
operating expense reductions, reduced location price differentials and higher
average oil prices, this area's unit gross margin increased to $10.34 per BOE
during 1996 as compared to $5.37 per BOE at the time of acquisition. Total
estimated proved reserves attributable to the Illinois Basin Properties have
increased from 17.3 million BOE at initial acquisition to approximately 22.1
million BOE at December 31, 1996. As a result, the Company's aggregate reserve
addition cost to date for the Illinois Basin Properties is approximately $2.42
per BOE. Estimated future net revenues and the Present Value of Proved Reserves
at December 31, 1996, were estimated at $287.4 million and $136.7 million
respectively. During 1997, the Company estimates it will spend approximately $9
million implementing its exploitation plan on the Illinois Basin Properties.
General. The Company believes that its properties in its three core areas
hold potential for additional increases in production, reserves and cash flow.
However, the ability of the Company to achieve such increases could be adversely
affected by future decreases in the demand for oil and natural gas, impediments
in marketing production, operating risks, unavailability of capital, adverse
changes in governmental regulations or other currently unforeseen developments.
Accordingly, there can be no assurance that such increases will be achieved.
The Company believes that attractive acquisition opportunities which fit
the Company's criteria will continue to be available as a result of sales of
domestic oil properties by both major and independent oil companies. While the
Company is continually evaluating acquisition opportunities, there can be no
assurance that any of these efforts will be successful. The Company's ability to
continue to acquire attractive properties may be adversely affected by a
reduction in the number of attractive properties offered for sale, increased
competition for properties from other independent oil companies, unavailability
of capital, incorrect estimates of reserves, exploitation potential or
environmental liabilities or other factors. Although the Company has
historically acquired producing properties located only in the continental
United States, it from time to time evaluates, and may in the future seek to
acquire, properties located outside the continental United States.
EXPLORATION
Exploration Strategy
The Company seeks to complement its strategy of acquiring and exploiting
mature but underdeveloped oil properties by dedicating a substantially smaller
portion of its annual capital expenditures to higher risk but potentially
higher reward exploration opportunities. The Company focuses on exploration
opportunities that, if successful, could have a substantial positive impact on
production, cash flow and ultimately proved reserves. However, there can be no
assurance that any of its exploration projects will be successful.
In 1996, the Company and 3DX formed a joint venture to pursue the Company's
existing exploration projects and a five year strategic alliance to jointly
pursue new exploration and exploitation opportunities that are candidates for
the application of 3-D seismic technology. The joint venture covers exploration
activities in the Sunniland Trend, the Illinois Basin and the LA Basin as well
as the Company's current 3-D seismic project at the Four Isle Dome Field in
6
<PAGE> 7
Terrebonne Parish, Louisiana. 3DX bears principal responsibility for the
geological and geophysical oversight and project technical management of such
projects. In connection with the joint venture, 3DX acquired 15% to 20% of the
Company's working interests in certain projects, excluding designated
productive areas within each field. 3DX will have the right to participate for
up to 20% in the Company's new exploration and exploitation projects.
Current Exploration and Higher Risk Exploitation Projects
Sunniland Trend. The focus of the Company's exploration effort in the
Sunniland Trend is to identify and evaluate prospects that are analogous to the
existing producing fields in this trend. Although this trend was discovered
around 1940, the Company and its partners are attempting to integrate
historical exploration methods with recent advancements in seismic technology
to evaluate the exploration potential of the Sunniland Trend. The Company
formed a 50/50 joint venture with Meridian Oil Company to conduct exploration
activities in the Sunniland Trend in addition to its relationship with 3DX. The
Company is the operator of this joint venture. During 1996, the Company drilled
one exploratory dry hole in this effort. Preliminary plans for 1997 include
shooting 2-D and/or 3-D seismic on identified leads and drilling up to two
exploratory wells.
Four Isle Dome. The Company, Phillips Petroleum Company ("Phillips") and
Nuevo Energy Company ("Nuevo") entered into an agreement to explore
approximately 20,000 acres in Terrebonne Parish, Louisiana currently held under
seismic option. During 1995, the joint venture conducted a 3-D seismic survey
covering approximately 52 square miles. The area, known as Four Isle Dome, was
discovered in 1934 and has produced to date over 540 Bcf of natural gas and 20
MMBbls of oil. The Company and 3DX hold a 26% and 7% interest, respectively,
while Phillips and Nuevo each hold a 33.3% interest in the project. All of such
interests are subject to a proportionate 25% reduction if the mineral owner,
Louisiana Land and Exploration, elects to participate in a given prospect.
During 1996, the Company drilled one exploratory dry hole in this project. The
Company is the operator of the joint venture and intends to drill up to two
wells in this project during 1997, the first of which was commenced in late
1996.
LA Basin. The Company intends to undertake a pilot drilling program to
evaluate future infill exploitation potential of five distinct reservoirs that
have produced below the primary producing formation in its Inglewood field.
These deeper reservoirs have produced approximately 75 MMbls of oil and 100 Bcf
of gas from approximately 58 wells completed in certain of these reservoirs at
depths ranging from 4,000 to 9,500 feet. Depending on the results of current
technical evaluations and studies, the Company may drill up to five wells to
evaluate the remaining potential of these reservoirs.
General. During 1997, the Company estimates it will spend approximately $14
million on exploration and higher risk exploitation activities, principally in
the Sunniland Trend, the LA Basin and Four Isle Dome. While all drilling
activities are subject to numerous risks, the risks associated with exploration
activities and these higher risk exploitation activities are significantly
greater than those associated with the Company's other exploitation and
development activities. There can be no assurance that any of the Company's
current exploration or higher risk exploitation projects will result in the
discovery of proved reserves or the establishment of commercially viable oil or
natural gas production.
The Company has historically conducted a portion of its exploration
activities with outside partners. When deemed appropriate, the Company will
continue to solicit industry and financial partners to participate in
exploration projects on negotiated terms. The level of the Company's capital
expenditures for these projects, and its working and revenue interests, will
vary depending on the amount and terms of such outside participation.
DISPOSITION OF PROPERTIES
The Company periodically evaluates, and from time to time has elected to
sell, certain of its mature producing properties that it considers to be
nonstrategic or fully valued. Such sales enable the Company to focus on its
core properties, maintain financial flexibility, reduce overhead and redeploy
the proceeds therefrom to activities that the Company believes potentially have
a higher financial return. During 1995 and 1996, the Company sold nonstrategic
oil and natural gas properties located primarily in the Gulf Coast areas of
Texas and Louisiana and in Utah for proceeds of $7.4 million and $3.1 million,
respectively. As a result, approximately 98% of the Company's 1996 year-end
proved
7
<PAGE> 8
reserve volumes and proved reserve value were associated with its properties in
the LA Basin, Sunniland Trend and Illinois Basin.
DOWNSTREAM ACTIVITIES
The Company's marketing effort involves purchasing crude oil from other
producers and marketing it to the refining sector. The Company aggregates these
purchased volumes with its own production at major crude oil interchanges and
trading locations, which enables it to obtain higher prices for its own
production while realizing profits on the production purchased from others. The
Company owns and operates a two million barrel, above ground crude oil storage
and terminalling facility in Cushing, Oklahoma (the "Cushing Terminal"), the
United States' largest inland crude oil interchange and trading location. This
facility enhances the ability of the Company to profit from its marketing
activities by allowing the Company to take advantage of certain time and quality
arbitrage opportunities and make or take physical delivery of crude oil at
Cushing, the NYMEX designated delivery location. The Company's downstream
activities have expanded significantly, with downstream gross margin (revenues
less direct expenses of purchases, transportation, storage and terminalling)
having increased approximately 672% from $1.2 million in 1991 to $9.5 million in
1996. The Company estimates that approximately 40% to 50% of the tankage
capacity available at the Cushing Terminal was used in 1996; accordingly,
substantial additional capacity is available without the expenditure of
additional capital.
Crude oil is purchased at the wellhead and transported by Company-owned
trucks or third-party transporters to a trading location where the Company
sells the crude oil to a refiner or other purchaser. The Company also purchases
crude oil in the spot market at trading locations. The Company's policy is 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 crude oil marketing business is
characterized by a large volume of transactions with low margins. The Company
has generally maintained a gross margin of approximately 2% in its marketing
activities for each of the years 1992 through 1996. The Company also routinely
analyzes opportunities for possible purchase or construction of gathering and
pipeline systems, processing and storage facilities and various other related
capital investment projects to enhance its profitability in the markets in
which it operates.
The Cushing Terminal was completed in December 1993. The facility was
designed to accommodate the numerous grades of crude oil used by refiners and
consists of two million barrels (fourteen 100,000 barrel tanks and four 150,000
barrel tanks) of above ground shell storage capacity. The Cushing Terminal was
built at a total cost through December 31, 1996, of approximately $31.1 million,
which includes the cost of land acquisition, engineering and environmental
studies, construction-phase interest, pipeline interconnects and an oversized
manifold and pumping system that was designed and constructed to accommodate
expansion up to an aggregate ten million barrels of storage capacity. The
Company estimates that its storage tanks have a useful life in excess of 60
years. The facility is connected to major pipelines into and out of the Cushing
interchange and can operate at a daily throughput rate of approximately 800,000
Bbls.
Cushing is the largest wet barrel trading hub in the United States 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.
The Cushing Terminal was constructed to capitalize on the crude oil supply and
demand imbalance in the Midwest caused by the continued decline of traditional
regional supplies, increasing imports and an inadequate pipeline and terminal
infrastructure. Based upon the Company's analysis of existing storage facilities
at Cushing and the anticipated increase in crude oil volumes to be transported
through Cushing, the Company believes that there will be an increasing demand
for additional storage capacity at Cushing; however, there can be no assurance
that such demand will increase. Because of its initial investment in land,
engineering and environmental studies, pipeline interconnects and the manifold
and pumping system, the cost to construct incremental storage capacity is
estimated at $7.50 to $8.00 per Bbl of shell capacity. The Company generates
revenue from the Cushing Terminal through a combination of storage, reservation
and throughput fees from customers such as (i) refiners and gatherers seeking to
segregate or custom blend crudes for refining feedstocks, (ii) pipelines
requiring segregated tankage for foreign cargoes, (iii) traders who make or take
8
<PAGE> 9
delivery under the NYMEX contract, (iv) producers seeking to increase their
marketing alternatives and (v) contango market crude oil trading activities.
OPERATING ACTIVITIES
The following table presents certain information with respect to the
Company's upstream oil and natural gas producing activities and its downstream
marketing, transportation and storage activities during the three years ended
December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Oil and natural gas ..................... $ 57,234 $ 64,080 $ 97,601
Marketing, transportation and storage ... 199,239 339,826 531,698
Operating profits:
Oil and natural gas (1) ................. $ 30,122 $ 34,029 $ 59,085
Marketing, transportation and storage (2) 6,305 6,480 9,621
Identifiable assets:
Oil and natural gas ..................... $204,778 $271,248 $309,107
Marketing, transportation and storage ... 62,126 80,798 121,142
</TABLE>
- -----------------
(1) Consists of primarily oil and natural gas sales less production expenses.
(2) Consists of primarily marketing, transportation and storage sales less
purchases, transportation and storage expenses. Includes approximately
$1.5 million and $.1 million during 1994 and 1995, respectively, of
operating profit attributed to contango market transactions.
Operating profits as a percentage of sales are significantly lower for
the Company's marketing, transportation and storage activities than for its oil
and natural gas producing activities because the cost of oil and natural gas
purchased for resale is higher, as a percentage of sales price, than the
Company's cost to produce oil and natural gas.
See "--Downstream Activities".
9
<PAGE> 10
General
The Company was incorporated under the laws of the State of Delaware in
1976. The Company's executive offices are located at 1600 Smith Street, Suite
1500, Houston, Texas 77002, and its telephone number is (713) 654-1414.
Product Markets and Major Customers
The revenues generated by the Company's operations are highly
dependent upon the prices of, and demand for, oil and natural gas.
Historically, the markets for oil and natural gas have been volatile and are
likely to continue to be volatile in the future. The price received by the
Company for its oil and natural gas production and the level of such production
are subject to wide fluctuations and depend on numerous factors beyond the
Company's control, including seasonality, the condition of the United States
economy (particularly the manufacturing sector), foreign imports, political
conditions in other oil-producing and natural gas-producing countries, the
actions of the Organization of Petroleum Exporting Countries and domestic
government regulation, legislation and policies. Decreases in the prices of oil
and natural gas have had, and could have in the future, an adverse effect on the
carrying value of the Company's proved reserves and the Company's revenues,
profitability and cash flow. In this regard, it should be noted that oil prices
at December 31, 1996, upon which proved reserve volumes, the Present Value of
Proved Reserves and the Standardized Measure as of such date are based, were at
the highest year-end level since 1990.
In order to manage its exposure to price risks in the marketing of its
oil and natural gas, the Company from time to time enters into fixed price
delivery contracts, floating price collar arrangements, financial swaps and oil
and natural gas futures contracts as hedging devices. To ensure a fixed price
for future production, the Company 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. These same techniques are also utilized to manage
price risk for certain production purchased from customers of Plains Marketing.
Such contracts may expose the Company to the risk of financial loss in certain
circumstances, including instances where production is less than expected, the
Company's customers fail to purchase or deliver the contracted quantities of
oil or natural gas, or a sudden, unexpected event materially impacts oil or
natural gas prices. Such contracts may also restrict the ability of the Company
to benefit from unexpected increases in oil and natural gas prices. See Item 2,
"Properties--Oil and Natural Gas Reserves".
Substantially all of the Company's LA Basin crude oil and natural gas
production and its Sunniland Trend and Illinois Basin oil production are
transported by pipelines owned by third parties. The inability or unwillingness
of these pipelines to provide transportation services to the Company for a
reasonable fee could result in the Company having to find transportation
alternatives, increased transportation costs to the Company or involuntary
curtailment of a significant portion of its crude oil and natural gas
production. The Company is currently in dispute with the third party pipeline
company that transports its Sunniland Trend oil production. See Item 3,
"Legal Proceedings".
Certain of the Company's natural gas production has been in the past,
and may be in the future, curtailed from time to time depending on the quality
of the natural gas produced and transportation alternatives. In addition,
market, economic and regulatory factors, including issues regarding the quality
of certain of the Company's natural gas, may in the future adversely affect the
Company's ability to sell its natural gas production.
Before 1985, substantially all of the Company's natural gas production
was sold directly to pipeline companies which were responsible for resale and
transportation of the natural gas to end-users. Since that time, however, with
the adoption of various orders by the Federal Energy Regulatory Commission
("FERC") (see "--Regulation--Transportation and Sale of Natural Gas") and the
deregulation of natural gas pursuant to the Natural Gas Policy Act of 1978
("NGPA") and the Natural Gas Wellhead Decontrol Act of 1989 (the "Decontrol
Act"), the FERC has actively promoted competition in the nationwide market for
natural gas and has encouraged pipelines to significantly reduce their role as
merchants of natural gas and to make transportation services available on an
"open-access", nondiscriminatory basis. Since these regulatory initiatives were
begun, natural gas producers such as the Company have been able to sell their
natural gas supplies directly to utilities and other end-users.
In addition to the regulatory changes discussed above, deregulation of
natural gas prices under the NGPA and the Decontrol Act has increased
competition and volatility of natural gas prices. Since demand for natural gas
is generally highest during winter months, prices received for the Company's
natural gas are subject to seasonal variations and other fluctuations. All of
the Company's natural gas production is currently sold under various
arrangements at spot indexed prices. In certain instances, the Company enters
into financial arrangements to hedge its exposure to spot price fluctuations.
See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Changing Oil and Natural Gas Prices" and Item 2,
"Properties--Production and Sales".
Koch Oil Company and Basis Petroleum, Inc. ("Basis"), formerly Phibro
Energy USA, Inc., accounted for 16% and 11%, respectively, of the Company's
total revenue (exclusive of interest and other income) during 1996. Customers
accounting for more than 10% of total revenue for 1995 and 1994 were as
follows: 1995 -- Phibro Inc. ("Phibro") --
10
<PAGE> 11
16% and Basis -- 12%; 1994 -- Phibro -- 19% and Chevron -- 16%. No other single
purchaser of the Company's products accounted for as much as 10% of total sales
during 1996, 1995 or 1994. Basis and Phibro Inc. are both subsidiaries of
Salomon Inc. Additionally during 1996, Unocal, Marathon Oil Company and Basis
accounted for approximately 51%, 24% and 20%, respectively, of the Company's
oil and natural gas sales. During 1996, Unocal, Marathon Oil Company and Basis
purchased the crude oil from the LA Basin Properties, Illinois Basin Properties
and the Sunniland Trend Properties, respectively. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
COMPETITION
Oil and Natural Gas Producing Activities
The Company's competitors include major integrated oil and natural gas
companies and numerous independent oil and natural gas companies, individuals
and drilling and income programs. Many of the Company's larger competitors
possess and employ financial and personnel resources substantially greater than
those available to the Company. Such companies are able to pay more for
productive oil and natural gas properties and exploratory prospects and to
define, evaluate, bid for and purchase a greater number of properties and
prospects than the Company's financial or human resources permit. The Company's
ability to acquire additional properties and to discover reserves in the future
will be dependent upon its ability to evaluate and select suitable properties
and to consummate transactions in a highly competitive environment. In
addition, there is substantial competition for capital available for investment
in the oil and natural gas industry.
Downstream Activities
The Company faces intense competition in purchasing and marketing
crude oil and in the crude oil storage business. Its competitors include 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 Company's and control substantially greater supplies of crude
oil. Although the Company believes that the environmental safeguards and
operating capabilities of the Cushing Terminal are superior to other existing
facilities in Cushing, the Company competes with larger companies that possess
superior financial resources and have an established business presence. Such
advantages could inhibit the development of the Company's business for the
Cushing Terminal.
REGULATION
The Company's operations are subject to extensive and continually
changing regulation, as legislation affecting the oil and natural gas industry
is under constant review for amendment and expansion. Many departments and
agencies, both federal and state, are authorized by statute to issue and have
issued rules and regulations binding on the oil and natural gas 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 and natural gas industry increases the Company's cost of doing business
and, consequently, affects its profitability. However, the Company does not
believe that it is affected in a significantly different manner by these
regulations than are its competitors in the oil and natural gas industry. Due
to the myriad and complex federal and state statutes and regulations which may
affect the Company, directly or indirectly, the following discussion of certain
statutes and regulations should not be relied upon as an exhaustive review of
all matters affecting the Company's operations.
Transportation and Sale of Crude Oil
Sales of crude oil and condensate can be made by the Company at market
prices not subject at this time to price controls. However, the price that the
Company receives from the sale of these products is affected by the cost of
transporting the products to market. Commencing in October 1993, the FERC
issued a series of orders (Order No . 561 and 561-A) in which it revised its
regulations governing the rates that may be charged by oil pipelines. The new
rules, which became effective January 1, 1995, provide a simplified, generally
applicable method for regulating such rates by use of an index for setting rate
ceilings. In certain circumstances, the new rules permit oil pipelines to
establish rates using traditional cost of service and other methods of
ratemaking. These rules could increase the cost of transporting
11
<PAGE> 12
crude oil and condensate by pipeline. On October 28, 1994, the FERC issued two
separate Orders (Nos. 571 and 572), which adopt additional regulations
governing rates that an oil pipeline may be authorized to charge. Order No. 571
authorizes a pipeline to implement cost-of-service based rates, provided it can
demonstrate that there is a substantial divergence between the actual costs
experienced by the carrier and the indexed rate that the pipeline is directed
to charge under Order No. 561. In Order No. 572, the FERC adopted regulations
that authorize a pipeline to charge market-based rates, provided it can
demonstrate that it lacks significant market power in the market(s) in which it
proposes to charge such rates. These rules have been affirmed by the reviewing
courts.
Transportation and Sale of Natural Gas
Prior to January 1, 1993, various aspects of the Company's natural gas
operations were subject to regulation by the FERC under the Natural Gas Act of
1938 (the "NGA") and the NGPA with respect to "first sales" of natural gas,
including price controls and certificate and abandonment authority regulations.
However, as a result of the enactment of the Decontrol Act, the remaining
"first sales" restrictions imposed by the NGA and the NGPA terminated on
January 1, 1993.
The FERC regulates interstate natural gas pipeline transportation
rates and service conditions, which affect the marketing of natural gas
produced by the Company, as well as the revenues received by the Company for
sales of such natural gas. Since the latter part of 1985, the FERC has adopted
policies intended to make natural gas transportation more accessible to natural
gas buyers and sellers on an open and non-discriminatory basis. The FERC's most
recent action in this area, Order No. 636, reflected the FERC's finding that,
under the then-existing regulatory structure, interstate pipelines and other
natural gas merchants, including producers, did not compete on a "level playing
field" in selling natural gas. Order No. 636 instituted individual pipeline
service restructuring proceedings, designed specifically to "unbundle" those
services (e.g., transportation, sales and storage) provided by many interstate
pipelines so that buyers of natural gas may secure natural gas supplies and
delivery services from the most economical source, whether interstate pipelines
or other parties. The FERC has issued final orders in all of the restructuring
proceedings and has announced its intention to reexamine certain of its
transportation-related policies, including the appropriate manner in which
interstate pipelines release capacity under Order No. 636 and, more recently,
the price which shippers can charge for their released capacity. The FERC has
also adopted a new policy regarding the use of non-traditional methods of
setting rates for interstate natural gas pipelines in certain circumstances as
alternatives to cost of service based rates. A number of pipelines have
obtained FERC authorization to charge negotiated rates as one such alternative.
The Company cannot predict what action the FERC will take in the reexamination
of its transportation-related policies, nor can it accurately predict whether
the FERC's actions will achieve its stated goal of increasing competition in
domestic natural gas markets. However, the Company does not believe that it
will be treated materially differently than other natural gas producers and
marketers with which it competes.
Although the FERC's actions, such as Order No. 636, do not regulate
natural gas producers such as the Company, these actions are intended to foster
increased competition within all phases of the natural gas industry. To date,
the FERC's pro-competition policies have not materially affected the Company's
business or operations. On a prospective basis, however, such orders may
substantially increase the burden on the producers and transporters to nominate
and deliver on a daily basis a specified volume of natural gas. Producers and
transporters which deliver deficient volumes or volumes in excess of such daily
nominations could be subject to additional charges by the pipeline carriers.
The United States Court of Appeals for the District of Columbia Circuit
has affirmed the FERC's Order No. 636 restructuring rule and remanded certain
issues for further explanation or clarification. Numerous petitions seeking
judicial review of the individual pipeline restructuring orders are currently
pending in that Court. Although it is difficult to predict when all appeals of
pipeline restructuring orders will be completed or their impact on the Company,
the Company does not believe that it will be affected by the restructuring rule
and orders any differently than other natural gas producers and marketers with
which it competes.
12
<PAGE> 13
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any
such proposals might become effective or their effect, if any, on the Company's
operations. The natural gas industry has historically been very heavily
regulated; thus there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future. The regulatory burden on the oil and natural gas industry
increases the Company's cost of doing business and, consequently, affects its
profitability and cash flow. Inasmuch as laws and regulations are frequently
expanded, amended or reinterpreted, the Company is unable to predict the future
cost or impact of complying with such regulations.
Regulation of Production
The production of oil and natural gas is subject to regulation under a
wide range of federal and state statutes, rules, orders and regulations. State
and federal statutes and regulations require permits for drilling operations,
drilling bonds and reports concerning operations. Most states in which the
Company owns and operates properties have regulations governing conservation
matters, including provisions for the unitization or pooling of oil and natural
gas properties, the establishment of maximum rates of production from oil and
natural gas wells and the regulation of the spacing, plugging and abandonment
of wells. Many states also restrict production to the market demand for oil and
natural gas and several states have indicated interest in revising applicable
regulations. The effect of these regulations is to limit the amount of oil and
natural gas the Company can produce from its wells and to limit the number of
wells or the locations at which the Company can drill. Moreover, each state
generally imposes an ad valorem, production or severance tax with respect to
production and sale of crude oil, natural gas and natural gas liquids within
its jurisdiction.
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 Company's operations
and costs. In particular, the Company's exploration, exploitation and
production operations, its 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 Company's overall cost of business. Such areas affected include
unit production expenses primarily related to the control and limitation of air
emissions and the disposal of produced water, capital costs to drill exploration
and development wells due to solids control and capital costs to construct,
maintain and upgrade equipment and facilities. While these regulations affect
the Company's capital expenditures and earnings, the Company 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 Company 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. A discharge of hydrocarbons or hazardous
substances into the environment could, to the extent such event is not insured,
subject the Company 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.
A significant portion of the Miami Fee acreage in Cameron Parish,
Louisiana, is within the Sabine National Wildlife Refuge (the "Refuge"), and
operations therein are subject to the National Wildlife Refuge Administration
Act and the regulations promulgated thereunder (the "Wildlife Refuge Act"). The
Wildlife Refuge Act states that no person may use, occupy, conduct any activity
on or remove property from any area located within a wildlife refuge unless a
permit has been granted for such use, occupation, conduct, activity or removal
of property. The Company currently is obligated to plug and abandon wells
drilled on the Miami Fee acreage in prior years. Such obligations must comply
with the requirements established by the Regional Director to ensure that the
plugging and abandonment of such wells are compatible with the Wildlife Refuge
Act.
Although the Company obtained environmental studies on its properties
in the LA Basin, Sunniland Trend and Illinois Basin, and the Company believes
that such properties have been operated in accordance with standard oil field
practices, certain of the fields have been in operation for more than
approximately 90 years, and current or future local, state and federal
environmental laws and regulations may require substantial expenditures to
comply with such rules and regulations. In December 1995, the Company
negotiated an agreement with Chevron, a prior owner of the LA
13
<PAGE> 14
Basin Properties, to remediate sections of the properties impacted by prior
drilling and production operations. Under this agreement, Chevron agreed to
investigate and potentially remediate specific areas contaminated with volatile
organic substances and heavy metals, and the Company agreed to excavate and
remediate crude oil contaminated soils. The Company is obligated to construct
and operate (for the next 14 years) two five-acre bioremediation cells for
crude oil contaminated soils designated for excavation and treatment by
Chevron. While the Company believes that it does not have any material
obligations for operations conducted prior to Stocker's acquisition of the
properties from Chevron, other than its obligation to plug existing wells and
those normally associated with customary oil field operations of similarly
situated properties (such as the Chevron agreement described above), there can
be no assurance that current or future local, state or federal rules and
regulations will not require it to spend material amounts to comply with such
rules and regulations or that any portion of such amounts will be recoverable
from Chevron, either under the December 1995 agreement or the limited indemnity
from Chevron contained in the original purchase agreement.
A portion of the Sunniland Trend Properties is located within the Big
Cypress National Preserve and the Company's operations therein are subject to
regulations administered by the National Park Service ("NPS"). Under such
regulations, a Master Plan of Operations has been approved by the Regional
Director of the NPS. The Master Plan of Operations is a comprehensive plan of
practices and procedures for the Company's drilling and production operations
designed to minimize the effect of such operations on the environment. The
Master Plan of Operations must be modified and permits must be secured from the
NPS for new wells which require the use of additional land for drilling
operations. The Master Plan of Operations also requires that the Company
restore the surface property affected by its drilling and production operations
upon cessation of these activities. The Company does not anticipate that
expenditures required to comply with such regulations will have a material
adverse effect on its current operations.
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 United States. In the event of an oil spill into such
waters, substantial liabilities could be imposed upon the Company. States in
which the Company 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 Company.
The FWPCA imposes restrictions and strict controls regarding the
discharge of produced waters and other oil and natural gas wastes into
navigable waters. Permits must be obtained to discharge pollutants to state and
federal waters. The FWPCA provides for civil, criminal and administrative
penalties for any unauthorized discharges of oil and other hazardous substances
in reportable quantities and, along with the OPA, imposes substantial potential
liability for the costs of removal, remediation and damages. State laws for the
control of water pollution also provide varying civil, criminal and
administrative penalties and liabilities in the case of a discharge of
petroleum or its derivatives into state waters. The EPA has promulgated
regulations that require many oil and natural gas production operations to
obtain permits to discharge storm water runoff. At some facilities, such as the
Sunniland Trend Properties, the Company eliminated this permit requirement by
collecting all potentially contaminated storm water and disposing of it through
the Company's underground injection control ("UIC") disposal wells. At other
facilities, the Company has applied for and obtained any necessary storm water
discharge permits, and is currently in substantial compliance with applicable
14
<PAGE> 15
permit conditions. The Company believes that compliance with existing permits
and compliance with foreseeable new permit requirements will not have a
material adverse effect on the Company's financial condition or results of
operations.
Air Emissions. The operations of the Company are subject to the
Federal Clean Air Act and comparable state and local statutes. The Company
believes that its operations are in substantial compliance with such statutes
in all states in which they operate.
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 United States 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 particular, the Company's LA
Basin properties are located in an "extreme" non-attainment area for ozone. This
classification will force the local air quality regulatory authority, the South
Coast Air Quality Management District, to adopt stringent controls on all
emissions of nitrogen oxide and volatile organic compounds. As a result of these
future regulations, the Company may incur future capital expenditures to reduce
air emissions from the LA Basin production facilities. In addition, the 1990
Federal Clean Air Act Amendments include a new operating permit for major
sources ("Title V permits"), and several of the Company's facilities may require
permits under this new program. Although no assurances can be given, the Company
believes implementation of the 1990 Federal Clean Air Act Amendments will not
have a material adverse effect on the Company's financial condition or results
of operations.
Solid Waste. The Company 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. RCRA also governs the
disposal of hazardous wastes. At present, the Company is not required to comply
with a substantial portion of the RCRA requirements because the Company's
operations generate minimal quantities of hazardous wastes. However, it is
anticipated 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 may
result in additional capital expenditures or operating expenses by the Company.
Superfund. 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 Company may
generate waste that may fall within CERCLA's definition of a "hazardous
substance". The Company 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 Company currently owns or leases, and has in the past owned or
leased, numerous properties that for many years have been used for the
exploration and production of oil and natural gas. Although the Company 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 Company 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 Company's
control. These properties and wastes disposed thereon may be subject to CERCLA,
RCRA and analogous state laws. Under such laws, the Company 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.
FEDERAL TAXATION
At December 31, 1996, the Company and its subsidiaries, which together
file a consolidated federal income tax return, had federal income tax NOL
carryforwards of approximately $183 million. Of that amount, approximately $16
million is subject to separate return limitation year restrictions and may only
be utilized to the extent certain
15
<PAGE> 16
subsidiaries which generated the NOLs have taxable income. At December 31,
1996, the Company had approximately $169 million of alternative minimum tax
("AMT") net operating loss carryforwards available as a deduction against
future AMT income. In addition, the Company had approximately $.7 million of
investment tax credit carryforwards and $7.0 million of percentage depletion
carryforwards at December 31, 1996. The NOL carryforwards expire from 1997
through 2011. The value of these carryforwards depends on the ability of the
Company to generate federal taxable income. In addition, for AMT purposes, only
90% of AMT income in any given year may be offset by AMT NOLs.
The ability of the Company to utilize NOL and investment tax credit
carryforwards to reduce future federal taxable income and federal income tax of
the Company is subject to various limitations under the Internal Revenue Code
of 1986, as amended (the "Code"). The utilization of such carryforwards may be
limited upon the occurrence of certain ownership changes, including the
issuance or exercise of rights to acquire stock, the purchase or sale of stock
by 5% stockholders, as defined in the Treasury Regulations, and the offering of
stock by the Company during any three-year period resulting in an aggregate
change of more than 50% ("Ownership Change") in the beneficial ownership of the
Company.
In the event of an Ownership Change, Section 382 of the Code imposes
an annual limitation on the amount of a corporation's taxable income that can
be offset by these carryforwards. The limitation is generally equal to the
product of (i) the fair market value of the equity of the Company multiplied by
(ii) a percentage approximately equivalent to the yield on long-term tax exempt
bonds during the month in which an Ownership Change occurs. In addition, the
limitation is increased if there are recognized built-in gains during any
post-change year, but only to the extent of any net unrealized built-in gains
(as defined in the Code) inherent in the assets sold. Although no assurances
can be made, the Company does not believe that an Ownership Change has occurred
as of December 31, 1996. Equity transactions after the date hereof by the
Company or by 5% stockholders (including relatively small transactions and
transactions beyond the Company's control) could cause an Ownership Change and
therefore a limitation in the annual limitation of NOLs.
The Company does not expect to report any regular taxable income in
the near future because it expects to utilize its carryforwards and other tax
deductions and credits. However, there is no assurance that the Internal
Revenue Service will not challenge these carryforwards or their utilization.
16
<PAGE> 17
Other Business Matters
The Company must continually acquire, explore for, develop or exploit
new oil and natural gas reserves to replace those produced or sold. Without
successful drilling, acquisition or exploitation operations, the Company's oil
and natural gas reserves and revenues will decline. Drilling activities are
subject to numerous risks, including the risk that no commercially viable oil
or natural gas production will be obtained. The decision to purchase, explore,
exploit or develop an interest or property will depend in part on the
evaluation of data obtained through geophysical and geological analyses and
engineering studies, the results of which are often inconclusive or subject to
varying interpretations. See Item 2, "Properties--Oil and Natural Gas
Reserves". The cost of drilling, completing and operating wells is often
uncertain. Drilling may be curtailed, delayed or canceled as a result of many
factors, including title problems, weather conditions, compliance with
government permitting requirements, shortages of or delays in obtaining
equipment, reductions in product prices or limitations in the market for
products. The availability of a ready market for the Company's oil and natural
gas production also depends on a number of factors, including the demand for
and supply of oil and natural gas and the proximity of reserves to pipelines or
trucking and terminal facilities. Natural gas wells may be shut in for lack of
a market or due to inadequacy or unavailability of natural gas pipeline or
gathering system capacity.
Substantially all of the Company's LA Basin crude oil and natural gas
production and its Sunniland Trend and Illinois Basin oil production are
transported by pipelines owned by third parties. The inability or unwillingness
of these pipelines to provide transportation services to the Company for a
reasonable fee could cause the Company to seek transportation alternatives,
which in turn could result in increased transportation costs to the Company or
involuntary curtailment of a significant portion of its crude oil and natural
gas production. The Company is currently in dispute with the third party
pipeline company that transports its Sunniland Trend oil production. See
Item 3, "Legal Proceedings".
The Company's operations are subject to all of the risks normally
incident to the exploration for and the production of oil and natural gas,
including blowouts, cratering, oil spills and fires, each of which could result
in damage to or destruction of oil and natural gas wells, production facilities
or other property, or injury to persons. The relatively deep drilling conducted
by the Company from time to time involves increased drilling risks of high
pressures and mechanical difficulties, including stuck pipe, collapsed casing
and separated cable. The Company's operations in the LA Basin, including
transportation of crude oil by pipelines within the city of Los Angeles, are
especially susceptible to damage from earthquakes and involve increased risks
of personal injury, property damage and marketing interruptions because of the
population density of the area. Although the Company maintains insurance
coverage considered to be customary in the industry, it is not fully insured
against certain of these risks, including, in certain instances, earthquake
risk in the LA Basin, either because such insurance is not available or because
of high premium costs. The occurrence of a significant event that is not fully
insured against could have a material adverse effect on the Company's financial
position.
The revenues generated by the Company's operations are highly
dependent upon the prices of, and demand for, oil and natural gas.
Historically, the prices for oil and natural gas have been volatile and are
likely to continue to be volatile in the future. The price received by the
Company for its oil and natural gas production and the level of such production
are subject to wide fluctuations and depend on numerous factors beyond the
Company's control, including seasonality, the condition of the United States
economy (particularly the manufacturing sector), foreign imports, political
conditions in other oil-producing and natural gas-producing countries, the
actions of the Organization of Petroleum Exporting Countries and domestic
government regulation, legislation and policies. Decreases in the prices of oil
and natural gas have had, and could have in the future, an adverse effect on
the carrying value of the Company's proved reserves and the Company's revenues,
profitability and cash flow. In this regard, it should be noted that oil prices
at December 31, 1996, upon which estimated proved reserve volumes, the Present
Value of Proved Reserves and the Standardized Measure as of such date are
based, were at the highest year-end level since 1990. At December 31, 1996, the
NYMEX Crude Oil Price was $25.92 per barrel, 33% higher than the $19.55 per
barrel at December 31, 1995. Although the Company is not currently
experiencing any significant involuntary curtailment of its crude oil or
natural gas production, market, logistic, economic and regulatory factors may
in the future materially affect the Company's ability to sell its natural gas
production.
In order to manage its exposure to price risks in the marketing of its
oil and natural gas, the Company from time to time enters into fixed price
delivery contracts, floating price collar arrangements, financial swaps and oil
and natural gas futures contracts as hedging devices. To ensure a fixed price
for future production, the Company 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. These same techniques are also utilized to manage
price risk for certain production purchased from customers of the Company's
marketing subsidiary, Plains Marketing & Transportation Inc. ("Plains
Marketing"). Such contracts may expose the Company to the risk of financial
loss in certain circumstances, including instances where production is less
than expected, the Company's customers fail to purchase or deliver the
contracted quantities of oil or natural gas, or a sudden, unexpected event
materially impacts oil or natural gas prices. Such contracts may also restrict
the ability of the Company to benefit from unexpected increases in oil and
natural gas prices. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources, Liquidity and
Financial Condition--Changing Oil and Natural Gas Prices".
17
<PAGE> 18
Forward-Looking Statements and Associated Risks. This Report
includes "forward-looking statements" within the meaning of various provisions
of the Securities Act and the Exchange Act. All statements, other than
statements of historical facts, included in this Report which address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such things as estimated future net
revenues from oil and natural gas reserves and the present value thereof,
future capital expenditures (including the amount and nature thereof), business
strategy and measures to implement strategy, competitive strengths, goals,
expansion and growth of the Company's business and operations, plans,
references to future success, references to intentions as to future matters and
other such matters are forward-looking statements. These statements are based
on certain assumptions and analyses made by the Company in light of its
experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. However, whether actual results and
developments will conform with the Company's expectations and predictions is
subject to a number of risks and uncertainties, including general economic,
market or business conditions, the opportunities (or lack thereof) that may be
presented to and pursued by the Company, competitive actions by other oil and
natural gas companies, changes in laws or regulations, and other factors, many
of which are beyond the control of the Company. Consequently, all of the
forward-looking statements made in this Report are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the Company or its business or operations.
Title to Properties
The Company's properties are subject to customary royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens,
including other mineral encumbrances and restrictions. The Company does not
believe that any of these burdens materially interferes with the use of such
properties in the operation of its business.
The Company believes that it has generally satisfactory title to or rights
in all of its producing properties. As is customary in the oil and natural gas
industry, minimal investigation of title is made at the time of acquisition of
undeveloped properties. Title investigation is made and title opinions of local
counsel are generally obtained only before commencement of drilling operations.
18
<PAGE> 19
Employees
As of January 31, 1997, the Company had 201 full-time employees, none of
whom is represented by any labor union. Approximately 93 of such full-time
employees are field personnel involved in oil and natural gas producing
activities, trucking and transport activities and crude oil terminalling and
storage activities.
Item 2. PROPERTIES
The Company is an independent energy company engaged in the acquisition,
exploitation, development, exploration and production of crude oil and natural
gas and the marketing, transportation, terminalling and storage of crude oil.
The Company's upstream oil and natural gas activities are focused in the LA
Basin, the Sunniland Trend, the Illinois Basin and the Gulf Coast area of
Louisiana. The Company's downstream marketing, terminalling and storage
activities are concentrated in Oklahoma, Texas and the Gulf Coast area of
Louisiana. Plains' upstream operations contributed approximately 90% of the
Company's EBITDA for the fiscal year ending December 31, 1996, while the
Company's downstream activities accounted for the remainder. See Item 1,
"Business" for a discussion of the Company's exploration, acquisition,
development and exploitation activities and downstream businesses.
Oil and Natural Gas Reserves
The following tables set forth certain information with respect to the
Company's reserves based upon reserve reports prepared by the independent
petroleum consulting firms of H.J. Gruy and Associates, Inc. with respect to
the LA Basin Properties, Netherland, Sewell & Associates, Inc. with respect to
the Sunniland Trend and other minor properties, and Ryder Scott Company with
respect to the Illinois Basin Properties. Such reserve volumes and values were
determined under the method prescribed by the SEC which requires the
application of year-end prices for each year, held constant throughout the
projected reserve life.
19
<PAGE> 20
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1995 1996
-------------------- ------------------- -------------------
OIL GAS OIL GAS OIL GAS
(BBL) (MCF) (BBL) (MCF) (BBL) (MCF)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PROVED RESERVES
Beginning balance ............................ 38,810 49,397 61,459 51,009 94,408 43,110
Revisions of previous estimates .............. 16,834 4,365 5,423 2,792 19,424 6,641
Extensions, discoveries, improved recovery and
other additions ............................ 4,362 1,182 15,489 1,730 8,179 1,294
Sale of reserves ............................. (16) (446) (1,227) (9,773) (5) (12,491)
Purchase of reserves in place .............. 5,304 80 17,640 130 45 862
Production ................................... (3,835) (3,569) (4,376) (2,778) (6,055) (2,143)
-------- -------- -------- -------- -------- --------
Ending balance ............................... 61,459 51,009 94,408 43,110 115,996 37,273
======== ======== ======== ======== ======== ========
PROVED DEVELOPED RESERVES
Beginning balance ............................ 30,646 28,436 48,978 30,869 67,266 29,397
======== ======== ======== ======== ======== ========
Ending balance ............................... 48,978 30,869 67,266 29,397 86,515 25,629
======== ======== ======== ======== ======== ========
</TABLE>
The following table sets forth the Present Value of Proved Reserves as of
December 31, 1994, 1995 and 1996.
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proved developed.................................. $ 191,578 $ 272,634 $ 574,686
Proved undeveloped................................ 37,793 94,146 190,088
------------- ------------- --------------
Total proved.................................... $ 229,371 $ 366,780 $ 764,774
============= ============== ==============
</TABLE>
There are numerous uncertainties inherent in estimating quantities and
values of proved reserves and in projecting future rates of production and
timing of development expenditures, including many factors beyond the control
of the Company. Reserve engineering is a subjective process of estimating the
recovery from underground accumulations of oil and natural gas that cannot be
measured in an exact manner, and the accuracy of any reserve estimate is a
function of the quality of available data and of engineering and geological
interpretation and judgment. Because all reserve estimates are to some degree
speculative, the quantities of oil and natural gas that are ultimately
recovered, production and operating costs, the amount and timing of future
development expenditures and future oil and natural gas sales prices may all
differ from those assumed in these estimates. In addition, different reserve
engineers may make different estimates of reserve quantities and cash flows
based upon the same available data. Therefore, the Present Value of Proved
Reserves shown above represents estimates only and should not be construed as
the current market value of the estimated oil and natural gas reserves
attributable to the Company's properties. In this regard, it should be noted
that oil prices at December 31, 1996, upon which estimated proved reserve
volumes, the Present Value of Proved Reserves and the Standardized Measure as of
such date are based, were at the highest year-end level since 1990. At December
31, 1996, the NYMEX Crude Oil Price was $25.92 per barrel, 33% higher than the
$19.55 per barrel at December 31, 1995. The information set forth in the
preceding tables includes revisions of reserve estimates attributable to proved
properties included in the preceding year's estimates. Such revisions reflect
additional information from subsequent exploitation and development activities,
production history of the properties involved and any adjustments in the
projected economic life of such properties resulting from changes in product
prices.
In accordance with the SEC guidelines, the reserve engineers'
estimates of future net revenues from the Company's properties and the present
value thereof are made using oil and natural gas sales prices in effect as of
the dates of such estimates and are held constant throughout the life of the
properties, except where such guidelines permit alternate treatment, including
the use of fixed and determinable contractual price escalations. The crude oil
price in effect at December 31, 1996, is based on the NYMEX Crude Oil Price of
$25.92 per Bbl with variations therefrom based on location and grade of crude
oil. The Company has entered into various fixed and floating
price collar arrangements to fix the NYMEX Crude Oil Price for a significant
portion of its crude oil production. On December 31, 1996, these arrangements
provided for a NYMEX Crude Oil Price for: (i) 12,000 barrels per day through
March 31, 1997, at $18.51 per barrel; (ii) 10,000 barrels per day from April 1,
20
<PAGE> 21
1997, through April 30, 1997, at $18.85 per barrel; (iii) 9,000 barrels per day
from May 1, 1997, through June 30, 1997, at $18.85 per barrel; and (iv) 9,100
barrels per day from July 1, 1997, through December 31, 1997, at $18.59 per
barrel. The Company has entered into additional swap arrangements which provide
for a NYMEX Crude Oil Price ceiling of $24.00 per barrel and a price floor of
$19.50 per barrel for 4,000 barrels per day from January 1, 1997, through
December 31, 1997. Combined with an additional arrangement providing for 500
barrels per day from April 1, 1997 through December 31, 1997, at $22.00 per
barrel, these arrangements provide the Company with an average minimum price of
$18.96 per barrel on an average of approximately 14,250 barrels of oil per day
for 1997, but provide the Company with upside price participation for 4,000 of
such barrels up to $24.00 per barrel. At December 31, 1996, the Company also
had a fixed price arrangement on 4,500 barrels per day for 1998 at a NYMEX
Crude Oil Price of $19.24 per barrel. Location and quality differentials
attributable to the Company's properties are not included in the foregoing
prices. The agreements provide for monthly settlement based on the differential
between the agreement price and the actual NYMEX Crude Oil Price. The overall
average prices used in the reserve reports as of December 31, 1996, were $22.22
per Bbl of crude oil, condensate and natural gas liquids and $2.79 per Mcf of
natural gas. See Item 1, "Business--Product Markets and Major Customers".
Prices for natural gas and, to a lesser extent, oil are subject to substantial
seasonal fluctuations and prices for each are subject to substantial
fluctuations as a result of numerous other factors.
Since December 31, 1995, the Company has not filed any estimates of
total proved net oil or natural gas reserves with any federal authority or
agency other than the SEC. See Note 16 to the Company's Consolidated Financial
Statements appearing elsewhere in this Report for certain additional
information concerning the proved reserves of the Company.
PRODUCTIVE WELLS AND ACREAGE
As of December 31, 1996, the Company had working interests in 1,617
gross (1,616 net) active oil wells and 5 gross (1 net) active natural gas
wells. These totals do not include the Company's royalty and overriding royalty
interests in approximately 135 gross (4 net) producing oil and natural gas
wells.
The following table sets forth certain information with respect to the
developed and undeveloped acreage of the Company as of December 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------
Developed Acres(1) Undeveloped Acres(2)
--------------------- ---------------------
Gross Net Gross Net(3)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
California .............. 3,891 3,818 10 10
Florida ................. 12,044 11,852 96,257 80,774
Illinois ................ 15,887 13,885 33,653 15,416
Indiana ................. 1,155 854 2,562 1,216
Kansas .................. -- -- 52,433 41,496
Kentucky ................ -- -- 1,321 521
Louisiana(4) ............ 700 117 21,903 11,453
Oklahoma ................ 640 88 -- --
--------- --------- --------- ---------
Total .............. 34,317 30,614 208,139 150,886
========= ========= ========= =========
</TABLE>
(1) Developed acres are acres spaced or assigned to productive wells.
(2) Undeveloped acres are acres on which wells have not been drilled or
completed to a point that would permit the production of commercial
quantities of oil and natural gas, regardless of whether such acreage
contains proved reserves.
(3) Less than 2% of total net undeveloped acres are covered by leases that
expire in 1997 and 1998.
(4) Does not include approximately 19,000 gross (5,000 net) acres under
seismic option.
21
<PAGE> 22
DRILLING ACTIVITIES
Certain information with regard to the Company's drilling activities
during the years ended December 31, 1994, 1995 and 1996 is set forth below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
Gross Net Gross Net Gross Net
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Oil ............................. 0.00 0.00 0.00 0.00 0.00 0.00
Natural gas ..................... 0.00 0.00 0.00 0.00 0.00 0.00
Dry ............................. 6.00 4.39 1.00 0.40 2.00 0.63
------ ------ ------ ------ ------ ------
Total ....................... 6.00 4.39 1.00 0.40 2.00 0.63
====== ====== ====== ====== ====== ======
Development Wells:
Oil ............................. 1.00 1.00 0.00 0.00 24.00 24.00
Natural gas ..................... 0.00 0.00 0.00 0.00 0.00 0.00
Dry ............................. 0.00 0.00 1.00 0.50 0.00 0.00
------ ------ ------ ------ ------ ------
Total ....................... 1.00 1.00 1.00 0.50 24.00 24.00
====== ====== ====== ====== ====== ======
Total Wells:
Producing ....................... 1.00 1.00 0.00 0.00 24.00 24.00
Dry ............................. 6.00 4.39 2.00 0.90 2.00 0.63
------ ------ ------ ------ ------ ------
Total ....................... 7.00 5.39 2.00 0.90 26.00 24.63
====== ====== ====== ====== ====== ======
</TABLE>
At December 31, 1996, the Company was in the process of drilling 1
gross (.20 net) exploratory well. See Item 1, "Business--Acquisition and
Exploitation" and "--Productive Wells and Acreage" for additional information
regarding exploitation activities, including waterflood patterns, workovers and
recompletions.
PRODUCTION AND SALES
The following table presents certain information with respect to oil
and natural gas production attributable to the Company's properties, the
revenue derived from the sale of such production, average sales prices received
and average production costs during the three years ended December 31, 1994,
1995 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C> <C>
Production:
Crude oil and natural gas liquids (Bbls) ........ 3,835 4,376 6,055
Natural gas (Mcf) ............................... 3,569 2,778 2,143
BOE ............................................. 4,430 4,839 6,412
Revenue:
Crude oil and natural gas liquids ............... $ 52,331 $ 61,241 $ 95,224
Natural gas ..................................... 4,903 2,839 2,377
--------- --------- ---------
Total .......................................... $ 57,234 $ 64,080 $ 97,601
========= ========= =========
Average sales price:
Crude oil and natural gas liquids (per Bbl) ..... $ 13.65 $ 13.99 $ 15.73
Natural gas (per Mcf) ........................... $ 1.37 $ 1.02 $ 1.11
Per BOE ......................................... $ 12.92 $ 13.24 $ 15.22
Production expenses per BOE ...................... $ 6.15 $ 6.25 $ 6.04
</TABLE>
22
<PAGE> 23
Crude Oil Storage and Terminalling Facility
In December 1993, the Company completed construction on the first phase of
the Cushing Terminal in Cushing, Oklahoma. The first phase of the facility
consists of two million barrels of shell storage capacity comprised of fourteen
100,000 barrel capacity tanks and four 150,000 barrel capacity tanks. See Item
1, "Business -- Downstream Activities".
Other Facilities
The Company currently leases offices containing approximately 46,000
square feet in Houston, Texas.
Item 3. LEGAL PROCEEDINGS
On July 9, 1987, Exxon filed an interpleader action in the United States
District Court for the Middle District of Florida, Exxon Corporation v. E. W.
Adams, et al., Case Number 87-976-CIV-T-23-B. This action was filed by Exxon to
interplead royalty funds as a result of a title controversy between certain
mineral owners in a field in Florida. One group of mineral owners, John W.
Hughes, et al. (the "Hughes Group"), filed a counterclaim against Exxon
alleging fraud, conspiracy, conversion of funds, declaratory relief, federal
and Florida RICO, breach of contract and accounting, as well as challenging the
validity of certain oil and natural gas leases owned by Exxon, and seeking
exemplary and treble damages. In March 1993, but effective November 1, 1992,
Calumet, a wholly-owned subsidiary of the Company, acquired all of Exxon's
leases in the field affected by this lawsuit. In order to address those
counterclaims challenging the validity of certain oil and natural gas leases,
which constitute approximately 10% of the lands underlying this unitized field,
Calumet filed a motion to join Exxon as plaintiff in the subject lawsuit, which
was granted July 29, 1994. In August 1994, the Hughes Group amended its
counterclaim to add Calumet as a counter- defendant. Exxon and Calumet filed a
motion to dismiss the counterclaims. On March 22, 1996, the Court granted
Exxon's and Calumet's motion to dismiss the counterclaims alleging fraud,
conspiracy, and federal and Florida RICO violations and challenging the
validity of certain of the Company's oil and natural gas leases but denied such
motion as to the counterclaim alleging conversion of funds. The Company has
reached an agreement in principle with all parties to settle this case. In
consideration for full and final settlement, and dismissal with prejudice of
all issues in this case, the Company has agreed to pay to the defendants the
total sum of $100,000, and release certain royalty amounts held in suspense and
in the court registry during the pendency of this case. Finalization of this
settlement has been delayed due to a dispute between the defendants over
certain title issues. The defendants have filed motions requesting the Court to
rule on this dispute, but no hearing date has been set. The Company does not
believe that this dispute will adversely affect the settlement reached between
the Company and the defendants.
23
<PAGE> 24
Since the Company acquired the Sunniland Trend Properties in 1993,
substantially all crude oil production therefrom has been transported by a
third party pipeline company. The current pipeline service agreement (the
"Pipeline Agreement") will expire on March 31, 1997, unless modified or
extended. Subject to economic and other considerations, such agreement requires
the parties to negotiate in good faith to extend such agreement or enter into a
new agreement. The Company has been in negotiations with the pipeline company
to continue to transport all or a portion of the crude oil production on the
existing pipeline system. However, no agreements have been reached. As
a safeguard against the failure to agree on an extension or modification of the
Pipeline Agreement, the Company entered into a contingent agreement with a
local trucking company to transport part or all its crude oil production by
trucks. Except as noted below, the Company has in place the necessary
facilities to convert to trucking.
Approximately 60% of the Company's Sunniland Trend oil production is
derived from one field, the production from which is transported by its own
proprietary pipeline to a ten acre surface lease held by the Company on lands
owned by the Miccosukee Tribe of Indians of Florida (the "Tribe"). Such lease
is located at the interconnect with the third party's pipeline. In light of the
possibility that the Pipeline Agreement may not be modified or extended, the
Company commenced construction in late January of a storage tank and truck
loading facilities on this lease that would enable it to truck crude oil from
this location. The pipeline company has taken issue with the Company's
assertion of its rights to transport its crude oil production by trucks upon
the termination of the existing contract, alleging that it had recently
acquired an exclusive license to transport production from the Tribe's lands.
The Company notified the pipeline company that it believes these allegations
are without merit and that the exclusive license would be in violation of the
Company's lease with the Tribe. Subsequently, the Tribe's legal representatives
notified the pipeline company that the purported exclusive license claimed by
the pipeline company is void, unenforceable and of no force and effect.
However, the Tribal Chairman has directed the Company to cease its construction
operations on the lease, claiming that prior approval of such operations must
be approved by the Tribe and the Bureau of Indian Affairs (the "BIA"). The
Company believes its construction operations are in compliance with its lease
and that no prior approval is required from the Tribe or the BIA. The Company
is discussing this matter with representatives of the Tribe and is continuing
negotiations with the pipeline company. If these controversies are not
resolved, litigation could result and this portion of the Company's Sunniland
Trend production could be curtailed until trucking can be commenced or the
Company agrees to extend the Pipeline Agreement or enter into a new contract
with the pipeline company. The pipeline company is currently demanding that any
extension of the Pipeline Agreement provide for a rate which is approximately
$.15 per barrel above the current rate and which would be $.80 per barrel
higher than the alternative trucking rate.
The Company, in the ordinary course of business, is a claimant and/or a
defendant in various other legal proceedings in which its exposure,
individually and in the aggregate, is not considered material to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this Report.
Executive Officers of the Company
Information regarding the executive officers of the Company is presented
below. All executive officers hold office until their successors are elected
and qualified.
Greg L. Armstrong, President and Chief Executive Officer Officer Since 1981
Mr. Armstrong, age 38, has been President, Chief Executive Officer and a
director of the Company since 1992. He was President and Chief Operating
Officer from October to December 1992, and Executive Vice President and Chief
Financial Officer from June to October 1992. He was Senior Vice President and
Chief Financial Officer from 1991 to June 1992, Vice President and Chief
Financial Officer from 1984 to 1991, Corporate Secretary from 1981 to 1988, and
Treasurer from 1984 to 1987.
William C. Egg, Jr., Senior Vice President Officer Since 1984
Mr. Egg, age 45, has been Senior Vice President of the Company since 1991.
He was Vice President- Corporate Development of the Company from 1984 to 1991
and Special Assistant-Corporate Planning from 1982 to 1984.
Cynthia A. Feeback, Controller and
Principal Accounting Officer Officer Since 1993
Ms. Feeback, age 39, has been Controller and Principal Accounting Officer
of the Company since 1993. She was Controller of the Company from 1990 to 1993
and Accounting Manager from 1988 to 1990.
Phillip D. Kramer, Vice President,
Chief Financial Officer and Treasurer Officer Since 1987
Mr. Kramer, age 41, has been Vice President and Chief Financial Officer of
the Company since 1992. He was Vice President and Treasurer from 1988 to 1992,
Treasurer from 1987 to 1988, and Controller from 1983 to 1987.
24
<PAGE> 25
G. M. McCarroll, Vice President-Exploration and Land Officer Since 1989
Mr. McCarroll, age 39, became Vice President-Exploration and Land in
February 1996. He had been Vice President-Land of the Company since 1989,
except for the period of May through July 1991 when he was Vice President of a
land development company in Lafayette, Louisiana. From 1988 to 1989 he was a
consultant to the Company for acquisitions and land functions.
Michael R. Patterson, Vice President and General Counsel Officer Since 1985
Mr. Patterson, age 49, has been Vice President and General Counsel of the
Company since 1985 and Corporate Secretary since 1988.
Harry N. Pefanis, Senior Vice President Officer Since 1988
Mr. Pefanis, age 39, became Senior Vice President in February 1996. He had
been Vice President-Products Marketing of the Company since 1988. From 1987 to
1988 he was Manager of Products Marketing. From 1983 to 1987 he was Special
Assistant for Corporate Planning for the Company. Mr. Pefanis is also President
of Plains Marketing & Transportation Inc., a wholly-owned subsidiary of the
Company.
Mary O. Peters, Vice President - Administration and
Human Resources Officer Since 1991
Ms. Peters, age 48, has been Vice President-Administration and Human
Resources since 1991. She was Manager of Office Administration of the Company
from 1984 to 1991.
25
<PAGE> 26
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's $.10 par value common stock ("Common Stock") is listed and
traded on the American Stock Exchange under the symbol "PLX." The number of
stockholders of record of the Common Stock as of February 1, 1997, was 1,503.
For the periods indicated below, the following table sets forth the range
of high and low closing sales prices for the Common Stock as reported on the
American Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
High Low
1995:
<S> <C> <C>
1st Quarter ....................................... $ 7 3/4 $ 5 1/2
2nd Quarter ....................................... 9 3/4 7 5/8
3rd Quarter ....................................... 10 3/4 7 5/8
4th Quarter ....................................... 9 6 13/16
1996:
1st Quarter ....................................... $ 9 1/8 $ 7 7/16
2nd Quarter ....................................... 13 8 1/2
3rd Quarter ....................................... 14 7/8 11 3/4
4th Quarter ....................................... 16 5/8 12 7/8
</TABLE>
The Company has not paid cash dividends on shares of the Common Stock
since the Company's inception and does not anticipate paying any cash dividends
on the Common Stock in the foreseeable future. In addition, the Company is
prohibited by provisions of the indenture governing the issue of $150 million
10.25% Senior Subordinated Notes Due 2006 (the "10.25% Notes") and the
Revolving Credit Facility from paying dividends on the Common Stock.
26
<PAGE> 27
Item 6. SELECTED FINANCIAL DATA
The following selected historical financial information was derived from,
and is qualified by reference to, the Consolidated Financial Statements of the
Company, including the Notes thereto, appearing elsewhere in this Report.
The selected financial data should be read in conjunction with the Consolidated
Financial Statements, including the Notes thereto, and Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and natural gas sales ............................. $ 38,400 $ 57,507 $ 57,234 $ 64,080 $ 97,601
Marketing, transportation and storage ................. 93,838 128,186 199,239 339,826 531,698
Other ................................................. 413 335 223 319 309
--------- --------- --------- --------- ---------
Total revenue ........................................... 132,651 186,028 256,696 404,225 629,608
--------- --------- --------- --------- ---------
Costs and expenses:
Production expenses ................................... 19,329 28,285 27,220 30,256 38,735
Purchases, transportation and storage ................. 92,107 124,390 193,049 333,460 522,167
General and administrative ............................ 8,592 7,724 6,966 7,215 7,729
Depreciation, depletion and amortization .............. 12,155 36,980(1) 16,305 17,036 21,937
Interest expense ...................................... 3,776 8,847 12,585 13,606 17,286
Litigation settlement ................................. -- -- -- -- 4,000(2)
--------- --------- --------- --------- ---------
Total expenses .......................................... 135,959 206,226 256,125 401,573 611,854
--------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary item (3,308) (20,198) 571 2,652 17,754
Income tax expense (benefit) ............................ -- -- -- -- (3,898)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item ................. (3,308) (20,198) 571 2,652 21,652
Extraordinary item, net of income taxes ................. -- -- -- -- (5,104)(3)
--------- --------- --------- --------- ---------
Net income (loss) ....................................... $ (3,308) $ (20,198) $ 571 $ 2,652 $ 16,548
========= ========= ========= ========= =========
Net income (loss) per common and common equivalent share:
Before extraordinary item ............................. $ (.32) $ (1.77) $ .04 $ .16 $ 1.22
Extraordinary item, net of income taxes ............... -- -- -- -- (.29)
--------- --------- --------- --------- ---------
$ (.32) $ (1.77) $ .04 $ .16 $ .93
========= ========= ========= ========= =========
Weighted average number of common and
common equivalent shares .............................. 10,536 11,438 11,625 15,981 17,732
OTHER FINANCIAL DATA:
Cash flow from operations(4) ............................ $ 8,847 $ 16,782 $ 16,876 $ 19,688 $ 43,942(6)
EBITDA(5) ............................................... 12,623 25,629 29,461 33,294 61,184(6)
Net cash provided by operating activities ............... 11,435 10,397 18,369 16,984 39,008
Net cash used in investing activities ................... 53,104 76,451 40,158 64,398 52,496
Net cash provided by financing activities ............... 63,430 44,688 19,297 52,252 9,876
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ..... $ 25,149 $ 4,862 $ 2,791 $ 6,129 $ 2,517
Working capital (deficit) ..... 13,065 (13,986) (4,465) (4,749) (4,843)
Property and equipment, net ... 144,692 191,985 217,602 280,538 311,040
Total assets .................. 199,093 236,667 266,904 352,046 430,249
Long-term debt ................ 100,000 141,600 149,600 205,089 225,399
Other long-term liabilities ... 2,506 967 3,754 1,547 2,577
Redeemable preferred stock .... -- -- 20,937 -- --
Total stockholders' equity .... 63,333 44,997 46,462 77,029 95,572
</TABLE>
- ---------------
(1) Includes a $20 million non-cash charge related to a writedown of the
capitalized costs of the Company's proved oil and natural gas properties
due to low crude oil prices at December 31, 1993.
(2) Represents charge related to the settlement of two lawsuits filed in 1992
and 1993. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations".
(3) Relates to the early redemption in March 1996 of the Company's 12% Senior
Subordinated Notes due 1999.
(4) Net cash provided by operating activities before changes in assets and
liabilities.
(5) EBITDA means earnings before interest, taxes, depreciation, depletion,
amortization and other noncash items. EBITDA is commonly used by debt
holders and financial statement users as a measurement to determine the
ability of an entity to meet its interest obligations. 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.
(6) Excludes nonrecurring items during 1996. Such items include a $4 million
charge for settlement of two lawsuits filed during 1992 and 1993, a
benefit of $11 million related to the reversal of a portion of the
valuation allowance against the Company's deferred tax asset, and an $8.5
million ($5.1 million, net of tax) extraordinary charge from the early
redemption of the Company's 12% Senior Subordinated Notes due 1999.
27
<PAGE> 28
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
For the three years ended December 31, 1996, the Company reported
significant increases in proved reserves, production and cash flow from oil and
natural gas producing activities. Such increases are primarily the result of
exploitation activities in the LA Basin Properties, the acquisition during 1994
of the remaining 50% interest in, and exploitation of, the Sunniland Trend
Properties and the fourth quarter 1995 acquisition and subsequent exploitation
of the Illinois Basin Properties. These three core areas are comprised
primarily of crude oil properties and together account for approximately 98% of
the Company's year-end 1996 proved reserves. See Item 1, "Business--
Acquisition and Exploitation--Current Exploitation Projects".
RESULTS OF OPERATIONS
For the year ended December 31, 1996, the Company reported net income
before nonrecurring items of $14.7 million, or $.83 per share, on total revenue
of $629.6 million. This compares with net income of $2.7 million on total
revenue of $404.2 million in 1995 and net income of $.6 million on total
revenue of $256.7 million in 1994. Earnings before interest, taxes,
depreciation, depletion and amortization ("EBITDA") increased 84% in 1996 to
$61.2 million from the $33.3 million reported in 1995 and 107% from the $29.5
million reported in 1994. Cash flow from operations (cash provided by operating
activities before changes in assets and liabilities) increased to $43.9 million
in 1996, 123% and 160% above the $19.7 million and $16.9 million reported in
1995 and 1994, respectively. Cash flow and EBITDA are also presented before
nonrecurring items. Net cash provided by operating activities was $39.0 million
for the year ended December 31, 1996 ($43 million excluding nonrecurring
items), as compared to $17.0 million for 1995 and $18.4 million in 1994. The
improvement in operating results is primarily attributable to increased
production volumes and expanded unit operating margins in the upstream segment
and continued growth in the downstream segment.
Nonrecurring items in 1996 include an $8.5 million extraordinary
charge ($5.1 million net of tax) associated with the early redemption of the
Company's 12% Senior Subordinated Notes due 1999 (the "12% Notes"), a $4.0
million charge related to the settlement of two lawsuits filed during 1992 and
1993 and an $11.0 million tax benefit related to the reversal of a portion of
the valuation reserve against the Company's net deferred tax asset. After
giving effect to such nonrecurring items, the Company reported net income for
1996 of $16.5 million, or $.93 per share. Before extraordinary items, net
income was $21.7 million or $1.22 per share.
The following table sets forth certain operating information of the
Company for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
AVERAGE DAILY PRODUCTION VOLUMES
Barrels of oil equivalent:
LA Basin (approximately 90% oil) 8.1 8.4 9.2
Sunniland Trend (100% oil) ...... 2.7 3.4 4.7
Illinois Basin (100% oil) ....... -- 0.6 3.5
Other ........................... 1.3 0.9 .1
-------- -------- --------
Total .......................... 12.1 13.3 17.5
======== ======== ========
UNIT ECONOMICS
Average sales price per BOE ...... $ 12.92 $ 13.24 $ 15.22
Production expenses per BOE ...... 6.15 6.25 6.04
-------- -------- --------
Gross margin per BOE ............. 6.77 6.99 9.18
Upstream G&A expenses per BOE .... 1.04 .99 .74
-------- -------- --------
Gross profit per BOE ............. $ 5.73 $ 6.00 $ 8.44
======== ======== ========
</TABLE>
Oil and natural gas production volumes in 1996 totaled 6.4 million
BOE, a 33% increase over 1995's level of 4.8 million BOE and a 45% increase
over the 1994 level of 4.4 million BOE. Approximately 94% of 1996's equivalent
production volumes were crude oil. The Company's unit gross margin increased to
$9.18 per BOE in 1996, an improvement of 31% and 36% over the amounts reported
for 1995 and 1994, respectively. Unit gross profit, which deducts all
pre-interest
28
<PAGE> 29
cash costs attributable to the upstream segment, was $8.44 per BOE for 1996, up
41% and 47% over the 1995 and 1994 amounts, respectively.
The significant increase in production volumes is attributable to the
Company's acquisition and exploitation activities. As a result of exploitation
activities conducted over the last three years, 1996 average net daily
production from the LA Basin Properties increased to approximately 9,200 BOE
per day, up 800 BOE per day, or 10% over 1995 and 1,100 BOE per day, or 14%
over the 1994 level. Net production from the Company's Sunniland Trend
properties averaged approximately 4,700 barrels of oil per day in 1996, a 38%
increase compared to 3,400 barrels per day in 1995 and 74% over the 2,700
barrels per day in 1994. The Sunniland Trend's 1996 production includes the
impact of production from two key wells drilled and completed in 1996. A
development well was drilled in the Raccoon Point field and was completed and
placed on production in late March. During 1996, daily gross production from
this well averaged around 3,000 barrels of oil per day. A short radius
horizontal well was placed on production in mid-November and averaged
approximately 1,000 barrels of oil per day during 1996. The Company owns a 100%
working interest and an approximate 83% and 86% net revenue interest in each of
these wells, respectively. At December 31, 1996, these wells accounted for
approximately 60% of the Company's daily production from the Sunniland Trend
properties. Due to the high volume of production that is generated by very few
wells in the Sunniland Trend, abrupt or abnormal declines or downtime due to
mechanical, marketing, or other conditions on any of the properties in this
area could have a significant impact on production.
The year to year comparisons of production volumes and unit margins
were affected by sales of nonstrategic properties, the acquisition of the
Company's Illinois Basin properties in the fourth quarter of 1995 and the
acquisition of the remaining 50% interest in the Sunniland Trend properties
effective May 1, 1994. Net production attributable to properties sold totaled
.3 million BOE, or an average of approximately 1,000 BOE per day, during 1995
and .5 million BOE, or an average of approximately 1,300 BOE per day, in 1994.
Oil and natural gas revenues increased to $97.6 million in 1996 as
compared to $64.1 million in 1995 and $57.2 million in 1994 due to increased
production volumes and higher average product prices. The Company's average
product price, which represents a combination of fixed and floating price sales
arrangements and incorporates location and quality discounts from the benchmark
NYMEX Crude Oil Price, increased 15% to $15.22 per BOE in 1996 as compared to
$13.24 in 1995 and approximately 18% as compared to $12.92 per BOE in 1994. The
increased average product price was primarily attributable to increased crude
oil prices, the higher quality Illinois Basin production, a reduction in the
quality and location differentials for the Sunniland Trend and Illinois Basin
production and the December 1995 purchase of a production payment which
previously burdened the price on the LA Basin Properties. Financial swap
arrangements and futures transactions entered into by the Company to hedge
production are included in the foregoing prices. Such transactions had the
effect of decreasing the overall average price per BOE received by the Company
by $2.62 and $.17 in 1996 and 1995, respectively, and increasing the average
price by $.16 for 1994.
During 1996, the NYMEX Crude Oil Price averaged approximately $22.00
per barrel, up 20% as compared to an average of $18.40 in 1995. Although the
impact of higher commodity prices on the Company's results was limited due to
preexisting hedges, this commodity price increase over the prior year period,
as well as the effect on the Company's downstream operations of the strong
demand for crude oil, had a positive impact on net income before extraordinary
item of approximately $4.1 million and approximately $6.8 million on cash flow
and EBITDA, respectively, for 1996. Of this $6.8 million, approximately $6.2
million is related to unhedged production in the upstream segment and
approximately $.6 million is related to the Company's downstream activities.
Approximately 70% of the Company's crude oil production was hedged throughout
1996 at an average NYMEX Crude Oil Price of approximately $18.04 per barrel,
and accordingly, the Company did not receive the full benefit of the higher
NYMEX Crude Oil Price. The Company routinely hedges a portion of its crude oil
production. See "--Capital Resources, Liquidity and Financial
Condition--Changing Oil and Natural Gas Prices".
Average unit production expenses declined approximately 3% to $6.04
per BOE versus $6.25 per BOE in 1995 and 2% versus $6.15 per BOE in 1994.
However, unit production expenses for each of the Company's three core areas
decreased at greater percentages during 1996 from the 1995 levels, with the LA
Basin declining 4%, the Sunniland Trend declining 18% and the Illinois Basin
declining 30%. Such relationship is caused by the Illinois Basin properties,
which have higher unit production costs than the Company's other two core
properties. The Illinois Basin properties were acquired effective November 1,
1995, thus significantly skewing the weighted average expenses between the two
periods. Unit production expenses for the Illinois Basin properties, which
averaged $12.00 per BOE in the fourth quarter of 1995, averaged
29
<PAGE> 30
approximately $8.42 per BOE during 1996. The significant reduction in
production expenses for the Illinois Basin properties was a result of
operational modifications implemented throughout 1996. The reductions in
production expenses in the Sunniland Trend and LA Basin were attributable to
increased production from fields with a component of fixed production costs
that do not increase with incremental production, reimbursements received in
1996 for electricity overcharges relating to the LA Basin properties in the
previous year and improved operating practices. Total production expenses
increased to $38.7 million from $30.3 million and $27.2 million in 1995 and
1994, respectively, primarily due to the acquisition of the Illinois Basin
properties.
Unit G&A expense in the upstream segment decreased for the fourth
consecutive year. Unit G&A expense decreased 25% to $.74 per BOE during 1996
from $.99 per BOE during 1995. Unit G&A expense was $1.04 per BOE in 1994,
$1.34 per BOE in 1993 and $2.48 per BOE in 1992. These reductions were directly
attributable to increased production levels and to the Company's ongoing cost
reduction and cost control efforts.
Depreciation, Depletion and Amortization ("DD&A") per BOE declined to
$3.00 in 1996 from $3.02 in 1995 and $3.17 in 1994 primarily as a result of the
Company's acquisition and exploitation activities. Primarily as a result of
increased production levels, total DD&A for the year ended December 31, 1996
was $21.9 million as compared to $17.0 million and $16.3 million in 1995 and
1994, respectively.
The Company's downstream segment reported gross margin (revenues less
direct expenses of purchases, transportation, storage and terminalling) of $9.5
million for the year ended December 31, 1996, reflecting an approximate 50%
increase over the $6.4 million reported for the 1995 period and an approximate
54% increase over 1994. Gross revenues from this segment were $531.7 million,
$339.8 million and $199.2 million for 1996, 1995 and 1994, respectively. Gross
profit (gross margin less downstream G&A expenses) increased 66%, totaling $6.6
million versus $4.0 million in 1995, and 72% versus the $3.8 million in 1994.
Such results are directly attributable to continued growth in base business
activities of marketing and terminalling crude oil and strong crude oil demand
throughout 1996. Aggregate marketing and terminalling volumes averaged 115,000
barrels per day in 1996 versus 88,000 barrels per day in 1995 and 64,000
barrels per day in 1994. Downstream G&A expenses for 1995 and 1994 were
relatively constant at $2.4 million for each period, while the level for 1996
totaled approximately $3.0 million. The increase in downstream G&A expense in
1996 was attributable to the continued expansion of the Company's marketing and
terminalling activities.
Interest expense, net of capitalized interest, for 1996 increased to
$17.3 million as compared to $13.6 million in 1995 and $12.6 million in 1994,
primarily due to higher borrowing levels related to the Company's acquisition,
exploitation, development and exploration activities. During 1996, 1995 and
1994, the Company capitalized $3.6 million, $3.1 million and $2.7 million of
interest, respectively.
The Company and certain of its officers and directors and a former
director and officer were named in two class action lawsuits filed in 1992 and
1993 seeking an aggregate of approximately $90 million in compensatory damages
and punitive damages in an unspecified amount for alleged violations of the
federal securities laws and state common law arising out of certain alleged
misrepresentations and omissions in the Company's disclosure regarding its
onshore natural gas exploration activities. During 1996, the Company settled
such cases for a cash payment of approximately $6.3 million. Approximately $4.1
million of such amount was paid by the Company's insurance carrier and $2.2
million was paid by the Company. Taking into account prior costs incurred by
the Company to defend these suits, and for which the Company agreed to
relinquish its claims for reimbursement against its insurance company, this
settlement resulted in a charge to 1996 first quarter earnings of $4 million.
Effective in 1992, Financial Accounting Standard 109 ("FAS 109")
requires companies to record an asset or a liability, as appropriate for its
net tax position as a result of differences between financial reporting
standards and tax reporting requirements. The Company adopted FAS 109 in 1992
and at such time recorded a net deferred tax asset of approximately $20.8
million, but also recorded a valuation reserve against the full amount of such
asset to reflect management's uncertainty, based on all information then
available, with respect to the realization of such asset.
In the first quarter of 1996, the Company reduced its valuation
allowance resulting in the recognition of an $11 million credit to deferred
income tax expense. Based on recent and anticipated improvement in the
Company's outlook for sustained profitability, management believes that it is
more likely than not that it will generate taxable income sufficient to realize
$11 million of unreserved tax benefits associated with certain of the Company's
net operating loss ("NOL") carryforwards prior to their expiration. The reserve
adjustment incorporates management's assessment of the significant,
30
<PAGE> 31
cumulative progress made by the Company over the last four years to reduce unit
expenses, increase unit gross margins and substantially increase its production
and proved reserves through its acquisition and exploitation activities. From
1992 to 1996, unit G&A expenses declined 70%, unit gross profit increased 77%
and production and proved reserves increased 144% and 205%, respectively. Such
reassessment is also reinforced by the refinancing of the 12% Notes in March
1996 and the increased liquidity and flexibility provided by such refinancing.
The remaining deferred tax asset was not recognized primarily due to
limitations imposed by the IRS regarding the utilization of NOLs generated
prior to certain of the Company's subsidiaries being acquired and the
uncertainty of utilizing the Company's investment tax credit ("ITC")
carryforwards. While the Company's tax planning strategies address certain of
these restrictions on the application of subsidiary NOLs, management is
currently uncertain as to the extent such strategies will be successful and
therefore concluded that a reserve for these amounts was appropriate.
Estimates of future taxable income generated using future net cash
flows contained in reserve reports prepared by independent consulting firms in
accordance with regulations prescribed by the SEC also indicate that the
unreserved portion of such deferred tax asset will be realized. Such reserve
data was utilized in calculating the Standardized Measure presented in the
Company's year-end financial statements. See Item 2,"Properties--Oil and
Natural Gas Reserves". Despite the significant turnaround achieved over the
last four years and the current outlook for profitability, due to the
uncertainties in the oil and natural gas industry, including but not limited to
forecasting production, proved reserves, product prices, production expenses
and similar events beyond management's control, there can be no assurance that
the Company will generate any earnings or specific level of continuing
earnings. The Company had carryforwards of approximately $183.4 million of
regular tax NOLs at December 31, 1996, which expire as follows: 1997 - $3.6
million; 1998 - $5.1 million; 1999 - $7.1 million; 2000 - $7.9 million; 2001 -
$4.4 million; 2002 - $11.8 million; 2003 - $9.4 million; 2004 - $0; 2005 - $7.2
million; 2006 - $1.0 million; 2007 - $16.4 million and thereafter through 2011
- - $109.5 million. Approximately $15.7 million of the regular tax NOL
carryforwards at December 31, 1996, may only be utilized to the extent certain
subsidiaries that generated the NOLs have taxable income. See Item 1,
"Business--Federal Taxation".
For the year ended December 31, 1996, the Company recognized a net
deferred tax benefit before extraordinary item of $3.9 million. Such amount
consists of a $7.1 million deferred tax provision on the Company's income
before extraordinary item and the $11 million valuation allowance reduction
previously discussed. In addition, the Company reported a $3.4 million deferred
tax benefit as an extraordinary item. Such deferred tax benefit was attributable
to the $8.5 million pre-tax first quarter extraordinary loss from the early
redemption of the 12% Notes. Although the Company recorded net income for 1995
and 1994, no provision for income taxes was reflected during these years, but
rather the valuation allowance discussed above was adjusted.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
On March 19, 1996, the Company sold $150 million of Senior
Subordinated Notes due 2006, Series A, bearing a coupon rate of 10.25% (the
"Series A 10.25% Notes"). Such notes were issued pursuant to a Rule 144A
private placement at approximately 99.38% of the principal amount thereof to
yield 10.35%. On August 8, 1996, the Company exchanged a total of $149.5
million principal amount of the Series A 10.25% Notes for 10.25% Senior
Subordinated Notes due 2006, Series B, (the "Series B 10.25% Notes"). The
Series B 10.25% Notes are substantially identical (including principal amount,
interest rate, maturity and redemption rights) to the Series A 10.25% Notes for
which they were exchanged, except for certain transfer restrictions relating to
the Series A 10.25% Notes.
The Series A 10.25% Notes and the Series B 10.25% Notes (collectively,
the "10.25% Notes") are redeemable, at the option of the Company, on or after
March 15, 2001 at 105.13% of the principal amount thereof, at decreasing prices
thereafter prior to March 15, 2004, and thereafter at 100% of the principal
amount thereof plus, in each case, accrued interest to the date of redemption.
In addition, prior to March 15, 1999, up to $45 million in principal amount of
the 10.25% Notes are redeemable at the option of the Company, in whole or in
part, from time to time, at 110.25% of the principal amount thereof, with the
Net Proceeds of any Public Equity Offering (as both are defined in the
indenture under which the 10.25% Notes were issued ("the "Indenture")).
The Indenture contains covenants including, but not limited to the
following: (i) limitations on incurrence of additional indebtedness; (ii)
limitations on certain investments; (iii) limitations on restricted payments;
(iv) limitations on dispositions of assets; (v) limitations on dividends and
other payment restrictions affecting subsidiaries; (vi) limitations on
31
<PAGE> 32
transactions with affiliates; (vii) limitations on liens; and (viii)
restrictions on mergers, consolidations and transfers of assets. In the event
of a Change of Control and a corresponding Rating Decline, as both are defined
in the Indenture, the Company will be required to make an offer to repurchase
the 10.25% Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of the repurchase. The 10.25% Notes are unsecured
general obligations of the Company and are subordinated in right of payment to
all existing and future senior indebtedness of the Company and are guaranteed
by all of the Company's principal subsidiaries.
Proceeds from the sale of the 10.25% Notes, net of offering costs,
were approximately $144.6 million and were used to redeem the 12% Notes at 106%
of the $100 million principal amount outstanding and, together with amounts
borrowed under the Revolving Credit Facility, to retire bridge indebtedness
associated with the Illinois Basin acquisition. Prior to redemption, the 12%
Notes had an average remaining life of three years and scheduled maturities of
$50 million in each of 1998 and 1999.
The Company has a $125 million revolving credit facility with a group
of five banks (the "Lenders"). The Revolving Credit Facility is secured by the
oil and natural gas properties of the Company and is guaranteed by all of the
Company's subsidiaries other than PMCT, Inc. ("PMCT"), which guarantees are
secured by substantially all of the oil and natural gas properties of the
Company and its subsidiaries and the stock of all guaranteeing subsidiaries.
The Cushing Terminal is not pledged as security for any of the Company's debt.
The borrowing base is currently set at $125 million and is subject to borrowing
base availability as determined from time to time by the Lenders in good faith,
in the exercise of the Lenders' sole discretion, and in accordance with
customary practices and standards in effect from time to time for oil and
natural gas loans to borrowers similar to the Company. Such borrowing base may
be affected from time to time by the performance of the Company's oil and
natural gas properties and changes in oil and natural gas prices. The Company
incurs a commitment fee of 1/2% per annum on the unused portion of the
borrowing base. The Revolving Credit Facility, as amended, matures on May 1,
1998, at which time the remaining outstanding balance converts to a term loan
which is repayable in twenty equal quarterly installments commencing August 1,
1998, with a final maturity of May 1, 2003. The Revolving Credit Facility bears
interest, at the Company's option of either LIBOR plus 1 3/8% or Prime Rate (as
defined therein). At December 31, 1996, outstanding borrowings under the
Revolving Credit Facility were $72.7 million. An additional $1.0 million was
reserved against the issuance of a standby letter of credit. The Revolving
Credit Facility contains covenants which, among other things, prohibit the
payment of cash dividends, limit the amount of consolidate debt, limit
the Company's ability to make certain loans and investments, and provide
that the Company must maintain a specified relationship between current
assets and current liabilities.
During 1996, Plains Marketing increased its uncommitted secured demand
transactional line of credit (the "Transactional Facility") with five banks to
$90 million. The purpose of the Transactional 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 Transactional Facility is secured by all of the assets of
Plains Marketing and is guaranteed by the Company. The Company's guarantee is
secured by a $1.0 million standby letter of credit issued on behalf of the
Company. At December 31, 1996, approximately $39.6 million in letters of credit
were outstanding under the Transactional Facility. None of the Company's
letters of credit under the Transactional Facility have ever been drawn.
Generally, purchases secured by the letters of credit and receivables generated
from the sale of crude oil are settled on a monthly basis.
PMCT has established a $20 million sublimit (the "Sublimit") within
the Transactional Facility for standby letters of credit and borrowings to
finance crude oil purchased in connection with operations at the Cushing
Terminal. 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. Standby letters of credit and borrowings under the
Sublimit are secured by all of the assets of PMCT and are recourse only to the
subsidiary. Letters of credit under the Transactional Facility are issued for
up to seventy day periods and bear fees of 1.5% per annum. Borrowings incur
interest at the borrower's option of either (i) the Base Rate plus 5/8% or (ii)
LIBOR plus 2%. All financings under the Transactional Facility, which expires
in November 1997, are at the discretion of the lenders. Aggregate cash
borrowings by both subsidiaries are limited to $20 million. At December 31,
1996, no letters of credit or borrowings were outstanding under the Sublimit.
32
<PAGE> 33
At December 31, 1996, the Company had a working capital deficit of
approximately $4.8 million. The Company has historically operated with a
working capital deficit due primarily to ongoing capital expenditures that have
been financed through cash flow and the Revolving Credit Facility. The working
capital deficits at December 31, 1995 and 1994, were $4.7 million and $4.5
million, respectively.
The Company has made and will continue to make, substantial capital
expenditures for the acquisition, exploitation, development, exploration and
production of oil and natural gas reserves. Historically, the Company has
financed these expenditures primarily with cash generated by operations, bank
borrowings, and the sale of subordinated notes, common stock and preferred
stock. The Company intends to make an aggregate of approximately $67 million
in capital expenditures in 1997, including approximately $48 million on the
development and exploitation of its LA Basin, Sunniland Trend and Illinois Basin
properties, approximately $14 million on exploration and higher risk
exploitation activities primarily in the Sunniland Trend and the LA Basin and
approximately $5 million for various other capital items. In addition, the
Company intends to continue to pursue the acquisition of underdeveloped
producing properties. The Company believes that it will have sufficient cash
from operating activities and borrowings under the Revolving Credit Facility to
fund such planned capital expenditures.
Changing Oil and Natural Gas Prices
The Company is affected by changes in crude oil prices which have
historically been volatile. Although the Company has routinely hedged a
substantial portion of its crude oil production and intends to continue this
practice, substantial future crude oil price declines would have a negative
impact on the Company's overall results, and therefore its liquidity.
Furthermore, low crude oil prices could affect the Company's ability to raise
capital on terms favorable to the Company. In order to manage its exposure to
commodity price risk, the Company has routinely hedged a portion of its crude
oil production. For 1997, the Company has entered into various fixed price and
floating price collar arrangements. Such arrangements generally provide the
Company with downside price protection on approximately 14,000 barrels of oil
per day at a NYMEX Crude Oil Price of approximately $19.00 per barrel but
permit the Company to receive the benefit of increases in the NYMEX Crude Oil
Price up to $24.00 per barrel on 4,000 of such barrels per day. Thus, based on
the Company's average fourth quarter 1996 oil production rate, these
arrangements generally provide the Company with downside price protection for
80% of its production and upside price participation for 43% of its production
up to $24.00 per barrel, while 20% of such production and excess volumes, if
any, remain unhedged. In addition, the Company also has a fixed price
arrangement on 4,500 barrels per day for 1998 at a NYMEX Crude Oil Price of
$19.24 per barrel. Management intends to continue to maintain hedging
arrangements for a significant portion of its production. Such contracts may
expose the Company to the risk of financial loss in certain circumstances. See
Item 1, "Business--Product Markets and Major Customers".
Investing Activities
Net cash flows used in investing activities were $52.5 million, $64.4
million and $40.2 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Included in such amounts are payments, net of cash received from
property sales and reimbursements from partners, for acquisition, exploration
and development costs of $49.9 million, $63.9 million and $39.6 million for the
same periods, respectively. Such payments for 1995 include $45.0 million
related to the cash portion of the acquisition of the Illinois Basin Properties
and for 1994 include approximately $12.4 million related to the cash portion of
the acquisition of the remaining 50% interest in the Sunniland Trend
Properties. The Company expended $2.6 million, $1.1 million and $2.1 million in
1996, 1995 and 1994, respectively, for other property additions, primarily for
downstream activities and computer equipment.
33
<PAGE> 34
Financing Activities
Net cash provided by financing activities amounted to $9.9 million,
$52.3 million and $19.3 million for 1996, 1995 and 1994, respectively.
Aggregate proceeds from long-term borrowings for these same years were $263.7
million, $83.6 million and $70.0 million, respectively, while payments of
long-term debt were $248.1 million, $32.7 million and $60.5 million for the
respective periods. Financing activities during 1996 include net proceeds of
approximately $144.6 million from the Series A 10.25% Notes, approximately $107
million for the repayment of the 12% Notes, including the 6% call premium and
the net defeasance costs, and approximately $42 million for the repayment of
the Illinois Basin acquisition bridge indebtedness. The Illinois Basin
acquisition indebtedness of $42 million is included in aggregate financing
proceeds for 1995. Remaining long-term debt activity is primarily related to
advances received and payments made on the Revolving Credit Facility. Financing
activities during 1994 include net payments from short-term borrowings of $9.6
million related to the Transactional Facility. Such amounts were borrowed to
finance the purchase of crude oil inventory in 1993 which was sold in 1994.
Financing activities include proceeds from the sale of capital stock of $1.8
million, $.9 million and $20.6 million in 1996, 1995 and 1994, respectively.
Such proceeds in 1996 and 1995 were primarily from the exercise of employee
stock options while the 1994 proceeds were primarily from the issuance of the
preferred stock which was converted into Common Stock in 1995.
Commitments
Although the Company obtained environmental studies on its properties
in the LA Basin, Sunniland Trend and Illinois Basin and the Company believes
that such properties have been operated in accordance with standard oil field
practices, certain of the fields have been in operation for approximately 90
years, and current or future local, state and federal environmental laws and
regulations may require substantial expenditures to comply with such rules and
regulations.
Consistent with normal industry practices, substantially all of the
Company's oil and natural gas leases require that, upon termination of economic
production, the working interest owners plug and abandon non-producing
wellbores, remove tanks, production equipment and flow lines and restore the
wellsite. The Company has estimated that the costs to perform these tasks is
approximately $13 million, net of salvage value and other considerations. Such
estimated costs are amortized to expense through the unit-of-production method
as a component of accumulated depreciation, depletion and amortization. Results
from operations for 1996, 1995 and 1994 include $.8 million, $1.0 million and
$1.1 million, respectively, of expense associated with these estimated future
costs. For valuation and realization purposes of the affected oil and natural
gas properties, these estimated future costs are also deducted from estimated
future gross revenues to arrive at the estimated future net revenues and the
Standardized Measure disclosed in the accompanying Consolidated Financial
Statements.
34
<PAGE> 35
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be provided in this item is included in the
Consolidated Financial Statements of the Company, including the Notes thereto,
attached hereto as pages F-1 to F-24 and such information is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements on accounting and financial disclosure with
the Company's independent accountants.
PART III
Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company will be included in the
proxy statement for the 1997 Annual Meeting of Stockholders (the "Proxy
Statement") to be filed within 120 days after December 31, 1996, and is
incorporated herein by reference. Information with respect to the Company's
executive officers is presented in Part I, Item 4 of this Report.
Item 11.EXECUTIVE COMPENSATION
Information regarding executive compensation will be included in the Proxy
Statement and is incorporated herein by reference.
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information, if any, regarding beneficial ownership of the Common Stock
will be included in the Proxy Statement and is incorporated herein by
reference.
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding Certain Relationships and Related Transactions will
be included in the Proxy Statement and is incorporated herein by reference.
PART IV
Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
35
<PAGE> 36
(a) (1) Financial Statements
The financial statements filed as part of this report are listed in
the "Index to Consolidated Financial Statements" on Page F-1 hereof.
<TABLE>
<CAPTION>
(2) Exhibits
<S> <C>
2(a) -- Purchase and Sale Agreement dated
October 31, 1995, between Marathon and Crete, as amended by
that certain Amendment dated December 4, 1995, among
Marathon, Plains Resources Inc. and Plains Illinois Inc.
(incorporated by reference to Exhibit 2.1 to Form 8-K dated
Jan 1996).
3(a) -- Second Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
3(b) -- Bylaws of the Company, as amended to date (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
4(a) -- Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4 to the Company's Form S-1
Registration Statement (Reg. No. 33-33986)).
4(c) -- Purchase Agreement for Stock Warrant dated May 16, 1994,
between Plains Resources Inc. and Legacy Resources, Co.,
L.P. (incorporated by reference to Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1994).
10(a)*-- Employment Agreement dated as of March 1, 1993, between the
Company and Greg L. Armstrong (incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
10(b)*-- The Company's 1991 Management Options (incorporated by
reference to Exhibit 4.1 to the Company's S-8 Registration
Statement (Reg. No. 33-43788)).
10(c)*-- The Company's 1992 Stock Incentive Plan (incorporated by
reference to Exhibit 4.3 to the Company's S-8 Registration
Statement (Reg. No. 33-48610)).
10(d)*-- The Company's Amended and Restated 401(k) Plan.
10(e) -- Restructure Agreement dated February 25, 1991, among
The Aetna Casualty and Surety Company, Aetna Life Insurance
Company and the Company (incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10(f) -- Uncommitted Secured Transactional Line of Credit Facility
letter agreement dated as of August 23, 1995, between
Plains Marketing & Transportation Inc. and The First
National Bank of Boston, et al. (incorporated by reference
to Exhibit 10(m) of the Company's Annual Report on Form
10-K for the year ended 1995).
10(g) -- Uncommitted Secured Transactional Line of Credit Facility
letter agreement dated August 23, 1995 between PMCT Inc.
and The First National Bank of Boston, et al. (incorporated
by reference to Exhibit 10(n) of the Company's Annual
Report on Form 10-K for the year ended 1995).
10(h) -- Third Amended and Restated Credit Agreement dated as of
April 11, 1996 among the Company and ING (U.S.) Capital
Corporation, et al. (incorporated by reference to Exhibit
10(n) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996).
10(i) -- First Amendment to Third Amended and Restated Credit
Agreement dated as of December 16, 1996, among the Company
and ING (U.S.) Capital Corporation, et al.
10(j) -- Amendment dated as of November 22, 1996 to Uncommitted
Secured Transactional Line of Credit between Plains
Marketing & Transportation Inc. and The First National Bank
of Boston, et al.
10(k) -- Amendment dated as of November 22, 1996 to Uncommitted
Secured Transactional Line of Credit between PMCT and The
First National Bank of Boston, et al.
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C>
10(l)*-- Stock Option Agreement dated August 27, 1996 between the
Company and Greg L. Armstrong.
10(m)*-- Stock Option Agreement dated August 27, 1996 between the
Company and William C. Egg Jr.
10(n) -- First Amendment to the Company's 1992 Stock Incentive Plan.
11(a) -- Statement regarding computation of per share earnings for
the year ended December 31, 1996.
11(b) -- Statement regarding computation of per share earnings for
the year ended December 31, 1995.
11(c) -- Statement regarding computation of per share earnings for
the year ended December 31, 1994.
21 -- Subsidiaries of the Company.
23(a) -- Consent of Price Waterhouse LLP.
23(b) -- Consent of Price Waterhouse LLP.
27 -- Financial Data Schedule
</TABLE>
- ----------------
*A management contract or compensation plan.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter of 1996.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PLAINS RESOURCES INC.
Date: February 11, 1997 By: /s/ Phillip D. Kramer
-------------------------------------------
Phillip D. Kramer, Vice President and Chief
Financial Officer (Principal Financial
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: February 11, 1997 By: /s/ Greg L. Armstrong
--------------------------------------
Greg L. Armstrong, President,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: February 11, 1997 By: /s/ Robert A. Bezuch
--------------------------------------
Robert A. Bezuch, Director
Date: February 11, 1997 By: /s/ Tom H. Delimitros
--------------------------------------
Tom H. Delimitros, Director
Date: February 11, 1997 By: /s/ Cynthia A. Feeback
--------------------------------------
Cynthia A. Feeback, Controller and
Principal Accounting Officer
(Principal Accounting Officer)
Date: February 11, 1997 By: /s/ William M. Hitchcock
--------------------------------------
William M. Hitchcock, Director
38
<PAGE> 39
Date: February 11, 1997 By: /s/ Phillip D. Kramer
---------------------------------------
Phillip D. Kramer, Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: February 11, 1997 By: /s/ Dan M. Krausse
---------------------------------------
Dan M. Krausse, Chairman of the Board
and Director
Date: February 11, 1997 By: /s/ John H. Lollar
---------------------------------------
John H. Lollar, Director
Date: February 11, 1997 By: /s/ Robert V. Sinnott
---------------------------------------
Robert V. Sinnott, Director
Date: February 11, 1997 By: /s/ J. Taft Symonds
---------------------------------------
J. Taft Symonds, Director
The Annual Report to Stockholders of the Company for the year ended
December 31, 1996, and the proxy statement relating to the annual meeting of
stockholders will be furnished to stockholders subsequent to the filing of this
Annual Report on Form 10-K. Such documents have not been mailed to stockholders
as of the date of this report.
39
<PAGE> 40
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 . . . . . . . F-3
Consolidated Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1994, 1995 and 1996 . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Plains Resources Inc.:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Plains Resources Inc. and its subsidiaries at December 31, 1995 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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.
PRICE WATERHOUSE LLP
Houston, Texas
February 10, 1997
F-2
<PAGE> 42
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,129 $ 2,517
Accounts receivable 51,632 93,686
Inventory 5,120 4,563
Prepaids and other 751 1,092
-------------- --------------
Total current assets 63,632 101,858
-------------- --------------
PROPERTY AND EQUIPMENT
Oil and natural gas properties - full cost method:
Subject to amortization 328,712 384,019
Not subject to amortization 48,795 41,698
Downstream assets, primarily crude oil terminal and storage facility 32,788 35,122
Other property and equipment 7,789 8,275
-------------- --------------
418,084 469,114
Less allowance for depreciation, depletion and amortization (137,546) (158,074)
-------------- --------------
280,538 311,040
-------------- --------------
OTHER ASSETS 7,876 17,351
-------------- --------------
$ 352,046 $ 430,249
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 56,573 $ 93,242
Interest payable 3,977 5,089
Royalties payable and drilling advances 6,364 7,859
Notes payable and other current obligations 1,467 511
-------------- --------------
Total current liabilities 68,381 106,701
BANK DEBT 98,000 72,700
SUBORDINATED DEBT 100,000 149,121
OTHER LONG-TERM DEBT 7,089 3,578
OTHER LONG-TERM LIABILITIES 1,547 2,577
-------------- --------------
275,017 334,677
-------------- --------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 50,000,000 shares authorized; issued and
outstanding 16,178,670 shares at December 31, 1995, and 16,518,645 shares
at December 31, 1996 1,618 1,652
Additional paid-in capital 118,090 120,051
Accumulated deficit (42,679) (26,131)
-------------- --------------
77,029 95,572
-------------- --------------
$ 352,046 $ 430,249
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 43
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE
Oil and natural gas sales $ 57,234 $ 64,080 $ 97,601
Marketing, transportation and storage 199,239 339,826 531,698
Interest and other income 223 319 309
----------- ----------- -----------
256,696 404,225 629,608
----------- ----------- -----------
EXPENSES
Production expenses 27,220 30,256 38,735
Purchases, transportation and storage 193,049 333,460 522,167
General and administrative 6,966 7,215 7,729
Depreciation, depletion and amortization 16,305 17,036 21,937
Interest expense 12,585 13,606 17,286
Litigation settlement -- -- 4,000
----------- ----------- -----------
256,125 401,573 611,854
----------- ----------- -----------
Income before income taxes and extraordinary item 571 2,652 17,754
Income tax expense (benefit) -- -- (3,898)
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 571 2,652 21,652
EXTRAORDINARY ITEM:
(Loss) on early extinguishment of debt, net of tax benefit -- -- (5,104)
----------- ----------- -----------
NET INCOME $ 571 $ 2,652 $ 16,548
=========== =========== ===========
Net income per common and common equivalent share:
Before extraordinary item $ 0.04 $ 0.16 $ 1.22
Extraordinary item -- -- (0.29)
----------- ----------- -----------
$ 0.04 $ 0.16 $ 0.93
=========== =========== ===========
Weighted average number of common and
common equivalent shares 11,625 15,981 17,732
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 44
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 571 $ 2,652 $ 16,548
Items not affecting cash flows from
operating activities:
Depreciation, depletion and amortization 16,305 17,036 21,937
Loss on early extinguishment of debt, net of tax -- -- 5,104
Deferred income taxes -- -- (3,898)
Amortization of debt discount and other -- -- 251
Change in assets and liabilities resulting from operating activities:
Accounts receivable (17,578) (18,598) (41,046)
Inventory 8,050 405 551
Prepaids and other (115) 106 (64)
Accounts payable and other current liabilities 11,119 14,133 37,296
Interest payable 503 347 977
Royalties payable (486) 903 1,352
------------ ------------ -------------
Net cash provided by operating activities 18,369 16,984 39,008
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received for the sale of oil and gas properties 314 7,355 3,066
Payment for acquisition, exploration and development costs (39,885) (71,250) (53,011)
Payment for additions to other property and assets (2,130) (1,120) (2,551)
Proceeds from escrow account 1,543 617 --
------------ ------------ -------------
Net cash used in investing activities (40,158) (64,398) (52,496)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 70,000 83,550 263,723
Proceeds from short-term debt 10,576 -- --
Proceeds from sale of capital stock, options and warrants 20,641 869 1,785
Principal payments of long-term debt (60,500) (32,717) (248,144)
Principal payments of short-term debt (20,214) -- --
Costs incurred to redeem long-term debt -- -- (6,468)
Other (1,206) 550 (1,020)
------------ ------------ -------------
Net cash provided by financing activities 19,297 52,252 9,876
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents (2,492) 4,838 (3,612)
Cash and cash equivalents, beginning of year 3,783 1,291 6,129
------------ ------------ -------------
Cash and cash equivalents, end of year $ 1,291 $ 6,129 $ 2,517
============ ============ =============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 45
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
$1.30 CUMULATIVE ADDITIONAL
CONVERTIBLE PAID-IN ACCUMULATED
PREFERRED STOCK COMMON STOCK CAPITAL DEFICIT
------------------------ ---------------------- ---------- -----------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 48,070 $ 481 11,567,013 $ 1,157 $ 87,211 $ (43,852)
Warrant issued in connection
with an acquisition -- -- -- -- 2,000 --
Preferred stock dividends -- -- -- -- -- (1,171)
Capital stock issued upon exercise
of options and other -- -- 26,444 2 63 --
Net income for the year -- -- -- -- -- 571
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1994 48,070 481 11,593,457 1,159 89,274 (44,452)
Preferred stock dividends -- -- -- -- -- (879)
Redemption of $1.30 Cumulative
Convertible Preferred Stock (48,070) (481) -- -- -- --
Conversion of Redeemable
Preferred Stock -- -- 3,628,125 363 21,406 --
Issuance of common stock in
connection with an acquisition -- -- 798,143 80 6,447 --
Capital stock issued upon exercise
of options and other -- -- 158,945 16 963 --
Net income for the year -- -- -- -- -- 2,652
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 -- -- 16,178,670 1,618 118,090 (42,679)
Capital stock issued upon exercise
of options and other -- -- 339,975 34 1,961 --
Net income for the year -- -- -- -- -- 16,548
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 -- $ -- 16,518,645 $ 1,652 $ 120,051 $ (26,131)
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 46
PLAINS RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the accounts of Plains
Resources Inc. (the "Company"), and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated. Certain
reclassifications have been made to the prior year statements to conform with
the current year presentation.
The Company is an independent energy company engaged in the
acquisition, exploitation, development, exploration and production of crude oil
and natural gas and the marketing, transportation, terminalling and storage of
crude oil. The Company's upstream oil and natural gas activities are focused
in the Los Angeles Basin of California (the "LA Basin"), the Sunniland Trend of
South Florida (the "Sunniland Trend"), the Illinois Basin in southern Illinois
and the Gulf Coast area of Louisiana. Its downstream marketing activities are
concentrated in Oklahoma, where it owns a two million barrel, above ground
crude oil terminalling and storage facility (the "Cushing Terminal"), Texas and
the Gulf Coast area of Louisiana.
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. Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all demand deposits and funds
invested in highly liquid instruments.
INVENTORY
Crude oil inventory is carried at the lower of cost, as adjusted for
deferred hedging gains and losses, or market value using an average cost
method. Materials and supplies inventory is stated at the lower of cost or
market with cost determined on a first-in, first-out method.
OIL AND NATURAL GAS PROPERTIES
The Company follows the full cost method of accounting whereby all
costs associated with property acquisition, exploration and development
activities are capitalized. Such costs include internal general and
administrative costs such as payroll and related benefits and costs directly
attributable to employees engaged in acquisition, exploration and development
activities. General and administrative costs associated with production,
operations, marketing and general corporate activities are expensed as
incurred. These capitalized costs along with the Company's estimate of future
development and abandonment costs, net of salvage values and other
considerations, are amortized to expense by the unit-of-production method using
engineers' estimates of unrecovered proved oil and natural gas reserves. The
costs of unproved properties are excluded from amortization until the
properties are evaluated. Interest is capitalized on oil and natural gas
properties not subject to amortization and in the process of development.
Proceeds from the sale of properties are accounted for as reductions to
capitalized costs unless such sales involve a significant change in the
relationship between costs and the estimated value of proved reserves, in which
case a gain or loss is recognized. Unamortized costs of proved properties are
subject to a ceiling which limits such costs to the present value of estimated
future cash flows from proved oil and natural gas reserves of such properties
reduced by future operating expenses, development expenditures and abandonment
costs (net of salvage values), and estimated future income taxes thereon (the
"Standardized Measure") (See Note 16).
F-7
<PAGE> 47
OTHER PROPERTY AND EQUIPMENT
Other property and equipment is recorded at cost. Acquisitions,
renewals, 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 three to seven years.
DEBT ISSUE COSTS
Costs incurred in connection with the issuance of long-term debt are
capitalized and amortized using the straight-line method over the term of the
related debt. Debt issue costs, net of accumulated amortization, as of
December 31, 1995 and 1996, in the amount of $3.4 million and $5.0 million,
respectively, are included in "Other Assets" in the accompanying Consolidated
Balance Sheets.
FEDERAL AND STATE INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
MARKETING AND TRANSPORTATION
The Company's marketing activities are conducted through its
wholly-owned subsidiary, Plains Marketing & Transportation Inc. ("Plains
Marketing"). Plains Marketing markets principally crude oil of third party
producers as well as crude oil and natural gas produced by the Company.
Marketing and transportation revenue is accrued at the time title to the
product sold transfers to the purchaser and purchases are accrued at the time
title to the product purchased transfers to Plains Marketing. The Company's
policy is 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.
HEDGING
The Company periodically uses certain instruments to hedge its
exposure to price fluctuations on oil and natural gas transactions. Recognized
gains and losses on hedge contracts are reported as a component of the related
transaction. Results for hedging transactions are reflected in oil and natural
gas sales to the extent related to the Company's oil and natural gas production
and in marketing, transportation and storage revenues to the extent related to
such activities.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation". In
accordance with the provisions of SFAS No. 123, the Company applies APB Opinion
25 and related Interpretations in accounting for its stock option plans (See
Note 10).
NOTE 2 -- INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Crude oil $ 2,884 $ 2,536
Materials and supplies 2,236 2,027
----------- ------------
$ 5,120 $ 4,563
=========== ============
</TABLE>
F-8
<PAGE> 48
Substantially all of the crude oil inventory at December 31, 1995 and 1996,
except for minor amounts of working inventory, was hedged with New York
Mercantile Exchange ("NYMEX") futures contracts or short-term physical delivery
contracts. Deferred gains or losses from inventory hedges are included as part
of the inventory cost and recognized when the related inventory is sold.
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C>
Revolving Credit Facility, bearing interest
at weighted average interest rates of 8.2%
and 7.0%, at December 31, 1995 and 1996,
respectively $ 56,000 $ 72,700
Illinois Basin Acquisition Indebtedness,
bearing interest at 7.35%
at December 31, 1995 42,000 --
10 1/4% Senior Subordinated Notes
due 2006, net of unamortized discount
of $.9 million -- 149,121
12% Senior Subordinated Notes due 1999 100,000 --
Other long-term debt 8,533 4,089
------------ ------------
Total long-term debt $ 206,533 $ 225,910
Less current maturities (1,444) (511)
------------ ------------
$ 205,089 $ 225,399
============ ============
</TABLE>
REVOLVING CREDIT FACILITY
The Company has a $125 million revolving credit facility (the "Revolving
Credit Facility") with a group of five banks (the "Lenders"). The Revolving
Credit Facility is secured by the oil and natural gas properties of the Company
and is guaranteed by all of the Company's subsidiaries other than PMCT, Inc.
("PMCT"), which guarantees are secured by substantially all of the oil and
natural gas properties of the Company and its subsidiaries and the stock of all
guaranteeing subsidiaries. The Cushing Terminal is not pledged as security for
any of the Company's debt. The borrowing base under the Revolving Credit
Facility at December 31, 1996, is set at $125 million and is subject to
borrowing base availability as determined from time to time by the Lenders in
good faith, in the exercise of the Lenders' sole discretion, and in accordance
with customary practices and standards in effect from time to time for oil and
natural gas loans to borrowers similar to the Company. Such borrowing base may
be affected from time to time by the performance of the Company's oil and
natural gas properties and changes in oil and natural gas prices. The Company
incurs a commitment fee of 1/2% per annum on the unused portion of the
borrowing base. The Revolving Credit Facility, as amended, matures on May 1,
1998, at which time the remaining outstanding balance converts to a term loan
which is repayable in twenty equal quarterly installments commencing August 1,
1998, with a final maturity of May 1, 2003. The Revolving Credit Facility
bears interest, at the Company's option of either LIBOR plus 1 3/8% or Prime
Rate (as defined therein). At December 31, 1996, outstanding borrowings under
the Revolving Credit Facility were $72.7 million. An additional $1 million was
reserved against the issuance of a standby letter of credit.
The Revolving Credit Facility contains covenants which, among other
things, prohibit the payment of cash dividends, limit the amount of
consolidated debt, limit the Company's ability to make certain loans and
investments, and provide that the Company must maintain a specified
relationship between current assets and current liabilities.
10.25% SENIOR SUBORDINATED NOTES DUE 2006
On March 19, 1996, the Company sold $150 million of Senior Subordinated
Notes due 2006, Series A, bearing a coupon rate of 10.25% (the "Series A 10.25%
Notes"). Such notes were issued pursuant to a Rule 144A private placement at
approximately 99.38% of the principal amount thereof to yield 10.35%. On
August 8, 1996, the Company exchanged a total of $149.5 million principal
amount of the Series A 10.25% Notes for 10.25% Senior Subordinated Notes due
2006, Series B, (the "Series B 10.25% Notes"). The Series B 10.25% Notes are
substantially
F-9
<PAGE> 49
identical (including principal amount, interest rate, maturity and redemption
rights) to the Series A 10.25% Notes for which they were exchanged, except for
certain transfer restrictions relating to the Series A 10.25% Notes.
The Series A 10.25% Notes and the Series B 10.25% Notes (collectively, the
"10.25% Notes") are redeemable, at the option of the Company, on or after March
15, 2001 at 105.13% of the principal amount thereof, at decreasing prices
thereafter prior to March 15, 2004, and thereafter at 100% of the principal
amount thereof plus, in each case, accrued interest to the date of redemption.
In addition, prior to March 15, 1999, up to $45 million in principal amount of
the 10.25% Notes are redeemable at the option of the Company, in whole or in
part, from time to time, at 110.25% of the principal amount thereof, with the
Net Proceeds of any Public Equity Offering (as both are defined in the
indenture under which the 10.25% Notes were issued (the "Indenture")).
The Indenture contains covenants including, but not limited to the
following: (i) limitations on incurrence of additional indebtedness; (ii)
limitations on certain investments; (iii) limitations on restricted payments;
(iv) limitations on dispositions of assets; (v) limitations on dividends and
other payment restrictions affecting subsidiaries; (vi) limitations on
transactions with affiliates; (vii) limitations on liens; and (viii)
restrictions on mergers, consolidations and transfers of assets. In the event
of a Change of Control and a corresponding Rating Decline, as both are defined
in the Indenture, the Company will be required to make an offer to repurchase
the 10.25% Notes at 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of the repurchase. The 10.25% Notes are unsecured
general obligations of the Company and are subordinated in right of payment to
all existing and future senior indebtedness of the Company and are guaranteed
by all of the Company's principal subsidiaries.
Proceeds from the sale of the 10.25% Notes, net of offering costs, were
approximately $144.6 million and were used to redeem the Company's 12% Senior
Subordinated Notes due 1999 (the "12% Notes") at 106% of the $100 million
principal amount outstanding and to retire $42 million of bridge bank
indebtedness which was incurred in December 1995 in connection with the
acquisition of all of the upstream oil and gas assets of Marathon Oil Company
("Marathon") in the Illinois Basin (the "Illinois Basin Properties"). The 12%
Notes were redeemed in April 1996, and the Company recognized an extraordinary
loss of $8.5 million, $5.1 million net of deferred income tax, in connection
therewith. Prior to redemption, the 12% Notes had an average remaining life of
three years and scheduled maturities of $50 million in each of 1998 and 1999.
OTHER LONG-TERM DEBT
Included in other long-term debt at December 31, 1995 and 1996 is $4.6
million and $4.1 million, respectively, related to the 1995 acquisition of a
production payment burdening certain of the Company's LA Basin properties.
Such other long-term debt has maturities of approximately $.5 million per year
in each of the years 1997 through 2004.
The aggregate amount of maturities of all long-term indebtedness for
the next five years is: 1997 - $.5 million, 1998 - $7.8 million, 1999 - $15.1
million, 2000 - $15.1 million and 2001 - $15.1 million.
NOTE 4 -- UNCOMMITTED SECURED TRANSACTIONAL GUIDANCE FACILITY
Plains Marketing has a $90 million Uncommitted Secured Demand
Transactional Line of Credit (the "Transactional Facility") with five banks.
The purpose of the Transactional 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 Transactional Facility is secured by all of the assets of Plains Marketing,
primarily accounts receivable and crude oil inventory, and is guaranteed by the
Company. The Company's guarantee is secured by a $1 million standby letter of
credit issued on behalf of the Company under the Revolving Credit Facility. At
December 31, 1996, approximately $39.6 million in letters of credit were
outstanding under the Transactional Facility.
PMCT, a wholly owned subsidiary of the Company, has established a $20
million sublimit (the "Sublimit") within the Transactional Facility for standby
letters of credit and borrowings to finance crude oil purchased in connection
with operations at the Cushing Terminal. 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. Standby
F-10
<PAGE> 50
letters of credit and borrowings under the Sublimit are secured by all of the
assets of PMCT and are recourse only to PMCT. At December 31, 1996, no letters
of credit or borrowings were outstanding under the Sublimit.
Letters of credit under the Transactional Facility are generally
issued for up to seventy day periods and bear fees of 1.5% per annum.
Borrowings incur interest at the borrower's option of either (i) the Prime Rate,
as defined, plus 5/8% or (ii) LIBOR plus 2%. All financings under the
Transactional Facility, which expires in November 1997, are at the discretion
of the lenders. Aggregate cash borrowings by both subsidiaries are limited to
$20 million.
NOTE 5 -- CAPITAL STOCK
COMMON STOCK
The Company has authorized capital stock consisting of 50 million
shares of Common Stock, $.10 par value, and 2 million shares of preferred
stock, $1.00 par value. At December 31, 1996, there were 16.5 million shares
of common stock ("Common Stock") issued and outstanding and no shares of
preferred stock outstanding.
STOCK WARRANTS AND OPTIONS
At December 31, 1996, the Company had warrants outstanding which
entitle the holders thereof to purchase an aggregate 850,000 shares of Common
Stock. Per share exercise prices and expiration dates for the warrants are as
follows: 100,000 shares at $7.50 expiring in 2000 and 750,000 shares at $6.00
expiring in 1999.
The Company has various stock option plans for its employees and
directors (See Note 10).
$1.30 PREFERRED STOCK
On October 31, 1995, all outstanding shares of the Company's $1.30
Cumulative Convertible Preferred Stock (the "$1.30 Preferred Stock") were
redeemed for $10 per share plus unpaid and accrued dividends of $.0325 per
share. The Company paid a total of $496,000, including unpaid dividends, to
redeem the $1.30 Preferred Stock.
REDEEMABLE PREFERRED STOCK
In July 1994, the Company sold in a private placement 200,000 shares
of its Series C Cumulative Convertible Preferred Stock (the "Series C Preferred
Stock") for net proceeds of approximately $20 million. On January 2, 1995, the
Company paid a dividend on the Series C Preferred Stock for the period of July
14, 1994, through December 31, 1994. The dividend amount of approximately
$937,000 was paid by issuing 9,370 additional shares of the Series C Preferred
Stock. On May 25, 1995, all 209,370 outstanding shares of the Series C
Preferred Stock, including accrued dividends, were converted into approximately
3.6 million shares of Common Stock. As a result of this conversion and the
redemption of the $1.30 Preferred Stock, all outstanding preferred stock has
been eliminated.
NOTE 6 -- EARNINGS PER SHARE
Primary earnings per share is based on the weighted average number of
common and common equivalent shares of Common Stock outstanding. Common
equivalent shares include employee stock options and warrants when dilutive.
Fully diluted earnings per share is based on the weighted average number of
common and common equivalent shares in addition to all other convertible
securities, when dilutive. The assumed conversion of these securities had a
dilutive effect of less than 3% for all periods presented and, accordingly, is
not reflected herein. For purposes of the earnings per share calculation,
Common Stock issued upon the conversion of the Series C Preferred
F-11
<PAGE> 51
Stock is included in the weighted average number of shares outstanding
effective January 1, 1995. Additionally, 1994 earnings per share includes the
dilutive effect of additional shares of Series C Preferred Stock issued in 1995
as payment of 1994 accrued dividends (See Note 5).
NOTE 7 -- INCOME TAXES
The Company's deferred income tax assets (liabilities) at December 31,
1995 and 1996 consist of the tax effect of income tax carryforwards and
differences related to the timing of recognition of certain acquisition,
exploration, and development costs for financial and tax reporting as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards $ 988 $ 934
Percentage depletion carryforward 2,380 2,450
Net operating loss ("NOL") carryforwards 55,798 64,186
---------- -----------
59,166 67,570
Deferred tax liabilities:
Acquisition, exploration and development costs (40,871) (51,431)
----------- ------------
Net deferred tax asset 18,295 16,139
Valuation allowance (18,295) (8,376)
---------- -----------
$ -- $ 7,763
========== ===========
</TABLE>
In the first quarter of 1996, the Company reduced its valuation
allowance resulting in the recognition of an $11 million credit to deferred
income tax expense. Based on recent and anticipated improvement in the
Company's outlook for sustained profitability, management believes that it is
more likely than not that it will generate taxable income sufficient to realize
$11 million of unreserved tax benefits associated with certain of the Company's
NOL carryforwards prior to their expiration. The reserve adjustment
incorporates management's assessment of the significant, cumulative progress
made by the Company over the last four years to reduce unit expenses, increase
unit gross margins and substantially increase its production and proved
reserves through its acquisition and exploitation activities. Such
reassessment is also reinforced by the first quarter 1996 settlement of
litigation and the refinancing of the Company's $100 million 12% Notes and the
increased liquidity and flexibility provided by such refinancing.
The remaining deferred tax asset was not recognized primarily due to
limitations imposed by the IRS regarding the utilization of NOLs generated
prior to certain of the Company's subsidiaries being acquired and the
uncertainty of utilizing the Company's investment tax credit ("ITC")
carryforwards. While the Company's tax planning strategies address certain of
these restrictions on the application of subsidiary NOLs, management is
currently uncertain as to the extent such strategies will be successful and
therefore concluded that a reserve for these amounts was appropriate.
At December 31, 1996, the Company had carryforwards of approximately
$183.4 million of regular tax NOL's, $7 million of statutory depletion, $.7
million of ITC and $.2 million of alternative minimum tax ("AMT") credit. Of
these amounts, utilization of approximately $15.7 million of the NOL
carryforwards and $.5 million of the ITC carryforwards are limited to certain
companies within the consolidated group. At December 31, 1996, the Company had
approximately $168.6 million of AMT NOL carryforwards available as a deduction
against future AMT income. The NOL carryforwards expire from 1997 through 2011.
F-12
<PAGE> 52
Set forth below is a reconciliation between the income tax provision
computed at the United States statutory rate on income before income taxes and
the income tax provision per the accompanying Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
U.S. federal income tax provision at
statutory rate $ 902 $ 6,214
Reduction of valuation allowance against deferred
tax asset -- (11,000)
State income taxes -- 888
Utilization of tax attributes previously included
in allowance and other (902) --
----------- ----------
Income taxes on income before extraordinary item $ -- $ (3,898)
Income tax benefit allocated to extraordinary item -- (3,403)
----------- ----------
$ -- $ (7,301)
=========== ==========
</TABLE>
In accordance with certain provisions of the Tax Reform Act of 1986, a
change of greater than 50% of the beneficial ownership of the Company within a
three-year period (an "Ownership Change") will place an annual limitation on
the Company's ability to utilize its existing tax carryforwards. Under the
Final Treasury Regulations issued by the Internal Revenue Service, the Company
does not believe that an Ownership Change has occurred as of December 31, 1996.
NOTE 8 -- ACQUISITIONS AND DISPOSITIONS
On December 22, 1995, Plains Illinois Inc., a wholly owned subsidiary
of the Company, acquired the Illinois Basin Properties, effective November 1,
1995. The aggregate purchase price was approximately $51.5 million including
associated transaction costs, of which approximately $6.5 million was paid for
by the issuance of 798,143 shares of Common Stock and the remaining $45 million
was paid in cash. The cash portion of the purchase price was financed through
a combination of advances under the Revolving Credit Facility and $42 million
of bridge bank indebtedness (See Note 3). The Illinois Basin Properties
include three Marathon operated oil fields, various nonoperated producing
properties and all of Marathon's oil and natural gas mineral interests, surface
fee and undeveloped leasehold within the Illinois Basin as well as Marathon's
geological, geophysical and engineering database for the entire region. At the
acquisition date, the Illinois Basin Properties added approximately 17.3
million barrels to the Company's proved oil reserves.
The following unaudited information reflects pro forma results of
operations as if the acquisition of the Illinois Basin Properties occurred on
January 1, 1995:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
---------------------
HISTORICAL PRO FORMA
----------- ---------
<S> <C> <C>
Revenue (in thousands) $404,225 $ 426,294
Net income (in thousands) $ 2,652 $ 9,589
Net income per common and common equivalent share $ 0.16 $ 0.57
</TABLE>
In December 1995, Stocker Resources Inc. ("Stocker"), a wholly-owned
subsidiary of the Company, acquired from Chevron USA ("Chevron") a production
payment burdening certain of Stocker's LA Basin properties. The production
payment had a face amount of approximately $30 million and was accounted for in
prior periods as an overriding royalty interest. Stocker also acquired a
fifteen year term mineral interest in certain of its LA Basin properties and
F-13
<PAGE> 53
approximately ten acres of surface fee lands in Los Angeles County. These
assets were acquired in connection with a settlement agreement resolving
certain outstanding issues between Chevron and Stocker. In return for the
conveyance of the foregoing assets, Stocker agreed to forgive certain amounts
due it, dismiss existing lawsuits related to such claims and issue to Chevron a
ten year note for $4.6 million. The settlement also provides for a
modification of Stocker's existing contractual obligations to Chevron to plug
inactive wells, that Stocker continue its present activities to remediate oil
contaminated soil from existing wellsites on an accelerated basis, and for the
Company to guarantee the performance of such obligations.
During 1995 and 1996, the Company sold certain non-strategic oil and
natural gas properties located primarily in the Gulf Coast areas of Texas and
Louisiana and in Utah for net proceeds of approximately $7.4 million and $3.1
million respectively.
During 1994, Calumet Florida Inc. ("Calumet"), a wholly-owned
subsidiary of the Company, acquired the remaining 50% working interest in its
Sunniland Trend properties, increasing its working interest to approximately
100% and adding approximately five million barrels of oil to its proved reserve
base at the acquisition date. Operating results from the additional 50%
interest in the Sunniland Trend properties are included in the accompanying
financial statements effective May 1, 1994. The aggregate purchase price,
including acquisition costs, was approximately $13.6 million including the
issuance of a five year warrant to purchase 750,000 shares of Common Stock at
an exercise price of $6.00 per share. The acquisition was initially financed
by an $11.5 million bridge loan which was repaid in July 1994 with proceeds
from the sale of the Series C Preferred Stock (See Note 5).
NOTE 9 -- RETIREMENT PLAN
Effective June 1, 1996, the Company's Board of Directors adopted a
nonqualified retirement plan (the "Plan") for certain officers of the Company.
Benefits under the Plan are based on salary at the time of adoption, vest over
a 15 year period and are payable over a 15 year period commencing at age 60.
The Plan is unfunded.
Net pension expense for the year ended December 31, 1996, is comprised
of the following components (in thousands):
<TABLE>
<S> <C>
Service cost - benefits earned during the period $ 44
Interest on projected benefit obligation 31
Amortization of prior service cost 22
---------
Net pension expense $ 97
=========
</TABLE>
The following schedule reconciles the funded status of the Plan with
amounts reported in the Company's balance sheet at December 31, 1996 (in
thousands).
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 563
Nonvested benefits 191
---------
Accumulated benefit obligation $ 754
=========
Projected benefit obligation for service rendered to date $ 754
Plan assets at fair value --
---------
Projected benefit obligation in excess of plan assets 754
Prior service cost not yet recognized in net periodic pension expenses (657)
---------
Net pension liability 97
Adjustment required to recognize minimum liability 657
---------
Accrued pension cost liability recognized in the balance sheet $ 754
=========
</TABLE>
The weighted-average discount rate used in determining the projected benefit
obligation was 8%.
F-14
<PAGE> 54
NOTE 10 -- STOCK COMPENSATION PLANS
Historically, the Company has used stock options as a long-term
incentive for its employees, officers and directors under various stock option
plans. The exercise price of options granted to employees is equal to or
greater than the market price of the underlying stock on the date of grant.
Accordingly, consistent with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), no
compensation expense has been recognized in the accompanying financial
statements.
During 1996, the Company's shareholders approved the Company's 1996
Stock Incentive Plan, under which a maximum of 1.5 million shares of Common
Stock were reserved for issuance. The Company also has options outstanding
under its 1991 and 1992 plans, under which a maximum of 2.0 million shares of
Common Stock were reserved for issuance. Generally, terms of the options
provide for an exercise price of not less than the market price of the
Company's stock on the date of the grant, a pro rata vesting period of two to
four years and an exercise period of five to ten years.
In addition, during 1996, the Company granted performance options to
purchase a total of 500,000 shares of Common Stock to two executive officers.
Terms of the options provide for an exercise price of $13.50, the market price
on the date of grant, and an exercise period of five years. The performance
options vest when the price of the Common Stock trades at or above $24 per
share for any 20 trading days in any 30 consecutive trading day period or upon
a change in control if certain conditions are met.
A summary of the status of the Company's stock options as of December
31, 1996, 1995, and 1994, and changes during the years ending on those dates
are presented below:
<TABLE>
<CAPTION>
1994 1995 1996
------------------------- ------------------------ -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
FIXED OPTIONS (000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
- ----------------------------------- -------- -------------- --------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,642 $ 6.40 1,519 $ 6.40 1,728 $ 6.40
Granted -- $ -- 365 $ 6.25 1,060 $ 11.34
Exercised (19) $ 5.00 (147) $ 5.92 (285) $ 6.26
Forfeited (104) $ 6.67 (9) $ 6.68 (68) $ 6.63
------ ----- ------
Outstanding at end of year 1,519 $ 6.39 1,728 $ 6.40 2,435 $ 8.56
====== ===== ======
Options exercisable at year-end 1,202 $ 6.28 1,233 $ 6.40 1,289 $ 6.78
====== ===== ======
Weighted-average fair value of
options granted during the year N/A $2.18 $ 3.19
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 establishes
financial accounting and reporting standards for stock-based employee
compensation. The pronouncement defines a fair value based method of
accounting for an employee stock option or similar equity instrument. SFAS No.
123 also allows an entity to continue to measure compensation cost for those
instruments using the intrinsic value-based method of accounting prescribed by
APB 25. The Company has elected to follow APB 25 and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 requires the
use of option valuation models that were not developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense has been recognized in the
accompanying financial statements. The Company will recognize compensation
expense under APB 25 in the future for the two performance options described
above, if certain conditions are met and such options vest.
Pro forma information regarding net income and earnings per share is
required by SFAS No.123 and has been determined as if the Company had accounted
for its employee stock options under the fair value method as provided therein.
The fair value for the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 7.5% for 1995 and 6.0% for 1996; a
volatility factor of the expected market price of the Company's common stock of
.36; no expected dividends; and weighted-average expected option lives of 3.5
years in 1995 and 2.7 years in 1996.
F-15
<PAGE> 55
The Black-Scholes option valuation model and other existing models
were developed for use in estimating the fair value of traded options that have
no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of and are highly sensitive to subjective
assumptions including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Set forth
below is a summary of the Company's net income and earnings per share as
reported and pro forma as if the fair value based method of accounting defined
in SFAS No. 123 had been applied. The pro forma information is not meant to be
representative of the effects on reported net income for future years, because
as provided by SFAS 123, only the effects of awards granted in 1995 and 1996
are considered in the pro forma calculations.
<TABLE>
<CAPTION>
1995 1996
----------------------------- -----------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (in thousands) $ 2,652 $ 2,497 $ 16,548 $ 16,161
Earnings per share $ 0.16 $ 0.15 $ 0.93 $ 0.91
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER WEIGHTED-
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE AVERAGE
RANGE OF EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 EXERCISE PRICE
- --------------------------- ----------- ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
$ 5.25 to $ 6.75 1,191 5.5 years $ 6.16 981 $ 6.12
$ 7.50 to $ 7.81 514 6.2 years $ 7.65 244 $ 7.57
$ 10.50 to $ 15.63 730 4.2 years $ 13.12 64 $ 12.36
-------- ---------
$ 5.25 to $ 15.63 2,435 5.3 years $ 8.56 1,289 $ 6.78
======== =========
</TABLE>
During 1996, pursuant to a Board of Directors' resolution, the Company
contributed approximately 18,000 shares of Common Stock at a weighted average
price of $11.35 per share on behalf of participants in the Company's 401(k)
Savings Plan, representing a matching contribution by the Company for up to 50%
of an employee's contribution.
NOTE 11 -- COMMITMENTS, CONTINGENCIES AND INDUSTRY CONCENTRATION
COMMITMENTS AND CONTINGENCIES
Minimum commitments in connection with office space and computer
equipment leased by the Company are: 1997 and 1998 - $1.0 million annually;
1999 - $.9 million; thereafter - $.8 million. Rental payments made under the
terms of similar arrangements totaled approximately $1.1 million in 1996 and
$1.2 million in each of the years ended December 31, 1995 and 1994.
In connection with its crude oil marketing, Plains Marketing provides
certain purchasers and transporters with irrevocable standby letters of credit
to secure the Company's obligation for the purchase of crude oil (See Note 4).
Generally, these letters of credit are issued for up to seventy day periods and
are terminated upon completion of each transaction. At December 31, 1996,
Plains Marketing had outstanding letters of credit of approximately $39.6
million. Such letters of credit are secured by the crude oil inventory and
accounts receivable of Plains Marketing
F-16
<PAGE> 56
and are guaranteed by the Company. To date, no amounts have been drawn on such
letters of credit issued by the Company.
Under the amended terms of the asset purchase agreement between
Stocker and Chevron, commencing with the year beginning January 1, 2000, and
each year thereafter, Stocker is required to plug and abandon 20% of the then
remaining inactive wells, which currently aggregate approximately 250. To the
extent the Company elects not to plug and abandon the number of required wells,
the Company is required to escrow an amount equal to the greater of $25,000 per
well or the actual average plugging cost per well in order to provide for the
future plugging and abandonment of such wells. In addition, Stocker is
required to expend a minimum of $600,000 per year in each of the ten years
beginning January 1, 1996, and $300,000 per year in each of the succeeding five
years to remediate oil contaminated soil from existing well sites, provided
there are remaining sites to be remediated. In the event Stocker does not
expend the required amounts during a calendar year, Stocker is required to
contribute an amount equal to 125% of the actual shortfall to an escrow
account. Stocker may withdraw amounts from such escrow account to the extent
it expends excess amounts in a future year.
Although the Company obtained environmental studies on its properties
in the LA Basin, Sunniland Trend and Illinois Basin and the Company believes
that such properties have been operated in accordance with standard oil field
practices, certain of the fields have been in operation for more than 90 years,
and current or future local, state and federal environmental laws and
regulations may require substantial expenditures to comply with such rules and
regulations. In connection with the purchase of the Stocker Properties,
Stocker received a limited indemnity from Chevron for certain conditions if
they violate applicable local, state and federal environmental laws and
regulations in effect on the date of such agreement. While the Company
believes that it does not have any material obligations for operations
conducted prior to Stocker's acquisition of the properties from Chevron, other
than its obligation to plug existing wells and those normally associated with
customary oil field operations of similarly situated properties, there can be
no assurance that current or future local, state or federal rules and
regulations will not require it to spend material amounts to comply with such
rules and regulations or that any portion of such amounts will be recoverable
under the Chevron indemnity.
Consistent with normal industry practices, substantially all of the
Company's oil and natural gas leases require that, upon termination of economic
production, the working interest owners plug and abandon non-producing
wellbores, remove tanks, production equipment and flow lines and restore the
wellsite. The Company has estimated that the costs to perform these tasks is
approximately $13 million, net of salvage value and other considerations. Such
estimated costs are amortized to expense through the unit-of-production method
as a component of accumulated depreciation, depletion and amortization
("DD&A"). Results from operations for 1994, 1995 and 1996 include $1.1
million, $1 million and $.8 million, respectively, of expense associated with
these estimated future costs. For valuation and realization purposes of the
affected oil and natural gas properties, these estimated future costs are also
deducted from estimated future gross revenues to arrive at the estimated future
net revenues and the Standardized Measure disclosed in Note 16.
As is common within the industry, the Company has entered into various
commitments and operating agreements related to the exploration and development
of and production from certain proved oil and natural gas properties. It is
management's belief that such commitments will be met without a material
adverse effect on the Company's financial position.
INDUSTRY CONCENTRATION
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company's accounts receivable are primarily from purchasers of oil and natural
gas products and exploration and production companies which own interests in
properties operated by the Company. This industry concentration has the
potential to impact the Company's 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 Company generally
requires letters of credit for receivables from customers which are not
considered investment grade, unless the credit risk can otherwise be mitigated.
There are a limited number of alternative methods of transportation
for the Company's production. Substantially all of the Company's LA Basin
crude oil and natural gas production and its Sunniland Trend and Illinois
F-17
<PAGE> 57
Basin oil production are transported by pipelines owned by third parties. The
inability or unwillingness of these pipelines to provide transportation
services to the Company for a reasonable fee could result in the Company having
to find transportation alternatives, increased transportation costs to the
Company or involuntary curtailment of a significant portion of its crude oil
and natural gas production which could have a negative impact on future
results.
NOTE 12 -- LITIGATION
The Company and certain of its officers and directors and a former
director and officer were named in two class action lawsuits filed in 1992 and
1993 seeking an aggregate of approximately $90 million in compensatory damages
and punitive damages in an unspecified amount for alleged violations of the
federal securities laws and state common law arising out of certain alleged
misrepresentations and omissions in the Company's disclosure regarding its
onshore natural gas exploration activities. During 1996, the Company settled
such cases for a cash payment of approximately $6.3 million. Approximately
$4.1 million of such amount was paid by the Company's insurance carrier and
$2.2 million was paid by the Company. Taking into account prior costs incurred
by the Company to defend these suits and for which the Company agreed to
release its claims for reimbursement from its insurance carrier, this
settlement resulted in a charge to 1996 first quarter earnings of $4 million.
On July 9, 1987, Exxon filed an interpleader action in the United
States District Court for the Middle District of Florida, Exxon Corporation v.
E. W. Adams, et al., Case Number 87-976-CIV-T-23-B. This action was filed by
Exxon to interplead royalty funds as a result of a title controversy between
certain mineral owners in a field in Florida. One group of mineral owners,
John W. Hughes, et al. (the "Hughes Group"), filed a counterclaim against Exxon
alleging fraud, conspiracy, conversion of funds, declaratory relief, federal
and Florida RICO, breach of contract and accounting, as well as challenging the
validity of certain oil and natural gas leases owned by Exxon, and seeking
exemplary and treble damages. In March 1993, but effective November 1, 1992,
Calumet, a wholly-owned subsidiary of the Company, acquired all of Exxon's
leases in the field affected by this lawsuit. In order to address those
counterclaims challenging the validity of certain oil and natural gas leases,
which constitute approximately 10% of the lands underlying this unitized field,
Calumet filed a motion to join Exxon as plaintiff in the subject lawsuit, which
was granted July 29, 1994. In August 1994, the Hughes Group amended its
counterclaim to add Calumet as a counter-defendant. Exxon and Calumet filed a
motion to dismiss the counterclaims. On March 22, 1996, the Court granted
Exxon's and Calumet's motion to dismiss the counterclaims alleging fraud,
conspiracy, and federal and Florida RICO violations and challenging the
validity of certain of the Company's oil and natural gas leases but denied such
motion as to the counterclaim alleging conversion of funds. The Company has
reached an agreement in principle with all parties to settle this case. In
consideration for full and final settlement, and dismissal with prejudice of
all issues in this case, the Company has agreed to pay to the defendants the
total sum of $100,000, and release certain royalty amounts held in suspense and
in the court registry during the pendency of this case. Finalization of this
settlement has been delayed due to a dispute between the defendants over
certain title issues. The defendants have filed motions requesting the Court to
rule on this dispute, but no hearing date has been set. The Company does not
believe that this dispute will adversely affect the settlement reached between
the Company and the defendants.
The Company, in the ordinary course of business, is a claimant and/or
a defendant in various other legal proceedings in which its exposure,
individually and in the aggregate, is not considered material to the
consolidated financial statements.
NOTE 13 -- MAJOR CUSTOMERS
Koch Oil Company and Basis Petroleum, Inc. ("Basis"), formerly Phibro
Energy USA Inc., accounted for 16% and 11%, respectively, of the Company's
total revenue (exclusive of interest and other income) during 1996. Customers
accounting for more than 10% of total revenue for 1995 and 1994 were as
follows: 1995 -- Phibro Inc. ("Phibro") -- 16% and Basis -- 12%; 1994 --
Phibro -- 19% and Chevron -- 16%. Basis and Phibro Inc. are both subsidiaries
of Salomon Inc. No other single purchaser of the Company's products accounted
for as much as 10% of total sales during 1996, 1995 or 1994. Additionally
during 1996, Unocal, Marathon and Basis accounted for approximately 51%, 24%
and 20%, respectively, of the Company's oil and gas sales. During 1996,
Unocal, Marathon and Basis purchased the crude oil from the LA Basin
Properties, Illinois Basin Properties and the Sunniland Trend Properties,
respectively.
F-18
<PAGE> 58
NOTE 14 -- FINANCIAL INSTRUMENTS
DERIVATIVES
The Company has only limited involvement with derivative financial
instruments, as defined in SFAS No. 119, "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments" and does not use them for
speculative trading purposes. The Company's principle objective is to hedge
exposure to price volatility on crude oil and natural gas. These arrangements
expose the Company to credit risk (as to counterparties) and to risk of adverse
price movements in certain cases where the Company's production is less than
expected.
The Company has entered into various fixed and floating price collar
arrangements to fix the NYMEX crude oil spot price ("NYMEX Crude Oil Price")
for a significant portion of its crude oil production. On December 31, 1996,
these arrangements provided for a NYMEX Crude Oil Price for: (i) 12,000 barrels
per day through March 31, 1997, at $18.51 per barrel; (ii) 10,000 barrels per
day from April 1, 1997, through April 30, 1997, at $18.85 per barrel; (iii)
9,000 barrels per day from May 1, 1997, through June 30, 1997, at $18.85 per
barrel; and (iv) 9,100 barrels per day from July 1, 1997, through December 31,
1997, at $18.59 per barrel. The Company has entered into additional swap
arrangements which provide for a NYMEX Crude Oil Price ceiling of $24.00 per
barrel and a price floor of $19.50 per barrel for 4,000 barrels per day from
January 1, 1997, through December 31, 1997. Combined with an additional
arrangement providing for 500 barrels per day from April 1, 1997 through
December 31, 1997, at $22.00 per barrel, these arrangements provide the Company
with an average minimum price of $18.96 per barrel on an average of
approximately 14,250 barrels of oil per day for 1997, but provide the Company
with upside price participation for 4,000 of such barrels up to $24.00 per
barrel. At December 31, 1996, the Company also had a fixed price arrangement
on 4,500 barrels per day for 1998 at a NYMEX Crude Oil Price of $19.24 per
barrel. Location and quality differentials attributable to the Company's
properties are not included in the foregoing prices. The agreements provide
for monthly settlement based on the differential between the agreement price
and the actual NYMEX Crude Oil Price. Gains or losses on the crude oil swaps
are recognized in the month of related production and are included in oil and
natural gas sales.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments". The estimated fair
value amounts have been determined by the Company using available market
information and valuation methodologies described below. Considerable
judgement is required in interpreting market data to develop the estimates of
fair value. The use of different market assumptions or valuation methodologies
may have a material effect on the estimated fair value amounts.
F-19
<PAGE> 59
The carrying values of items comprising current assets and current
liabilities approximate fair values 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
carrying amounts and fair values of the Company's other financial instruments
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1995 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT:
Bank debt $ 98,000 $ 98,000 $ 72,700 $ 72,700
Subordinated debt 100,000 105,250 149,121 160,500
Other long-term debt 8,533 8,624 3,578 3,578
OFF BALANCE SHEET FINANCIAL
INFORMATION:
Unrealized loss on crude oil
swap agreements -- 5,438(1) -- 15,472(1)
</TABLE>
- ---------------
(1) These amounts represent the calculated excess of the NYMEX Crude Oil
Price over hedge arrangements for future production of the Company's
properties as of December 31, 1995 and 1996. Such hedges, and therefore
the unrealized loss, have been fully deducted from estimated future
gross revenues to arrive at the estimated future net revenues and the
Standardized Measure disclosed in Note 16.
The carrying value of bank debt approximates its fair value as
interest rates are variable, based on prevailing market rates. The fair value
of subordinated debt was based on quoted market prices based on trades of
subordinated debt. Other long-term debt was valued by discounting the future
payments using the Company's incremental borrowing rate.
NOTE 15 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Selected cash payments and noncash activities were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest (net of amount
capitalized) $ 12,082 $ 13,259 $ 16,309
========= ======== ========
Noncash investing and financing
activities:
Series C Preferred Stock Dividends $ 937 $ -- $ --
========= ======== ========
Conversion of Series C Preferred $ -- $ 21,769 $ --
========= ======== ========
Detail of properties acquired for other
than cash:
Fair value of acquired assets $ 13,600 $ 56,100 $ --
Debt issued and liabilities assumed -- (4,600) --
Capital stock and warrants issued (1,250) (6,527) --
--------- -------- --------
Cash paid $ 12,350 $ 44,973 $ --
========= ======== ========
</TABLE>
F-20
<PAGE> 60
NOTE 16 -- OIL AND NATURAL GAS ACTIVITIES
COSTS INCURRED
The Company's oil and natural gas acquisition, exploration and development
activities are primarily conducted in the United States. The following table
summarizes the costs incurred in connection therewith during the last three
years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Property acquisition costs:
Unproved properties $ 6,150 $18,136 $ 728
Proved properties 13,222 41,194 3,087
Exploration costs 5,907 2,001 2,433
Exploitation and
development costs 15,570 22,681 45,007
------- ------- -------
$40,849 $84,012 $51,255
======= ======= =======
</TABLE>
CAPITALIZED COSTS
The following table presents the aggregate capitalized costs subject
to amortization relating to the Company's oil and natural gas acquisition,
exploration, exploitation and development activities, and the aggregate related
DD&A.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Proved properties $ 328,712 $ 384,019
Accumulated DD&A (131,063) (150,300)
---------- ----------
$ 197,649 $ 233,719
========== ==========
</TABLE>
The DD&A rate per equivalent unit of production was $3.17, $3.02 and
$3.00 for the years ended December 31, 1994, 1995 and 1996, respectively.
COSTS NOT SUBJECT TO AMORTIZATION
The following table summarizes the categories of costs which comprise
the amount of unproved properties not subject to amortization.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Acquisition costs $ 35,550 $ 31,940
Exploration costs 5,075 3,210
Capitalized interest 8,170 6,548
---------- ----------
$ 48,795 $ 41,698
========== ==========
</TABLE>
Unproved property costs not subject to amortization consist mainly of
acquisition and lease costs and seismic data related to unproved areas. The
Company will continue to evaluate these properties over the lease terms;
however, the timing of the ultimate evaluation and disposition of a significant
portion of the properties has not been determined. Costs associated with
seismic data and all other costs will become subject to amortization as the
prospects to which they relate are evaluated. Approximately 14%, 38% and 9% of
the balance in unproved properties at December 31, 1996, related to additions
made in 1994, 1995, and 1996, respectively.
During 1994, 1995 and 1996, the Company capitalized $2.7 million, $3.1
million and $3.6 million, respectively, of interest related to costs of
unproved properties in the process of development.
SUPPLEMENTAL RESERVE INFORMATION (UNAUDITED)
The following information summarizes the Company's net proved reserves
of oil (including condensate and natural gas liquids) and natural gas and the
present values thereof for the three years ended December 31, 1996. The
F-21
<PAGE> 61
following reserve information is based upon reports of the independent
petroleum consulting firms of H.J. Gruy and Company with respect to the LA
Basin properties, Netherland, Sewell & Associates, Inc. with respect to the
Sunniland Trend Properties and other minor properties and Ryder Scott Company
with respect to the Illinois Basin Properties. The estimates are in accordance
with regulations prescribed by the Securities and Exchange Commission
(the "SEC").
In management's opinion, the reserve estimates presented herein, in
accordance with generally accepted engineering and evaluation principles
consistently applied, are believed to be reasonable. However, there are
numerous uncertainties inherent in estimating quantities and values of proved
reserves and in projecting future rates of production and timing of development
expenditures, including many factors beyond the control of the Company.
Reserve engineering is a subjective process of estimating the recovery from
underground accumulations of oil and natural gas that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretation and
judgment. Because all reserve estimates are to some degree speculative, the
quantities of oil and natural gas that are ultimately recovered, production and
operating costs, the amount and timing of future development expenditures and
future oil and natural gas sales prices may all differ from those assumed in
these estimates. In addition, different reserve engineers may make different
estimates of reserve quantities and cash flows based upon the same available
data. Therefore, the Standardized Measure shown below represents estimates
only and should not be construed as the current market value of the estimated
oil and natural gas reserves attributable to the Company's properties. In this
regard, the information set forth in the following tables includes revisions of
reserve estimates attributable to proved properties included in the preceding
year's estimates. Such revisions reflect additional information from
subsequent exploitation and development activities, production history of the
properties involved and any adjustments in the projected economic life of such
properties resulting from changes in product prices.
ESTIMATED QUANTITIES OF OIL AND NATURAL GAS RESERVES (UNAUDITED)
The following table sets forth certain data pertaining to the
Company's proved and proved developed reserves for the three years ended
December 31, 1996.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996
----------------- ----------------- -----------------
OIL GAS OIL GAS OIL GAS
(BBL) (MCF) (BBL) (MCF) (BBL) (MCF)
------- -------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
PROVED RESERVES
Beginning balance 38,810 49,397 61,459 51,009 94,408 43,110
Revisions of previous estimates 16,834 4,365 5,423 2,792 19,424 6,641
Extensions, discoveries, improved
recovery and other additions 4,362 1,182 15,489 1,730 8,179 1,294
Sale of reserves in-place (16) (446) (1,227) (9,773) (5) (12,491)
Purchase of reserves in-place 5,304 80 17,640 130 45 862
Production (3,835) (3,569) (4,376) (2,778) (6,055) (2,143)
------- -------- -------- ------- -------- -------
Ending balance 61,459 51,009 94,408 43,110 115,996 37,273
======= ======== ======== ======= ======== =======
PROVED DEVELOPED RESERVES
Beginning balance 30,646 28,436 48,978 30,869 67,266 29,397
======= ======== ======== ======= ======== =======
Ending balance 48,978 30,869 67,266 29,397 86,515 25,629
======= ======== ======== ======= ======== =======
</TABLE>
F-22
<PAGE> 62
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
The Standardized Measure of discounted future net cash flows relating
to proved oil and natural gas reserves is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows $ 894,434 $1,513,145 $2,681,007
Future development costs (62,695) (107,995) (111,785)
Future production expense (414,741) (692,008) (977,551)
Future income tax expense (69,911) (157,110) (437,654)
---------- ---------- ----------
Future net cash flows 347,087 556,032 1,154,017
Discounted at 10% per year (144,143) (251,191) (575,436)
---------- ---------- ----------
Standardized measure of
discounted future net cash flows $ 202,944 $ 304,841 $ 578,581
========== ========== ==========
</TABLE>
The Standardized Measure of discounted future net cash flows
(discounted at 10%) from production of proved reserves was developed as
follows:
1. An estimate was made of the quantity of proved reserves and the future
periods in which they are expected to be produced based on year-end
economic conditions.
2. In accordance with SEC guidelines, the engineers' estimates of future net
revenues from the Company's proved properties and the present value
thereof are made using oil and natural gas sales prices in effect as of
the dates of such estimates and are held constant throughout the life of
the properties, except where such guidelines permit alternate treatment,
including the use of fixed and determinable contractual price escalations.
The crude oil price in effect at December 31, 1996, is based on the NYMEX
Crude Oil Price of $25.92 per barrel with variations therefrom based on
location and grade of crude oil. On February 7, 1997, the NYMEX Crude Oil
Price was $22.23 per barrel. The Company has entered into various fixed
price and floating price collar arrangements to fix or limit the NYMEX
Crude Oil Price for a significant portion of its crude oil production.
These prices are included in the reserve reports through the term of the
arrangements (See Note 14). The overall average prices used in the
reserve reports as of December 31, 1996, were $22.22 per barrel of crude
oil, condensate and natural gas liquids and $2.79 per Mcf of natural gas.
3. The future gross revenue streams were reduced by estimated future
operating costs (including production and ad valorem taxes) and future
development and abandonment costs, all of which were based on current
costs.
4. The reports reflect the estimated present value (discounted at 10%) of
future net revenue from the Company's proved oil and natural gas reserves
to be $229.4 million, $366.8 million and $764.8 million at December 31,
1994, 1995 and 1996, respectively. SFAS No. 69 requires the Company to
further reduce these estimates by an amount equal to the present value of
estimated income taxes which might be payable by the Company in future
years to arrive at the Standardized Measure. Future income taxes were
calculated by applying the statutory federal income tax rate to pretax
future net cash flows, net of the tax basis of the properties involved and
utilization of available tax carryforwards.
F-23
<PAGE> 63
The principal sources of changes in the Standardized Measure of future
net cash flows for the three years ended December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year $ 130,489 $ 202,944 $ 304,841
Sales, net of production expenses (30,014) (33,824) (58,866)
Net change in sales and transfer
prices, net of production expenses 29,840 26,968 275,200
Changes in estimated future
development costs (9,477) (3,228) (5,188)
Extensions, discoveries and improved
recovery, net of costs 14,928 59,050 50,013
Previously estimated development costs
incurred during the year 2,995 3,136 19,662
Purchase of reserves in-place 16,919 64,214 2,253
Sales of reserves in-place (426) (11,381) (3,357)
Revision of quantity estimates 71,188 24,533 145,815
Accretion of discount 13,454 22,937 36,678
Net change in income taxes (22,377) (35,512) (124,254)
Changes in estimated timing of
production and other (14,575) (14,996) (64,216)
---------- ----------- -----------
Balance, end of year $ 202,944 $ 304,841 $ 578,581
========== =========== ===========
</TABLE>
NOTE 17 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table shows summary financial data for 1995 and 1996.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ---------- ------------ -----------
1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- ----
<S> <C> <C> <C> <C>
Revenues $ 93,647 $ 95,256 $ 103,607 $ 111,715
Operating profits $ 9,500 $ 10,312 $ 9,744 $ 10,953
Net income $ 319 $ 914 $ 483 $ 936
Net income per share $ .02 $ .06 $ .03 $ .06
1996
- ----
Revenues $ 123,513 $ 155,930 $ 169,245 $ 180,920
Operating profits $ 13,360 $ 18,353 $ 17,616 $ 19,377
Income before extraordinary item $ 9,216 $ 4,614 $ 3,486 $ 4,336
Net income $ 709 $ 6,502 $ 5,001 $ 4,336
Net income per share
Before extraordinary item $ .54 $ .26 $ .20 $ .24
Extraordinary item (.50) .11 .08 --
----------- ---------- ---------- ----------
$ .04 $ .37 $ .28 $ .24
=========== ========== ========== ==========
</TABLE>
F-24
<PAGE> 64
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
2(a) -- Purchase and Sale Agreement dated
October 31, 1995, between Marathon and Crete, as amended by
that certain Amendment dated December 4, 1995, among
Marathon, Plains Resources Inc. and Plains Illinois Inc.
(incorporated by reference to Exhibit 2.1 to Form 8-K dated
Jan 1996).
3(a) -- Second Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
3(b) -- Bylaws of the Company, as amended to date (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
4(a) -- Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4 to the Company's Form S-1
Registration Statement (Reg. No. 33-33986)).
4(c) -- Purchase Agreement for Stock Warrant dated May 16, 1994,
between Plains Resources Inc. and Legacy Resources, Co.,
L.P. (incorporated by reference to Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1994).
10(a)*-- Employment Agreement dated as of March 1, 1993, between the
Company and Greg L. Armstrong (incorporated by reference to
Exhibit 10(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993).
10(b)*-- The Company's 1991 Management Options (incorporated by
reference to Exhibit 4.1 to the Company's S-8 Registration
Statement (Reg. No. 33-43788)).
10(c)*-- The Company's 1992 Stock Incentive Plan (incorporated by
reference to Exhibit 4.3 to the Company's S-8 Registration
Statement (Reg. No. 33-48610)).
10(d)*-- The Company's Amended and Restated 401(k) Plan.
10(e) -- Restructure Agreement dated February 25, 1991, among
The Aetna Casualty and Surety Company, Aetna Life Insurance
Company and the Company (incorporated by reference to
Exhibit 10(i) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1990).
10(f) -- Uncommitted Secured Transactional Line of Credit Facility
letter agreement dated as of August 23, 1995, between
Plains Marketing & Transportation Inc. and The First
National Bank of Boston, et al. (incorporated by reference
to Exhibit 10(m) of the Company's Annual Report on Form
10-K for the year ended 1995).
10(g) -- Uncommitted Secured Transactional Line of Credit Facility
letter agreement dated August 23, 1995 between PMCT Inc.
and The First National Bank of Boston, et al. (incorporated
by reference to Exhibit 10(n) of the Company's Annual
Report on Form 10-K for the year ended 1995).
10(h) -- Third Amended and Restated Credit Agreement dated as of
April 11, 1996 among the Company and ING (U.S.) Capital
Corporation, et al. (incorporated by reference to Exhibit
10(n) to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996).
10(i) -- First Amendment to Third Amended and Restated Credit
Agreement dated as of December 16, 1996, among the Company
and ING (U.S.) Capital Corporation, et al.
10(j) -- Amendment dated as of November 22, 1996 to Uncommitted
Secured Transactional Line of Credit between Plains
Marketing & Transportation Inc. and The First National Bank
of Boston, et al.
10(k) -- Amendment dated as of November 22, 1996 to Uncommitted
Secured Transactional Line of Credit between PMCT and The
First National Bank of Boston, et al.
</TABLE>
<PAGE> 65
<TABLE>
<S> <C>
10(l)*-- Stock Option Agreement dated August 27, 1996 between the
Company and Greg L. Armstrong.
10(m)*-- Stock Option Agreement dated August 27, 1996 between the
Company and William C. Egg Jr.
10(n) -- First Amendment to the Company's 1992 Stock Incentive Plan.
11(a) -- Statement regarding computation of per share earnings for
the year ended December 31, 1996.
11(b) -- Statement regarding computation of per share earnings for
the year ended December 31, 1995.
11(c) -- Statement regarding computation of per share earnings for
the year ended December 31, 1994.
21 -- Subsidiaries of the Company.
23(a) -- Consent of Price Waterhouse LLP.
23(b) -- Consent of Price Waterhouse LLP.
27 -- Financial Data Schedule
</TABLE>
- ----------------
*A management contract or compensation plan.
<PAGE> 1
EXHIBIT 10(d)
PLAINS RESOURCES INC.
401(k) PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I -- DEFINITIONS
Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1
Actual Contribution Ratio . . . . . . . . . . . . . . . . . . . . 1.2
Actual Deferral Percentage . . . . . . . . . . . . . . . . . . . 1.3
Actual Deferral Ratio . . . . . . . . . . . . . . . . . . . . . . 1.4
Administrative Committee . . . . . . . . . . . . . . . . . . . . . 1.5
Affiliated Employer . . . . . . . . . . . . . . . . . . . . . . . 1.6
Aggregation Group . . . . . . . . . . . . . . . . . . . . . . . . . 1.7
Annual Addition . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
Annual Compensation . . . . . . . . . . . . . . . . . . . . . . . 1.9
Annuity Start Date . . . . . . . . . . . . . . . . . . . . . . . . 1.10
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.11
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 1.12
Calendar Quarter . . . . . . . . . . . . . . . . . . . . . . . . 1.13
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.14
Computation Period . . . . . . . . . . . . . . . . . . . . . . . . 1.15
Considered Compensation . . . . . . . . . . . . . . . . . . . . . 1.16
Contribution Percentage . . . . . . . . . . . . . . . . . . . . . 1.17
Defined Benefit Fraction . . . . . . . . . . . . . . . . . . . . 1.18
Defined Contribution Fraction . . . . . . . . . . . . . . . . . . 1.19
Determination Date . . . . . . . . . . . . . . . . . . . . . . . 1.20
Eligible Class . . . . . . . . . . . . . . . . . . . . . . . . . 1.21
Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.22
Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.23
Employer Contribution . . . . . . . . . . . . . . . . . . . . . . 1.24
Employer Matching Contribution . . . . . . . . . . . . . . . . . 1.25
Employer Matching Contribution Account . . . . . . . . . . . . . 1.26
Entry Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.27
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.28
Excess Aggregate 401(m) Contributions . . . . . . . . . . . . . . 1.29
Excess Amount . . . . . . . . . . . . . . . . . . . . . . . . . . 1.30
Excess 401(k) Contributions . . . . . . . . . . . . . . . . . . . 1.31
Family . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.32
Family Member . . . . . . . . . . . . . . . . . . . . . . . . . 1.33
Five Percent Owner . . . . . . . . . . . . . . . . . . . . . . . 1.34
Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . 1.35
Hour of Employment . . . . . . . . . . . . . . . . . . . . . . . 1.36
Individual Medical Account . . . . . . . . . . . . . . . . . . . 1.37
Investment Gain or Loss . . . . . . . . . . . . . . . . . . . . . 1.38
Key Employee . . . . . . . . . . . . . . . . . . . . . . . . . . 1.39
Leased Employee . . . . . . . . . . . . . . . . . . . . . . . . . 1.40
Limitation Year . . . . . . . . . . . . . . . . . . . . . . . . . 1.41
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Matched Salary Deferral Contribution . . . . . . . . . . . . . . 1.42
Maximum Permissible Amount . . . . . . . . . . . . . . . . . . . 1.43
Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.44
Non-Highly Compensated Employee . . . . . . . . . . . . . . . . . 1.45
Non-Key Employee . . . . . . . . . . . . . . . . . . . . . . . . 1.46
Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . . 1.47
Period of Service . . . . . . . . . . . . . . . . . . . . . . . . 1.48
Period of Severance . . . . . . . . . . . . . . . . . . . . . . . 1.49
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.50
Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.51
Projected Annual Benefit . . . . . . . . . . . . . . . . . . . . 1.52
Qualified Domestic Relations Order . . . . . . . . . . . . . . . 1.53
Qualified Nonelective Employer Contribution . . . . . . . . . . . . 1.54
Qualified Nonelective Employer Contribution
Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.55
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.56
Required Beginning Date . . . . . . . . . . . . . . . . . . . . . 1.57
Restoration Contribution . . . . . . . . . . . . . . . . . . . . 1.58
Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.59
Rollover Contribution . . . . . . . . . . . . . . . . . . . . . . 1.60
Rollover Contribution Account . . . . . . . . . . . . . . . . . . 1.61
Salary Deferral Contribution . . . . . . . . . . . . . . . . . . 1.62
Salary Deferral Contribution Account . . . . . . . . . . . . . . 1.63
Section 401(k) Contributions . . . . . . . . . . . . . . . . . . 1.64
Section 401(m) Contributions . . . . . . . . . . . . . . . . . . 1.65
Separation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.66
Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.67
Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.68
Sponsor Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 1.69
Top-Heavy Plan . . . . . . . . . . . . . . . . . . . . . . . . . 1.70
Total Permanent Disability . . . . . . . . . . . . . . . . . . . 1.71
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.72
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.73
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.74
Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . 1.75
Welfare Benefit Fund . . . . . . . . . . . . . . . . . . . . . . 1.76
ARTICLE II - SERVICE
Years of Active Service Credit for Vesting . . . . . . . . . . . . 2.1
When An Employee Severs Service . . . . . . . . . . . . . . . . . . 2.2
Periods of Severance of Five Years or More. . . . . . . . . . . . . 2.3
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
Employment Records Conclusive . . . . . . . . . . . . . . . . . . . 2.5
Coverage of Certain Previously Excluded
Employees . . . . . . . . . . . . . . . . . . . . . . . . . 2.6
Service Credit Required under Federal Law. . . . . . . . . . . . . 2.7
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE III - ELIGIBILITY AND PARTICIPATION
Eligibility Requirements . . . . . . . . . . . . . . . . . . . . . 3.1
Eligibility Upon Reemployment . . . . . . . . . . . . . . . . . . . 3.2
Frozen Participation . . . . . . . . . . . . . . . . . . . . . . . 3.3
ARTICLE IV - CONTRIBUTIONS
Salary Deferral Contributions . . . . . . . . . . . . . . . . . . . 4.1
Employer Matching Contributions . . . . . . . . . . . . . . . . . . 4.2
Rollover Contributions and Plan-to-Plan Transfers . . . . . . . . . 4.3
Qualified Nonelective Employer Contributions . . . . . . . . . . . 4.4
Restoration Contributions . . . . . . . . . . . . . . . . . . . . . 4.5
Limit upon Salary Deferral Contributions . . . . . . . . . . . . . 4.6
Actual Deferral Percentage Test . . . . . . . . . . . . . . . . . . 4.7
Actual Deferral Percentage Fail Safe Provision . . . . . . . . . . 4.8
Special Actual Deferral Percentage Rules For Family
Members . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9
Contribution Percentage Test . . . . . . . . . . . . . . . . . . 4.10
Contribution Percentage Fail Safe Provision . . . . . . . . . . . 4.11
Special Contribution Percentage Rules For Family
Members . . . . . . . . . . . . . . . . . . . . . . . . . 4.12
Income Allocable to Excess 401(k) Contributions
and Excess Aggregate 401(m) Contributions . . . . . . . . 4.13
Additional Required Test if Alternative Compliance
is Used . . . . . . . . . . . . . . . . . . . . . . . . . 4.14
Nondeductible Contributions Prohibited . . . . . . . . . . . . . 4.15
Form of Payment of Contributions . . . . . . . . . . . . . . . . 4.16
Deadline for Payment of Employer Contributions . . . . . . . . . 4.17
ARTICLE V - ALLOCATIONS AND VALUATION OF ACCOUNTS
Information Statements from Employer . . . . . . . . . . . . . . . 5.1
Allocation of Salary Deferral Contribution . . . . . . . . . . . . 5.2
Allocation of Employer Matching Contribution . . . . . . . . . . . 5.3
Allocation of Qualified Nonelective Employer
Contribution . . . . . . . . . . . . . . . . . . . . . . . . 5.4
Allocation of Dividends on Sponsor Stock . . . . . . . . . . . . . 5.5
Sponsor Stock Splits . . . . . . . . . . . . . . . . . . . . . . 5.6
Valuation of Accounts . . . . . . . . . . . . . . . . . . . . . . . 5.7
Allocation of Forfeitures . . . . . . . . . . . . . . . . . . . . . 5.8
Restoration of Forfeited Amounts . . . . . . . . . . . . . . . . . 5.9
No Vesting Unless Otherwise Prescribed . . . . . . . . . . . . . 5.10
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE VI - LIMITATIONS ON ALLOCATIONS
Basic Limitation . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Estimation of Maximum Permissible Amount . . . . . . . . . . . . . 6.2
Attribution of Excess Amounts . . . . . . . . . . . . . . . . . . . 6.3
Treatment of Excess Amounts . . . . . . . . . . . . . . . . . . . . 6.4
Members Participating in Qualified Defined Benefit Plan . . . . . . 6.5
ARTICLE VII - TOP-HEAVY REQUIREMENTS
Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1
Top-Heavy Test . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
Vesting Restrictions if Plan Becomes Top-Heavy . . . . . . . . . . 7.3
Minimum Contribution if Plan Becomes Top-Heavy . . . . . . . . . . 7.4
Disregard of Government Programs . . . . . . . . . . . . . . . . . 7.5
Coverage Under Multiple Top-Heavy Plans . . . . . . . . . . . . . . 7.6
Restrictions if Plan Becomes Super Top-Heavy . . . . . . . . . . . 7.7
ARTICLE VIII - BENEFITS AND EVENTS ENTITLING MEMBERS TO
DISTRIBUTION OF BENEFITS
Valuation of Accounts for Withdrawals and Distributions . . . . . . 8.1
Death, Retirement, or Total Permanent Disability . . . . . . . . . 8.2
Severance Benefit . . . . . . . . . . . . . . . . . . . . . . . . . 8.3
Forfeiture on Termination of Participation . . . . . . . . . . . . 8.4
Withdrawal of Rollover Contributions . . . . . . . . . . . . . . . 8.5
Withdrawal upon Attainment of Normal Retirement Age . . . . . . . . 8.6
Withdrawal for Financial Hardship . . . . . . . . . . . . . . . . . 8.7
Loans to Members . . . . . . . . . . . . . . . . . . . . . . . . . 8.8
Receipt of Domestic Relations Order . . . . . . . . . . . . . . . . 8.9
Distributions Upon Disposition of Assets or a Subsidiary . . . . . 8.10
ARTICLE IX - DISTRIBUTION OF BENEFITS
Form of Distribution . . . . . . . . . . . . . . . . . . . . . . .9.1
Information Provided to Members . . . . . . . . . . . . . . . . . . 9.2
Automatic Payment of Small Amounts . . . . . . . . . . . . . . . . 9.3
Time of Distribution . . . . . . . . . . . . . . . . . . . . . . . 9.4
Member Consent to Early Distributions . . . . . . . . . . . . . . . 9.5
Compliance with Statutory Requirements . . . . . . . . . . . . . . 9.6
Qualified Domestic Relations Orders . . . . . . . . . . . . . . . . 9.7
Distributions to Disabled . . . . . . . . . . . . . . . . . . . . . 9.8
Designation of Beneficiary . . . . . . . . . . . . . . . . . . . . 9.9
No Duplication of Benefits . . . . . . . . . . . . . . . . . . . 9.10
Missing Members or Beneficiaries . . . . . . . . . . . . . . . . 9.11
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C>
Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . 9.12
Claims Appeal Procedure . . . . . . . . . . . . . . . . . . . . . 9.13
Direct Rollover Option for Distributions on or
After January 1, 1993 . . . . . . . . . . . . . . . . . . . 9.14
ARTICLE X - ADMINISTRATIVE COMMITTEE
Appointment, Term, Resignation, and Removal . . . . . . . . . . . 10.1
Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2
Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 10.3
Quorum and Majority Action . . . . . . . . . . . . . . . . . . . 10.4
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.5
Disqualification of Administrative Committee Members . . . . . . 10.6
Disclosure to Members . . . . . . . . . . . . . . . . . . . . . . 10.7
Standard of Performance . . . . . . . . . . . . . . . . . . . . . 10.8
Liability of Administrative Committee and
Liability Insurance . . . . . . . . . . . . . . . . . . . 10.9
Bonding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.10
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11
Persons Serving in Dual Fiduciary Roles . . . . . . . . . . . . . 10.12
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . 10.13
Named Fiduciary . . . . . . . . . . . . . . . . . . . . . . . . . 10.14
Standard of Judicial Review of Administrative
Committee Actions . . . . . . . . . . . . . . . . . . . . 10.15
Indemnification of Administrative Committee by
the Sponsor . . . . . . . . . . . . . . . . . . . . . . . 10.16
ARTICLE XI - INVESTMENT ELECTIONS
Investment Funds Established . . . . . . . . . . . . . . . . . . 11.1
Election Procedures Established . . . . . . . . . . . . . . . . . 11.2
ARTICLE XII - VOTING OF SPONSOR STOCK AND TENDER OFFERS
Voting of Sponsor Stock . . . . . . . . . . . . . . . . . . . . . 12.1
Tender Offers . . . . . . . . . . . . . . . . . . . . . . . . . 12.2
Shares Credited . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4
Named Fiduciary . . . . . . . . . . . . . . . . . . . . . . . . . 12.5
ARTICLE XIII - ADOPTION OF PLAN BY OTHER EMPLOYERS
Adoption Procedure . . . . . . . . . . . . . . . . . . . . . . . 13.1
No Joint Venture Implied . . . . . . . . . . . . . . . . . . . . 13.2
All Trust Assets Available to Pay All Benefits . . . . . . . . . 13.3
Qualification a Condition Precedent to Adoption and
Continued Participation . . . . . . . . . . . . . . . . . 13.4
</TABLE>
-v-
<PAGE> 7
<TABLE>
<S> <C>
ARTICLE XIV - AMENDMENT AND TERMINATION
Sponsor's Right to Amend . . . . . . . . . . . . . . . . . . . . 14.1
Limitations on Right to Amend . . . . . . . . . . . . . . . . . . 14.2
Retroactive Amendments to Meet Labor or Tax Requirements . . . . 14.3
Termination of Plan . . . . . . . . . . . . . . . . . . . . . . . 14.4
Vesting upon Termination, Partial Termination, and
Suspension or Discontinuance of Employer Contributions . . 14.5
Plan Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6
ARTICLE XV - MISCELLANEOUS
No Reversionary Interest . . . . . . . . . . . . . . . . . . . . 15.1
Plan Does Not Constitute an Employment Contract . . . . . . . . . 15.2
Benefits Provided Solely by Trust . . . . . . . . . . . . . . . . 15.3
Spendthrift Clause . . . . . . . . . . . . . . . . . . . . . . . 15.4
Governing Laws; Parties to Legal Actions . . . . . . . . . . . . 15.5
Plan Document Controlling . . . . . . . . . . . . . . . . . . . . 15.6
Cross References . . . . . . . . . . . . . . . . . . . . . . . . 15.7
Trustee's Fees and Expenses . . . . . . . . . . . . . . . . . . . 15.8
</TABLE>
-vi-
<PAGE> 8
PLAINS RESOURCES INC.
401(k) PLAN
THIS AGREEMENT adopted by Plains Resources Inc. (the "Sponsor"), Calumet
Florida, Inc., PLX Ingleside Inc., Plains Illinois Inc. and Stocker Resources,
Inc.,
W I T N E S S E T H:
WHEREAS, effective January 1, 1987, the Sponsor established the Plains
Resources Inc. 401(k) Plan (the "Plan") which is intended to be a profit
sharing plan that satisfies the requirements of Section 401(a) of the Internal
Revenue Code of 1986, as amended; and
WHEREAS, the parties hereto desire to amend and restate the Plan;
NOW, THEREFORE, the Plan is hereby amended and restated in its entirety
as set forth below.
<PAGE> 9
ARTICLE I
DEFINITIONS
As used herein the words and phrases next below set out shall have the
meaning next below attributed to them unless the context in which any such word
or phrase appears reasonably requires a broader, narrower, or different
meaning:
1.1 ACCOUNT. "Account" shall mean any of the ledger accounts
pertaining to a Member or former Member that are maintained by the
Administrative Committee to reflect his interest in the Trust Fund. The
Administrative Committee will establish the Accounts specifically described in
the Plan and any additional Accounts that the Administrative Committee
considers to be necessary in order to reflect the entire interest of the Member
or former Member in the Trust Fund. Each of the Accounts will reflect any
contributions, forfeitures, and Investment Gain or Loss allocated to the
Account.
1.2 ACTUAL CONTRIBUTION RATIO. "Actual Contribution Ratio" shall mean
the ratio of Section 401(m) Contributions actually paid into the Trust on
behalf of an Employee for a Plan Year to the Employee's Annual Compensation for
the same Plan Year.
1.3 ACTUAL DEFERRAL PERCENTAGE. "Actual Deferral Percentage" shall
mean, for a specified group of Employees for a Plan Year, the average of the
ratios (calculated separately for each Employee in the group) of the amount of
Section 401(k) Contributions actually paid into the Trust on behalf of the
Employee for the Plan Year to the Employee's Annual Compensation for the Plan
Year. Solely for this purpose all Section 401(k) Contributions and Annual
Compensation of all eligible Family Members will be attributed to each Highly
Compensated Employee.
1.4 ACTUAL DEFERRAL RATIO. "Actual Deferral Ratio" shall mean the
ratio of Section 401(k) Contributions actually paid into the Trust on behalf of
an Employee for a Plan Year to the Employee's Annual Compensation for the same
Plan Year.
1.5 ADMINISTRATIVE COMMITTEE. "Administrative Committee" shall mean
the committee appointed by the Board of Directors to administer the Plan.
1.6 AFFILIATED EMPLOYER. "Affiliated Employer" shall mean the Employer
and any other business organization required to be aggregated with the Employer
under Sections 414(b), 414(c), 414(m), or 414(o) of the Code and the
regulations promulgated thereunder. In determining whether a business
organization is an Affiliated Employer for purposes of Article VII (including
any defined term when used in Article VII), the modification required under
Section 415(h) of the Code shall be given effect in applying Sections 414(b)
and 414(c) of the Code.
1.7 AGGREGATION GROUP. "Aggregation Group" shall mean (a) each plan of
any Affiliated Employer in which a Key Employee is a participant and (b)each
other plan of any Affiliated Employer which enables any plan described in
clause (a) to meet the requirements of either Section 401(a)(4) or 410 of the
Code. Any Employer may treat a plan not required to be included in the
Aggregation
I-1
<PAGE> 10
Group as being a part of the group if the group would continue to meet the
requirements of Sections 401(a)(4) and 410 of the Code with that plan being
taken into account.
1.8 ANNUAL ADDITION. "Annual Addition" shall mean the sum of the
following amounts credited to a Member's Account for the Limitation Year: (a)
Employer Contributions; (b) after-tax Employee contributions; (c) forfeitures;
(d) amounts allocated to an Individual Medical Account; (e) amounts derived
from contributions paid or accrued, which are attributable to post-retirement
medical benefits, allocated to the separate account of a Key Employee under a
Welfare Benefit Fund; and (f) any Excess Amount applied in the Limitation Year
to reduce Employer Contributions.
1.9 ANNUAL COMPENSATION. "Annual Compensation" shall mean for purposes
of Section 415 of the Code and Section 7.1 of the Plan, as to each Employee's
wages as defined in Section 3401(a) of the Code for purposes of income tax
withholding at the source but determined without regard to any rules that limit
the remuneration included in wages based on the nature or location of the
employment or the services performed. All Annual Compensation, without regard
to its definition, in excess of $150,000.00 (as adjusted by the Secretary of
the Treasury) shall be disregarded. If an Employee is a member of the Family
of a Five Percent Owner or of a Highly Compensated Employee in the group
consisting of the 10 Highly Compensated Employees paid the greatest Annual
Compensation during the Plan Year, the Employee will not be considered a
separate Employee and any Annual Compensation paid to him will be treated as if
it were paid to or on behalf of the Five Percent Owner or Highly Compensated
Employee. If as a result of the application of this rule, the adjusted
$150,000.00 limitation is exceeded, the limitation shall be prorated among the
affected Members in proportion to each Member's Annual Compensation as
determined under this Section prior to the application of this limitation. If
the Plan Year is ever less than twelve months (because of a change in the Plan
Year) the $150,000.00 limitation (as adjusted by the Secretary of Treasury)
will be prorated by multiplying the limitation by a fraction, the numerator of
which is the number of months in the Plan Year, and the denominator of which is
12.
1.10 ANNUITY STARTING DATE. "Annuity Starting Date" shall mean the
first day on which all events have occurred that entitle the Member to a
distribution.
1.11 BENEFICIARY. "Beneficiary: shall mean any person(s), trust(s), or
other entity(ies), including the Member's or former Member's estate, entitled
to receive the benefits payable hereunder upon the Member's or former Member's
death.
1.12 BOARD OF DIRECTORS. "Board of Directors" shall mean the board of
directors or the executive committee of the board of directors of the Sponsor.
1.13 CALENDAR QUARTER. "Calendar Quarter" shall mean each of the
three-month periods ending March 31, June 30, September 30, and December 31 of
each calendar year.
1.14 CODE. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.15 COMPUTATION PERIOD. "Computation Period" shall mean a period of
12 consecutive months used to determine an Employee's eligibility or vesting.
I-2
<PAGE> 11
1.16 CONSIDERED COMPENSATION. "Considered Compensation" shall mean, as
to each Employee, that Employee's Annual Compensation modified by including
elective contributions under a cafeteria plan described in Section 125 of the
Code and elective contributions to any plan qualified under Section 401(k),
408(k) or 403(b) of the Code, and modified further by excluding the following
items (even if includable in gross income): reimbursements or other expense
allowances, fringe benefits (cash and noncash), moving expenses, deferred
compensation and welfare benefits. Considered Compensation in excess of
$150,000.00 (as adjusted by the Secretary of the Treasury) shall be
disregarded. If an Employee is a member of the Family of a Five Percent Owner
or of a Highly Compensated Employee in the group consisting of the 10 Highly
Compensated Employees paid the greatest Considered Compensation during the Plan
Year, the Employee will not be considered a separate Employee and any
Considered Compensation paid to him will be treated as if it were paid to or on
behalf of the Five Percent Owner or Highly Compensated Employee. If as a
result of the application of this rule, the adjusted $150,000.00 limitation is
exceeded, the limitation shall be prorated among the affected Members in
proportion to each Member's Considered Compensation as determined under this
Section prior to the application of this limitation. If the Plan Year is ever
less than twelve months (because of a change in the Plan Year) the $150,000.00
limitation (as adjusted by the Secretary of Treasury) will be prorated by
multiplying the limitation by a fraction, the numerator of which is the number
of months in the Plan Year, and the denominator of which is 12.
1.17 CONTRIBUTION PERCENTAGE. "Contribution Percentage" shall mean,
for a specified group of Employees for a Plan Year, the average of the ratios
(calculated separately for each Employee in the group) of the amount of Section
401(m) Contributions actually paid into the Trust on behalf of the Employee for
the Plan Year to the Employee's Annual Compensation for the Plan Year. Solely
for this purpose all Section 401(m) Contributions and Annual Compensation of
all eligible Family Members will be attributed to each Highly Compensated
Employee.
1.18 DEFINED BENEFIT FRACTION. "Defined Benefit Fraction" shall mean a
fraction, the numerator of which is the sum of the Member's Projected Annual
Benefits under all the defined benefit plans (whether or not terminated)
maintained by any Affiliated Employer; and the denominator of which is the
lesser of 125 percent of the dollar limitation in effect for the Limitation
Year under Section 415(b)(1)(A) of the Code or 140 percent of the Highest
Average Compensation, taking into account any adjustments required under
Section 415(b) of the Code.
1.19 DEFINED CONTRIBUTION FRACTION. "Defined Contribution Fraction"
shall mean a fraction, the numerator of which is the sum of the Annual
Additions to the Member's account under all the defined contribution plans
(whether or not terminated) maintained by any Affiliated Employer for the
current and all prior Limitation Years (including the Annual Additions
attributable to the Member's nondeductible employee contributions to all
defined benefit plans, whether or not terminated, maintained by any Affiliated
Employer, and the Annual Additions attributable to all Welfare Benefit Funds
and Individual Medical Accounts), and the denominator of which is the sum of
the maximum aggregate amounts for the current and all prior Limitation Years of
service with any Affiliated Employer (regardless of whether a defined
contribution plan was maintained by any Affiliated Employer). The maximum
aggregate amount in any Limitation Year is the lesser of 125
I-3
<PAGE> 12
percent of the dollar limitation in effect under Section 415(c)(1)(A) of the
Code or 35 percent of the Member's Annual Compensation for such year.
1.20 DETERMINATION DATE. "Determination Date" shall mean, for a given
Plan Year, the last day of the preceding Plan Year, or in the case of the first
Plan Year, the last day of that Plan Year.
1.21 ELIGIBLE CLASS. "Eligible Class" shall mean all Employees who are
employed by the Employer, regardless of employment classification, except that
(a) Leased Employees and (b) Employees who are nonresident aliens and who
receive no earned income which constitutes income from sources within the
United States (within the meaning of Section 861(a)(3) of the Code) shall be
excluded; provided, however, that the Administrative Committee may designate
any such nonresident alien Employee as a member of the Eligible Class for such
period as the Administrative Committee may, in its absolute discretion,
determine.
1.22 EMPLOYEE. "Employee" shall mean every person who is (a) a common-
law employee of any Employer, or (b) a Leased Employee with respect to the
Employer.
1.23 EMPLOYER. "Employer" shall mean the Sponsor and any other
business organization that adopts the Plan in accordance with applicable
provisions thereof.
1.24 EMPLOYER CONTRIBUTION. "Employer Contribution" shall mean the
aggregate of the Employer's Salary Deferral Contribution, Employer Matching
Contribution, Qualified Nonelective Employer Contribution, and Restoration
Contribution.
1.25 EMPLOYER MATCHING CONTRIBUTION. "Employer Matching Contribution"
shall mean the Employer's contribution made pursuant to the provisions of
Section 4.3.
1.26 EMPLOYER MATCHING CONTRIBUTION ACCOUNT. "Employer Matching
Contribution Account" shall mean the ledger account maintained by the
Administrative Committee for each Member which reflects the portion of the
Employer Matching Contribution allocated to the Member and any Investment Gain
or Loss attributable to such contributions.
1.27 ENTRY DATE. "Entry Date" shall mean the first day of each
Calendar Quarter.
1.28 ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
1.29 EXCESS AGGREGATE 401(M) CONTRIBUTIONS. "Excess Aggregate 401(m)
Contributions" shall mean, with respect to any Plan Year, the excess of (a) the
aggregate amount of Section 401(m) Contributions actually paid into the Trust
on behalf of Highly Compensated Employees for the Plan Year over (b) the
maximum amount of those contributions permitted under the limitations set out
in the first sentence of Section 5.9 of the Plan. To calculate the amount of
Excess Aggregate 401(m) Contributions, the Actual Contribution Ratio of the
Highly Compensated Employee with the highest Actual Contribution Ratio shall be
reduced to equal the ratio of the Highly Compensated Employee with the next
highest Actual Contribution Ratio. However, if a lesser reduction would enable
the
I-4
<PAGE> 13
Plan to pass the test, only that lesser reduction shall be made. This leveling
process shall be repeated until the Contribution Percentage test is satisfied.
1.30 EXCESS AMOUNT. "Excess Amount" shall mean the excess of the
Annual Additions credited to the Member's Account for the Limitation Year over
the Maximum Permissible Amount.
1.31 EXCESS 401(K) CONTRIBUTIONS. "Excess 401(k) Contributions" shall
mean, with respect to any Plan Year, the excess of (a) the aggregate amount of
Section 401(k) Contributions actually paid into the Trust on behalf of Highly
Compensated Employees for the Plan Year over (b) the maximum amount of those
contributions permitted under the limitations set out in the first sentence of
Section 5.6 of the Plan. To calculate the amount of Excess 401(k)
Contributions, the Actual Deferral Ratio of the Highly Compensated Employee
with the highest Actual Deferral Ratio shall be reduced to equal the ratio of
the Highly Compensated Employee with the next highest Actual Deferral Ratio.
However, if a lesser reduction would enable the Plan to pass the test, only
that lesser reduction shall be made. This leveling process shall be repeated
until the Actual Deferral Percentage test is satisfied.
1.32 FAMILY. "Family" shall mean with respect to any Employee, the
Employee's spouse and any lineal descendants of the Employee who have not
attained age 19 before the close of the Plan Year.
1.33 FAMILY MEMBER. "Family Member" shall mean the spouse and lineal
ascendants or descendants and the spouses of those lineal ascendants or
descendants of a Five Percent Owner or of a Highly Compensated Employee who is
one of the 10 employees receiving the greatest Annual Compensation from the
Affiliated Employers during the Plan Year.
1.34 FIVE PERCENT OWNER. "Five Percent Owner" shall mean an Employee
who is a five percent owner as defined in Section 416(i) of the Code.
1.35 HIGHLY COMPENSATED EMPLOYEE. "Highly Compensated Employee" shall
mean an Employee or an employee of an Affiliated Employer who during the Plan
Year or the preceding Plan Year (a) was at any time a Five Percent Owner, (b)
received Annual Compensation from the Affiliated Employers in excess of
$75,000.00 (as adjusted from time to time by the Secretary of the Treasury),
(c) received Annual Compensation from the Affiliated Employers in excess of
$50,000.00 (as adjusted from time to time by the Secretary of the Treasury) and
was within the 20% of employees of the Affiliated Employers who were the
highest paid for the Plan Year, or (d) was at any time an officer and received
Annual Compensation from the Affiliated Employers in excess of 50% of the
annual addition limitation of Section 415(b)(1)(A) of the Code. For this
purpose no more than 50 employees or, if lesser, the greater of three employees
or 10% of the employees shall be treated as officers, excluding those Employees
who may be excluded in determining the top paid group. If no officer has
Annual Compensation in excess of 50% of the annual limitation of Section
415(b)(1)(A) of the Code, the highest paid officer for the year shall be
treated as a Highly Compensated Employee. If a Member did not fall within (b),
(c) or (d) without regard to this sentence for the Plan Year preceding the Plan
Year of the determination, he will not be treated as falling within (b), (c) or
(d) for the Plan Year of the determination unless he is a member of the group
I-5
<PAGE> 14
consisting of the 100 employees paid the greatest Annual Compensation during
that Plan Year. For this purpose the determination of the top paid 100
employees will be made using Section 414(q) of the Code and its Regulations. A
former Member will be treated as a Highly Compensated Employee if he was a
Highly Compensated Employee when he severed Service or he was a Highly
Compensated Employee at any time after attaining age 55.
1.36 HOUR OF EMPLOYMENT. "Hour of Employment" shall mean each hour (a)
that an Employee is either directly or indirectly paid or entitled to payment
by the Employer or Affiliated Employer for the performance of duties; (b) that
an Employee is either directly or indirectly paid or entitled to payment by the
Employer or Affiliated Employer for a period of time during which no duties are
performed (whether or not the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including disability), layoff, jury
duty, military duty, or leave of absence; or (c) that an Employee is paid or
entitled to payment of back pay, irrespective of mitigation of damages, which
is awarded or agreed to by the Employer or Affiliated Employer. The same Hours
of Employment shall not be credited both under clauses (a) or (b) and (c). For
purposes of clauses (b) and (c) no more than 501 Hours of Employment shall be
credited to an Employee due to any single continuous period during which he
performs no duties (whether or not the period occurs in a single Computation
Period). Hours of Employment shall not be credited if they are paid for under
a plan maintained solely to comply with workmen's compensation, unemployment
compensation or disability insurance laws. Hours of Employment shall not be
credited if they are paid for solely to reimburse an Employee for medical or
medically related expenses incurred by him. The number of Hours of Employment
credited as Active Service shall be the number of actual Hours of Employment
performed by the Employee, based upon the records of the Employer. If the
Employer's records are inadequate and the Employee would be required to be
credited with an Hour of Employment for a payroll period under the foregoing
provisions of this Section, the Employee will be credited with 10 Hours of
Employment if he is customarily paid on a daily basis, 45 Hours of Employment
if he is customarily paid on a weekly basis, 90 Hours of Employment if he is
customarily paid on a bi-weekly basis, 95 Hours of Employment if he is
customarily paid on a semi-monthly basis, and 190 Hours of Employment if he is
customarily paid on a monthly basis. If an Employee receives compensation for
which no duties were performed that was not based upon units of time, the Hours
of Employment to be credited will be calculated under the method set forth in
Department of Labor Regulation Section 2530.200b-2(b)(2).
1.37 INDIVIDUAL MEDICAL ACCOUNT. "Individual Medical Account" shall
mean an individual medical account, as defined in Section 415(l)(2) of the
Code, maintained by any Affiliated Employer.
1.38 INVESTMENT GAIN OR LOSS. "Investment Gain or Loss" shall mean the
sum of the income, appreciation, and realized gains on Trust Fund assets, minus
the sum of expenses, depreciation, and realized losses on Trust Fund assets.
I-6
<PAGE> 15
1.39 KEY EMPLOYEE. "Key Employee" shall mean an individual who at any
time during the Plan Year containing the Determination Date or any of the four
preceding Plan Years is (a) an officer of any Affiliated Employer whose Annual
Compensation is greater than 50 percent of the amount in effect under Section
415(b)(1)(A) of the Code for the Plan Year, (b) one of the Employees having
Annual Compensation greater than the limitation in effect under Section
415(c)(1)(A) of the Code for the Plan Year and owning (or considered as owning
within the meaning of Section 318 of the Code) one of the 10 largest interests
in any Affiliated Employer, treated separately, (c) a Five Percent Owner of any
Affiliated Employer, treated separately, or (d) a one percent owner of any
Affiliated Employer, treated separately, having Annual Compensation of more
than $150,000.00. No more than 50 Employees or, if lesser, the greater of
three Employees or 10 percent of the Employees, will be treated as officers.
The rules of Section 416(i) of the Code will be applied in determining
percentage of ownership. If two or more Employees have the same interest in an
Affiliated Employer, the Employee with the greater Annual Compensation from the
Affiliated Employer will be treated as having the larger interest.
1.40 LEASED EMPLOYEE. "Leased Employee" shall mean any person (a) who
is not a common law employee of the recipient and (b) who (pursuant to an
agreement between an Affiliated Employer and any other person) has performed
services for the Employer (or for the Employer and related persons determined
in accordance with Section 414(n)(6) of the Code) on a substantially full time
basis for a period of at least one year, and such services are of a type
historically performed by employees in the business field of the recipient.
1.41 LIMITATION YEAR. "Limitation Year" shall mean the Plan Year. All
qualified plans maintained by any Affiliated Employer must use the same
Limitation Year. If the Limitation Year is amended to a different
12-consecutive month period, the new Limitation Year must begin on a date
within the Limitation Year in which the amendment is made.
1.42 MATCHED SALARY DEFERRAL CONTRIBUTION. "Matched Salary Deferral
Contribution" means that portion of the Salary Deferral Contribution that the
Board of Directors determines to match from time to time in its sole
discretion.
1.43 MAXIMUM PERMISSIBLE AMOUNT. "Maximum Permissible Amount" shall
mean the lesser of (a) the dollar limitation in effect under Section
415(c)(1)(A) of the Code for the Limitation Year, or (b) 25 percent of the
Member's Annual Compensation for the Limitation Year. The Annual Compensation
limitation referred to in clause (b) of the immediately preceding sentence
shall not apply to any contribution for medical benefits (within the meaning of
Section 401(h) or Section 419(A)(f)(2) of the Code) that is otherwise treated
as an Annual Addition under Section 415(l)(1) or Section 419(A)(d)(2) of the
Code. If a short Limitation Year is created because of an amendment changing
the Limitation Year to a different 12-consecutive month period, the Maximum
Permissible Amount shall not exceed the dollar limitation in effect under
Section 415(c)(1)(A) of the Code multiplied by a fraction, the numerator of
which is the number of months in the short Limitation Year, and the denominator
of which is 12.
1.44 MEMBER. "Member" shall mean a person who qualifies as such under
Article III.
I-7
<PAGE> 16
1.45 NON-HIGHLY COMPENSATED EMPLOYEE. "Non-Highly Compensated
Employee" shall mean any Employee who is not a Highly Compensated Employee.
1.46 NON-KEY EMPLOYEE. "Non-Key Employee" shall mean any Employee who
is not a Key Employee.
1.47 NORMAL RETIREMENT AGE. "Normal Retirement Age" shall mean the
later of the time a Member attains age 65 or the fifth anniversary of the date
he commenced participation in the Plan.
1.48 PERIOD OF SERVICE. "Period of Service" shall mean a period of
employment with an Employer or Affiliated Employer, which commences on the day
on which an Employee performs his initial Hour of Employment or performs his
initial Hour of Employment upon returning to the employ of the Employer or an
Affiliated Employer, whichever is applicable, and ends on the date the Employee
severs Service.
1.49 PERIOD OF SEVERANCE. "Period of Severance" shall mean the period
of time commencing on the date an Employee severs Service and ending on the
date the Employee again performs an Hour of Employment.
1.50 PLAN. "Plan" shall mean the Plains Resources, Inc. 401(k) Plan
set forth in this document and all subsequent amendments hereto.
1.51 PLAN YEAR. "Plan Year" shall mean the 12-month annual accounting
period of the Plan, which shall end on the last day of December.
1.52 PROJECTED ANNUAL BENEFIT. "Projected Annual Benefit" shall mean
the annual retirement benefit (adjusted to an actuarially equivalent straight
life annuity if such benefit is expressed in a form other than a straight life
annuity or Qualified Joint and Survivor Annuity) to which the Member would be
entitled under the terms of the Plan, assuming (a) the Member will continue
employment until Normal Retirement Age under the Plan (or current age, if
later), and (b) the Member's Annual Compensation for the current Limitation
Year and all other relevant factors used to determine benefits under the Plan
will remain constant for all future Limitation Years.
1.53 QUALIFIED DOMESTIC RELATIONS ORDER. "Qualified Domestic Relations
Order" shall mean any order determined by the Administrative Committee to be a
qualified domestic relations order within the meaning of Section 414(p) of the
Code.
1.54 QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTION. "Qualified
Nonelective Employer Contribution" shall mean the Employer's Contribution, if
any, made pursuant to the provisions of Section 4.4 as a means of passing the
Actual Deferral Percentage Test or the Actual Contribution Percentage Test.
1.55 QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTION ACCOUNT. "Qualified
Nonelective Employer Contribution Account" shall mean the ledger account
maintained by the Administrative Committee for each Member which reflects the
portion of the Qualified Nonelective Employer
I-8
<PAGE> 17
Contributions allocated to the Member, and any Investment Gain or Loss
attributable to such contributions.
1.56 REGULATION. "Regulation" shall mean the Internal Revenue Service
regulation specified, as it may be changed from time to time.
1.57 REQUIRED BEGINNING DATE. "Required Beginning Date" shall mean:
(a) Except as otherwise provided in this Section, April 1 of the
calendar year following the calendar year in which the Member or former
Member attains age 70 1/2;
(b) In the case of an individual who attained age 70 1/2 before
January 1, 1988, and is not a Five Percent Owner, April 1 of the
calendar year following the later of (i) the calendar year in which the
individual attained age 70 1/2, or (ii) the calendar year in which
occurs the individual's Separation; and
(c) In the case of an individual who attained age 70 1/2 before
January 1, 1988, and is a Five Percent Owner, April 1 of the calendar
year following the later of (i) the calendar year in which the employee
attained age 70 1/2, or (ii) the earlier of (A) the calendar year with
or within which ends the Plan Year in which the individual becomes a
Five Percent Owner, or (B) the calendar year in which occurs the
individual's Separation.
1.58 RESTORATION CONTRIBUTION. "Restoration Contribution" shall mean
the Employer's contribution, if any, made pursuant to the provisions of Section
4.5.
1.59 RETIREMENT. "Retirement" shall mean a Member's Separation upon or
after his attainment of his Normal Retirement Age.
1.60 ROLLOVER CONTRIBUTION. "Rollover Contribution" shall mean the
amount contributed by a Member of this Plan which consists of any part of an
eligible rollover distribution (as defined in Section 402 of the Code) from a
qualified employee trust described in Section 401(a) of the Code.
1.61 ROLLOVER CONTRIBUTION ACCOUNT. "Rollover Contribution Account"
shall mean the ledger account maintained by the Administrative Committee for
each Member which reflects the Rollover Contributions made by the Member, and
any Investment Gain or Loss attributable to such contributions.
1.62 SALARY DEFERRAL CONTRIBUTION. "Salary Deferral Contribution"
shall mean the Employer's contribution, if any, made pursuant to the provisions
of Section 4.2.
1.63 SALARY DEFERRAL CONTRIBUTION ACCOUNT. "Salary Deferral
Contribution Account" shall mean the ledger account maintained by the
Administrative Committee for each Member which reflects the portion of the
Salary Deferral Contributions allocated to the Member, and any Investment Gain
or Loss attributable to such contributions.
I-9
<PAGE> 18
1.64 SECTION 401(K) CONTRIBUTIONS. "Section 401(k) Contributions"
shall mean the sum of Salary Deferral Contributions made on behalf of the
Member during the Plan Year, and Qualified Nonelective Employer Contributions
that the Employer elects to have treated as Section 401(k) Contributions
pursuant to Section 401(k)(3)(d)(ii) of the Code.
1.65 SECTION 401(M) CONTRIBUTIONS. "Section 401(m) Contributions"
shall mean the sum of Employer Matching Contributions made on behalf of the
Member during the Plan Year and other amounts that the Employer elects to have
treated as Section 401(m) Contributions pursuant to Section 401(m)(3)(B) of the
Code. However, Employer Matching Contributions and Salary Deferral
Contributions that the Employer could otherwise elect to have treated as
Section 401(m) Contributions are not Section 401(m) Contributions to the extent
that they are used to enable the Plan to satisfy the minimum contribution
requirements of Section 416 of the Code.
1.66 SEPARATION. "Separation" shall mean an individual's termination
of employment with an Affiliated Employer without commencing or continuing
employment with any other Affiliated Employer.
1.67 SERVICE. "Service" shall mean the period or periods that a
person is paid or is entitled to payment for performance of duties with the
Employer or an Affiliated Employer.
1.68 SPONSOR. "Sponsor" shall mean Plains Resources, Inc., a Delaware
corporation.
1.69 SPONSOR STOCK. "Sponsor Stock" shall mean the common stock of the
Sponsor, $.10 par value.
1.70 TOP-HEAVY PLAN. "Top-Heavy Plan" shall mean any plan which has
been determined to be top-heavy under the test described in Article VIII.
1.71 TOTAL PERMANENT DISABILITY. "Total Permanent Disability" shall
mean a mental or physical disability which, in the opinion of a physician
selected by the Administrative Committee, will prevent a Member from engaging
in any occupation for wage or profit for which the Employee is reasonably
suited by training, education or experience, which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months, and which:
(a) was not contracted, suffered, or incurred while such Member
was engaged in, or did not result from his having engaged in, a
felonious criminal enterprise;
(b) did not result from alcoholism, addiction to narcotics, or
any other self-inflicted injury; and
(c) did not result from an injury incurred while a member of the
armed forces of the United States after the effective date of the Plan
and for which such Member receives a military pension.
I-10
<PAGE> 19
The standards for Total Permanent Disability shall be applied uniformly to all
Employees in similar circumstances.
1.72 TRUST. "Trust" shall mean the one or more estates created to fund
this Plan.
1.73 TRUST FUND. "Trust Fund" shall mean the cash, bonds, stocks,
insurance policies, and other properties actually held by the Trustee pursuant
to the terms of the Plan for the purpose of funding the benefits provided
hereunder.
1.74 TRUSTEE. "Trustee" shall mean collectively one or more persons or
corporations with trust powers which have been appointed by the Sponsor and
have accepted the duties of Trustee and any and all successor or successors
appointed by the Sponsor.
1.75 VALUATION DATE. "Valuation Date" shall mean each business day of
the Plan Year.
1.76 WELFARE BENEFIT FUND. "Welfare Benefit Fund" shall mean a welfare
benefit fund, as defined in Section 419(e) of the Code, maintained by any
Affiliated Employer.
I-11
<PAGE> 20
ARTICLE II
SERVICE
2.1 YEARS OF ACTIVE SERVICE CREDIT FOR VESTING. An Employee shall
receive one year of Active Service credit for vesting purposes for each
Computation Period in which he has 1,000 or more Hours of Employment with the
Employer and all Affiliated Employers (or a predecessor employer if the
Employer maintains one or more of the predecessor's plans or that treatment is
required under the Regulations). The Computation Period for vesting purposes
is the Plan Year.
2.2 WHEN AN EMPLOYEE SEVERS SERVICE. An Employee shall sever Service
if he is not credited with at least 501 Hours of Employment with the Employer
and all Affiliated Employers during a Computation Period unless he is credited
with less than 501 Hours of Employment because: (a) he is transferred; (b) he
is on an approved leave of absence that does not exceed 18 months and he
returns to employment immediately following the leave of absence; or (c) he is
temporarily laid off, and he returns to employment immediately following the
temporary layoff. Solely for the purpose of determining whether an Employee
has severed Service, if the Employee is absent from Service because of her
pregnancy, the birth of her child, his or her receipt of a child through
adoption, or his or her caring for the child immediately after birth or
adoption, he or she shall be entitled to the Hours of Employment that he or she
would have received but for that absence for one year after the absence began.
Eight hours of Service shall be credited for each day of absence. But, no more
than a total of 501 hours can be credited. The 501 hours shall be credited to
the Computation Period in which the absence first begins if they shall prevent
a severance from Service in that period; otherwise, the 501 hours shall be
credited to the next Computation Period.
2.3 PERIODS OF SEVERANCE OF FIVE YEARS OR MORE. If an Employee is
reemployed after he has incurred a Period of Severance for a continuous period
of at least five years, then any prior Period of Service shall not count as
Active Service for purposes of determining his nonforfeitable interest in his
Account balance accrued prior to the Period of Severance. If a Member is not
fully vested upon his re-employment with the Employer or an Affiliated
Employer, a new account shall be established for him to separate his
nonforfeitable pre-break account balance, if any, from the account to which new
allocations will be made. The Member's account to the extent remaining shall
be fully vested and shall continue to share in earnings and losses of the Trust
Fund. When computing the Member's vested portion of the new account, all
pre-break and post-break Service shall be counted.
2.4 TRANSFERS. If an Employee of one Employer is Transferred to the
service of another Employer, his Active Service shall not be interrupted and he
shall continue to be in Active Service for purposes of eligibility, vesting and
allocation of Contributions and/or forfeitures. If an Employee is transferred
to the service of an Affiliated Employer that has not adopted the Plan he shall
not have Severed Service; however, even though he shall continue to be in
Active Service for eligibility and vesting purposes he shall not receive any
allocation of Contributions or forfeitures.
2.5 EMPLOYMENT RECORDS CONCLUSIVE. The employment records of the
Employer shall be conclusive for all determinations of Active Service.
II-1
<PAGE> 21
2.6 COVERAGE OF CERTAIN PREVIOUSLY EXCLUDED EMPLOYEES. Any Employee
who is no longer excludable because he or she is no longer included in a unit
of Employees covered by a collective bargaining agreement between the
Employees' representative and the Employer where retirement benefits were the
subject of good faith bargaining shall immediately become eligible for
membership if he meets the eligibility requirements. All his Service with the
Employer or any Affiliated Employer which would have been counted had he not
been previously excluded shall now be counted as Active Service for eligibility
and vesting purposes.
2.7 SERVICE CREDIT REQUIRED UNDER FEDERAL LAW. An Employee shall be
credited with such additional Years of Vesting Service as is required under any
applicable law of the United States.
II-2
<PAGE> 22
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY REQUIREMENTS. An Employee who is in the Eligible Class
shall become a Member of the Plan on the Entry Date that coincides with or next
follows his attainment of age 21 and the completion of 1,000 or more Hours of
Employment with the Employer and all Affiliated Employers (or a predecessor
employer if the Employer maintains one or more of the predecessor's plans or
that treatment is required under the Regulations) during a Computation Period.
The initial Computation Period for eligibility is the 12-consecutive-month
period starting with the Employee's first day of employment (or reemployment)
for which he is entitled to be credited with one Hour of Employment. The
eligibility Computation Period then shifts to the Plan Year that includes the
Employee's first anniversary of employment (or reemployment) and remains on
that schedule. Notwithstanding the foregoing, all Employees who are included
in a unit of Employees covered by a collective bargaining agreement between the
Employees' representative and the Employer shall be excluded, even if they have
met the requirements for eligibility, if there has been good faith bargaining
between the Employer and the Employees' representative pertaining to retirement
benefits and the agreement does not require the Employer to include such
Employees in this Plan.
3.2 ELIGIBILITY UPON REEMPLOYMENT. If an Employee severs Service
with the Employer for any reason after fulfilling the eligibility requirements,
the Employee shall be eligible to begin participation in this Plan on the day
he first completes an Hour of Employment upon his return to employment with an
Employer. Once an Employee has become eligible to be a Member, he shall
continue to be a Member until he severs Service. A former Member shall become
a Member again upon his return to employment with an Employer.
3.3 FROZEN PARTICIPATION. An Employee employed by an Affiliated
Employer that has not adopted this Plan cannot actively participate in this
Plan even though he accrues Active Service. Likewise, if an Employee: (a) is
transferred from an Employer to an Affiliated Employer which has not adopted
the Plan or (b) is a Member of this Plan when he is excluded under the
provisions of a collective bargaining agreement, his participation becomes
inactive. Such a person's Account becomes frozen: he cannot share in any
allocation of Employer Contributions or forfeitures, except for Periods of
Service in which he is employed by the Employer or an Affiliated Employer that
has adopted the Plan. However, his Account shall continue to share in any
appreciation or depreciation of the Trust Fund and in any income earned or
losses incurred by the Trust Fund during the period of time that he is employed
by an Affiliated Employer that has not adopted the Plan or is excluded from
covered employment under the provisions of a collective bargaining agreement.
III-1
<PAGE> 23
ARTICLE IV
CONTRIBUTIONS
4.1 SALARY DEFERRAL CONTRIBUTIONS. The Employer shall make a Salary
Deferral Contribution in an amount equal to the amount by which its
Members' Considered Compensation was reduced as a result of salary deferral
agreements. Any such salary deferral agreement shall be an agreement in a form
satisfactory to the Administrative Committee to prospectively receive
Considered Compensation from the Employer in a reduced amount and to have the
Employer contribute an amount equal to the amount of the reduction to the Trust
Fund on account of the Member. Any such salary deferral agreement shall be
revocable in accordance with its terms, provided that no revocation shall be
retroactive or permit payment to the Member of the amount required to be
contributed to the Trust Fund. A Member shall be entitled to prospectively
modify his salary deferral agreement at least once a year. A Member's right to
benefits derived from Salary Deferral Contributions made to the Plan on his
behalf shall be nonforfeitable. The election to have Salary Deferral
Contributions made, the ability to change the rate of Salary Deferral
Contributions, the right to suspend Salary Deferral Contributions, and the
manner of commencing new Salary Deferral Contributions shall be permitted under
any uniform method determined by the Administrative Committee from time to
time.
4.2 EMPLOYER MATCHING CONTRIBUTIONS. The Employer shall make an
Employer Matching Contribution in such an amount, and for such period,if any,
as is determined by the Board of Directors in its sole discretion.
4.3 ROLLOVER CONTRIBUTIONS AND PLAN-TO-PLAN TRANSFERS. The
Administrative Committee may permit Rollover Contributions by Members and/or
direct transfers to or from another qualified plan on behalf of Members from
time to time. If Rollover Contributions and/or direct transfers to or from
another qualified plan are permitted, the opportunity to make those
contributions and/or direct transfers must be made available to Members on a
nondiscriminatory basis. For this purpose only, all Employees in the Eligible
Class shall be considered to be Members of the Plan even though they may not
have met the eligibility requirements. However, they shall not be entitled to
elect to have Salary Deferral Contributions made or to share in Employer
Contributions or forfeitures unless and until they have met the requirements
for eligibility, contributions and allocations. A Rollover Contribution shall
not be accepted unless it is directly rolled over to this Plan in a rollover
described in Section 401(a)(31) of the Code. A Member shall not be permitted
to make a Rollover Contribution if the property he intends to contribute is for
any reason unacceptable to the Trustee. A Rollover Contribution Account shall
be established for any Employee who makes a Rollover Contribution.
A direct transfer of assets from another qualified plan in a transfer
subject to the requirements of Section 414(l) of the Code shall not be accepted
if it was at any time part of (a) a defined benefit plan (as defined in Section
401(a) or 414(j) of the Code), (b) a defined contribution plan (as defined in
Sections 401(a) and 414(i) of the Code) which is subject to the minimum funding
standards of Section 412 of the Code, (c) any other qualified plan which has
joint and survivor annuity benefits or qualified preretirement survivor annuity
benefits as described in Section 417 of the Code, or (d) a plan which permits a
distribution or withdrawal in a form not permitted under this Plan.
IV-1
<PAGE> 24
4.4 QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTIONS. The Employer may
make a Qualified Nonelective Employer Contribution in such amount, if any, as
shall be determined by the Employer. A Member's right to benefits derived from
Qualified Nonelective Employer Contributions made to the Plan on his behalf
shall be nonforfeitable. In no event will Qualified Nonelective Employer
Contributions be distributed before Salary Deferral Contributions may be
distributed
4.5 RESTORATION CONTRIBUTIONS. The Employer shall, for each Calendar
Quarter, make a Restoration Contribution in an amount equal to the sum of (a)
such amount, if any, as shall be necessary to fully restore all Employer
Matching Contribution Accounts required to be restored pursuant to the
provisions of Section 5.9, after application of all forfeitures and any
appreciation in the value of the Trust Fund available for such restoration;
plus (b) an amount equal in value to the value of forfeited benefits described
in and payable under Section 9.11.
4.6 LIMITATION UPON SALARY DEFERRAL CONTRIBUTIONS. The maximum Salary
Deferral Contribution that a Member may elect to have made on his behalf during
the Member's taxable year may not, when added to the amounts deferred under
other plans or arrangements described in Sections 401(k), 408(k) and 403(b) of
the Code exceed $7,000 (as adjusted by the Secretary of Treasury). If this
dollar limitation is exceeded during any taxable year of the Member, the excess
of the amounts deferred on behalf of the Member under plans or arrangements
described in Sections 401(k), 408(k) and 403(b) of the Code during the Member's
taxable year over the dollar limitation (the "Excess Deferral") as adjusted by
any earnings or losses thereon will be distributed to the Member no later than
April 15 following the Member's taxable year in which the Excess Deferral was
made.
A Member who has Excess Deferrals for a taxable year may receive a
corrected distribution of Excess Deferrals during the same year, if the Member
designates the distribution as an Excess Deferral. A Member shall be deemed to
have designated the distribution as an Excess Deferral to the extent the Member
has Excess Deferrals for the taxable year calculated by taking into account
only elective deferrals under the Plan and other plans of the Affiliated
Employers. The correcting distribution shall be made after the date on which
the Plan received the Excess Deferral. The Plan shall designate the
distribution as a distribution of Excess Deferrals.
If any amount is included in the gross income of a Member for a taxable
year because his Excess Deferrals exceeded the limitations set forth in this
Section 4.6, the Member may notify the Administrative Committee of the amount
of the Excess Deferrals received by the Plan. A Member shall be deemed to have
notified the Administrative Committee of Excess Deferrals to the extent the
Member has Excess Deferrals for the taxable year, calculated by taking into
account only Elective Deferrals under the Plan and other plans of the
Affiliated Employers. Not later than the first April 15 following the close of
the taxable year, the Plan Trustee shall distribute to the Member the amount
designated under the preceding provisions of this Section (and any income
allocable to that amount). The income allocable to that amount shall be
determined by multiplying the Investment Gain or Loss for the taxable year of
the Member allocable to the Member's Salary Deferral Contribution by a
fraction. The numerator of the fraction is the Excess Deferrals by the Member
for the taxable year. The denominator of the fraction is the Member's Salary
Deferral Account as of the beginning of the taxable year, plus the Member's
Salary Deferral Contributions for the taxable year.
IV-2
<PAGE> 25
For purposes of applying the requirements of Section 4.7 and Article
VII, Excess Deferrals shall not be disregarded merely because they are Excess
Deferrals or because they are distributed in accordance with this Section.
However, Excess Deferrals made to the Plan on behalf of Non-Highly Compensated
Employees are not to be taken into account under Section 4.7.
4.7 ACTUAL DEFERRAL PERCENTAGE TEST. The Actual Deferral Percentage
for Highly Compensated Employees for any Plan Year must bear a relationship to
the Actual Deferral Percentage for all other eligible Employees for the Plan
Year which meets either of the following tests:
(a) The Actual Deferral Percentage of the Highly Compensated
Employees is not more than the Actual Deferral Percentage of all other
eligible Employees multiplied by 1.25; or
(b) The excess of the Actual Deferral Percentage of the Highly
Compensated Employees over that of all other eligible Employees is not
more than two percentage points, and the Actual Deferral Percentage of
the Highly Compensated Employees is not more than the Actual Deferral
Percentage of all other eligible Employees multiplied by two.
For purposes of this test an eligible Employee is an Employee who is directly
or indirectly eligible to make Salary Deferral Contributions for all or part of
the Plan Year. A person who is suspended from making Salary Deferral
Contributions because he has made a withdrawal is an eligible Employee. Except
as provided below, an Employee who would be eligible to make Salary Deferral
Contributions but for his election not to participate is an eligible Employee.
An Employee is not an eligible Employee merely because the Employee, upon
commencing employment with an Affiliated Employer or upon the Employee's first
becoming eligible to make a cash or deferred election under any plan of an
Affiliated Employer is given a one-time opportunity to elect, and the employee
does in fact elect, not to be eligible to make a cash or deferred election
under any plan maintained by an Affiliated Employer (including plans not yet
established) for the duration of the Employee's employment with the Affiliated
Employer. In addition, an Employee who would be eligible to make a Salary
Deferral Contribution but for the limitations on his Annual Additions imposed
by Sections 415 of the Code is an eligible Employee.
If no Salary Deferral Contributions are made for an eligible Employee,
the Actual Deferral Ratio that shall be included for him in determining the
Actual Deferral Percentage is zero. If this Plan and any other plan or plans
which include cash or deferred arrangements are considered as one plan for
purposes of Section 401(a)(4) or 410(b) of the Code, the cash or deferred
arrangements included in this Plan and the other plans shall be treated as one
plan for purposes of this Section. If any Member who is a Highly Compensated
Employee is a participant in any other cash or deferred arrangements of the
Employer, when determining the deferral percentage of such Member, all such
cash or deferred arrangements are treated as one.
A Salary Deferral Contribution will be taken into account under the
actual deferral percentage test of Code Section 401(k) and this Section for a
Plan Year only if it relates to Considered Compensation that either would have
been received by the Employee in the Plan Year (but for the
IV-3
<PAGE> 26
deferral election) or is attributable to services performed by the Employee in
the Plan Year and would have been received by the Employee within 2 1/2 months
after the close of the Plan Year (but for the deferral election). In addition,
a Section 401(k) Contribution will be taken into account under the actual
deferral percentage test of Code Section 401(k) and this Section for a Plan
Year only if it is allocated to an Employee as of a date within that Plan Year.
For this purpose a Section 401(k) Contribution is considered allocated as of a
date within a Plan Year if the allocation is not contingent on participation or
performance of services after such date and the Section 401(k) Contribution is
actually paid to the Trust no later than 12 months after the Plan Year to which
the Section 401(k) Contribution relates.
4.8 ACTUAL DEFERRAL PERCENTAGE FAIL SAFE PROVISION. As soon as
practicable after the close of each Plan Year, the Administrative Committee
shall determine whether the Actual Deferral Percentage for the Highly
Compensated Employees would exceed the limitation set forth in Section 4.7. If
the limitation would be exceeded for a Plan Year, before the close of the
following Plan Year (a) the amount of Excess 401(k) Contributions for that Plan
Year (and any income allocable to those contributions as calculated in the
specific manner required by Section 4.14) shall be distributed, or (b) the
Employer may make a Qualified Nonelective Employer Contribution which it elects
to have treated as a Section 401(k) Contribution.
Qualified Nonelective Employer Contributions will be treated as Section
401(k) Contributions only if the conditions described in Regulation Section
1.401(k)-1(b)(5) are satisfied. Qualified Nonelective Employer Contributions
will be treated as Section 401(k) Contributions for a Plan Year only if they
are allocated to Members' Accounts as of a date within that Plan Year and are
actually paid to the Trust no later than the end of the 12-month period
immediately following the Plan Year to which the contributions relate.
Any distributions of the Excess 401(k) Contributions for any Plan Year
are to be made to Highly Compensated Employees on the basis of the respective
portions of the Excess 401(k) Contributions attributable to each of them. The
amount of Excess 401(k) Contributions to be distributed or recharacterized for
any Plan Year must be reduced by any excess Salary Deferral Contributions
previously distributed for the taxable year ending in the same Plan Year.
4.9 SPECIAL ACTUAL DEFERRAL PERCENTAGE RULES FOR FAMILY MEMBERS. If a
Member is a Highly Compensated Employee and a Family Member, the combined
Actual Deferral Ratio for the family group (which is treated as one Highly
Compensated Employee) must be determined by combining the Section 401(k)
Contributions and Annual Compensation of all the eligible Family Members. If
an Employee is required to be aggregated as a member of more than one family
group in the Plan, all eligible Employees who are members of those family
groups that include that Employee are aggregated as one family group. The
correction of Excess 401(k) Contributions of a Highly Compensated Employee
whose Actual Deferral Ratio is determined under the family aggregation rules is
accomplished by reducing the Actual Deferral Ratio and allocating the Excess
401(k) Contributions for the family group among the Family Members in
proportion to the Section 401(k) Contributions of each Family Member that is
combined to determine the Actual Deferral Ratio. These family aggregation
rules do not apply for purposes of determining the Actual Deferral Percentage
for the group of Non-Highly Compensated Employees.
IV-4
<PAGE> 27
4.10 CONTRIBUTION PERCENTAGE TEST. The Contribution Percentage for
eligible Highly Compensated Employees for any Plan Year must not exceed the
greater of the following:
(a) The Contribution Percentage for all other eligible Employees
multiplied by 1.25; or
(b) The lesser of the Contribution Percentage for all other
eligible Employees multiplied by two, or the Contribution Percentage for
all other eligible Employees plus two percentage points.
For purposes of this test an eligible Employee is an Employee who is directly
or indirectly eligible to receive an allocation of Employer Matching
Contributions for all or part of the Plan Year. Except as provided below, an
Employee who would be eligible to receive an allocation of Employer Matching
Contributions but for his election not to participate is an eligible Employee.
An Employee who would be eligible to receive an allocation of Matching Employer
Contributions but for the limitations on his Annual Additions imposed by
Section 415 of the Code is an eligible Employee.
If no Section 401(m) Contributions are made on behalf of an eligible
Employee the Actual Contribution Ratio that shall be included for him in
determining the Contribution Percentage is zero. If this Plan and any other
plan or plans to which Section 401(m) Contributions are made are considered as
one plan for purposes of Section 401(a)(4) or 410(b) of the Code, this Plan and
those plans are to be treated as one. The Actual Contribution Ratio of a
Highly Compensated Employee who is eligible to participate in more than one
plan of an Affiliated employer to which employee or matching contributions are
made is calculated by treating all the plans in which the Employee is eligible
to participate as one plan. However, plans that are not permitted to be
aggregated under Regulation Section 1.410(m)-1(b)(3)(ii) are not aggregated for
this purpose.
An Employer Matching Contribution will be taken into account under this
Section for a Plan Year only if (1) it is allocated to the Employee's Account
as of a date within the Plan Year, (2) it is paid to the Trust no later than
the end of the 12 month period beginning after the close of the Plan Year, and
(3) it is made on behalf of an Employee on account of his Salary Deferral
Contributions for the Plan Year.
At the election of the Employer, a Member's Salary Deferral
Contributions, and Qualified Nonelective Employer Contributions made on behalf
of the Member during the Plan Year shall be treated as Section 401(m)
Contributions that are Employer Matching Contributions provided that the
conditions set forth in Regulation Section 1.401(m)-1(b)(5) are satisfied.
Salary Deferral Contributions may not be treated as Employer Matching
Contributions for purposes of the contribution percentage test set forth in
this Section unless such contributions, including those taken into account for
purposes of the test set forth in this Section, satisfy the actual deferral
percentage test set forth in Section 4.7. Moreover, Salary Deferral
Contributions and Qualified Nonelective Employer Contributions may not be taken
into account for purposes of the test set forth in this Section to the extent
that such contributions are taken into account in determining whether any other
contributions satisfy the actual deferral percentage test set forth in Section
4.7. Finally, Salary Deferral Contributions and Qualified Nonelective Employer
Contributions may be taken into account
IV-5
<PAGE> 28
for purposes of the test set forth in this Section only if they are allocated
to the employee's Account as of a date within the Plan Year being tested within
the meaning of Regulation Section 1.401(k)-1(b)(4).
4.11 CONTRIBUTION PERCENTAGE FAIL SAFE PROVISION. If the limitation
set forth in Section 4.10 would be exceeded for any Plan Year, before the close
of the following Plan Year (a) the amount of the Excess Aggregate 401(m)
Contributions for that Plan Year (and any income allocable to those
Contributions as calculated in the manner set forth in Section 4.13) shall be
either distributed, or forfeited to the extent they are not vested, or (b) the
Employer may make a Qualified Nonelective Employer Contribution which it elects
to have treated as a Section 401(m) Contribution. Any distributions of the
Excess Aggregate 401(m) Contributions for any Plan Year are to be made to
Highly Compensated Employees on the basis of the respective portions of the
amounts attributable to each of them. Forfeitures of Excess Aggregate 401(m)
Contributions shall be allocated to Members who are Non-Highly Compensated
Employees as if such contributions were additional Employer Matching
Contributions for the Plan Year.
4.12 SPECIAL CONTRIBUTION PERCENTAGE RULES FOR FAMILY MEMBERS. If a
Member is a Highly Compensated Employee and a Family Member, the combined
Actual Contribution Ratio for the family group (which is treated as one Highly
Compensated Employee) shall be determined by combining the Section 401(m)
Contributions and Annual Compensation of all the eligible Family Members. If
an Employee is required to be aggregated as a member of more than one family
group in the Plan, all eligible Employees who are members of those family
groups that include that Employee shall be aggregated as one family group. The
correction of Excess 401(m) Contributions of a Highly Compensated Employee
whose Actual Contribution Ratio is determined under the family aggregation
rules shall be accomplished by reducing the Actual Contribution Ratio and
allocating the Excess Aggregate 401(m) Contributions for the family group among
the Family Members in proportion to the Section 401(m) Contributions of each
Family Member that is aggregated to determine the Actual Contribution Ratio.
The family aggregation rules do not apply for purposes of determining the
Actual Contribution Percentage for the group of Non-Highly Compensated
Employees.
4.13 INCOME ALLOCABLE TO EXCESS 401(K) CONTRIBUTIONS AND EXCESS
AGGREGATE 401(M) CONTRIBUTIONS. The income allocable to Excess 401(k)
Contributions for the Plan Year shall be determined by multiplying the income
for the Plan Year allocable to Section 401(k) Contributions by a fraction. The
numerator of the fraction shall be the amount of Excess 401(k) Contributions
made on behalf of the Member for the Plan Year. The denominator of the
fraction shall be the Member's total Account balance attributable to Section
401(k) Contributions as of the beginning of the Plan Year plus the Member's
Section 401(k) Contributions for the Plan Year. The income allocable to Excess
Aggregate 401(m) Contributions for a Plan Year shall be determined by
multiplying the income for the Plan Year allocable to Section 401(m)
Contributions by a fraction. The numerator of the fraction shall be the amount
of Excess Aggregate 401(m) Contributions made on behalf of the Member for the
Plan Year. The denominator of the fraction shall be the Member's total Account
balance attributable to Section 401(m) Contributions as of the beginning of the
Plan Year plus the Member's Section 401(m) Contributions for the Plan Year.
IV-6
<PAGE> 29
4.14 ADDITIONAL REQUIRED TEST IF ALTERNATIVE COMPLIANCE IS USED. If
the second alternative permitted in Sections 4.7 and 4.10 is used for both the
Actual Deferral Percentage test and the Contribution Percentage test the
following additional limitation on Salary Deferral Contributions shall apply.
The Actual Deferral Percentage plus the Contribution Percentage of the eligible
Highly Compensated Employees cannot exceed the greater of (a) or (b), where
(a) is the sum of:
(i) 1.25 times the greater of the Actual Deferral
Percentage or the Contribution Percentage of the eligible
Non-Highly Compensated Employees, and
(ii) the lesser of (x) two percentage points plus the
lesser of the Actual Deferral Percentage or the Contribution
Percentage of the eligible Non-Highly Compensated Employees or
(y) two times the lesser of the Actual Deferral Percentage or the
Contribution Percentage of the group of eligible Non-Highly
Compensated Employees; and
(b) is the sum of:
(i) 1.25 times the lesser of the Actual Deferral
Percentage or the Contribution Percentage of the eligible
Non-Highly Compensated Employees, and
(ii) the lesser of (x) two percentage points plus the
greater of the Actual Deferral Percentage or the Contribution
Percentage of the eligible Non-Highly Compensated Employees or
(y) two times the greater of the Actual Deferral Percentage or
the Contribution Percentage of the group of eligible Non-Highly
Compensated Employees.
If the limitation would be exceeded for any Plan Year, before the close
of the following Plan Year the Actual Deferral Percentage or Contribution
Percentage of the eligible Highly Compensated Employees, or a combination of
both, shall be reduced by distributions made in the manner described in the
Regulations. These distributions shall be in addition to and not in lieu of
distributions required for Excess 401(k) Contributions and Excess Aggregate
401(m) Contributions.
4.15 NONDEDUCTIBLE CONTRIBUTIONS PROHIBITED. Notwithstanding any other
provision of the Plan, no Employer shall make any contribution that would be a
"nondeductible contribution" within the meaning of Section 4972 of the Code.
4.16 FORM OF PAYMENT OF CONTRIBUTIONS. Contributions may be paid to
the Trustee either in cash or in qualifying employer securities (as such term
is defined in Section 407(d) of ERISA) or any combination thereof, provided
that payment may not be made in any form constituting a prohibited transaction
under Section 4975 of the Code or Section 406 of ERISA.
4.17 DEADLINE FOR PAYMENT OF EMPLOYER CONTRIBUTIONS. The Employer's
Salary Deferral Contribution and Employer Matching Contribution shall be paid
to the Trustee in installments. The
IV-7
<PAGE> 30
installment for each payroll period shall be paid within 60 days after the end
of the Calendar Quarter in which such payroll period ends, and shall be in an
amount equal to the amount by which all Members' Considered Compensation was
reduced pursuant to salary deferral agreements (as described in Section 4.2)
for such period, plus the amount of the Employer Matching Contribution for such
period. The Qualified Nonelective Employer Contributions of the Employer for
each Plan Year shall be paid to the Trustee in one or more installments, as the
Employer may from time to time determine; provided, however, that the Qualified
Nonelective Employer Contribution may be paid not later than the time
prescribed by law (including extensions thereof) for filing the Employer's
income tax return for its taxable year ending with or within such Plan Year.
IV-8
<PAGE> 31
ARTICLE V
ALLOCATIONS AND VALUATION OF ACCOUNTS
5.1 INFORMATION STATEMENTS FROM EMPLOYER. As soon as practical after
the last day of each Calendar Quarter, the Employer shall provide the
Administrative Committee with a schedule setting forth the amount of its Salary
Deferral Contribution, Employer Matching Contribution, Qualified Nonelective
Employer Contribution, and Restoration Contribution; the names of its Members,
the number of Years of Vesting Service of each of its Members, the amount of
Considered Compensation paid to each Member, and the amount of Considered
Compensation paid to all its Members. Such schedules shall be conclusive
evidence of such facts.
5.2 ALLOCATION OF SALARY DEFERRAL CONTRIBUTION. The Administrative
Committee shall allocate the Employer's Salary Deferral Contribution among the
Employer's Members by allocating to each such Member the amount by which his
Considered Compensation was reduced pursuant to a salary deferral agreement (as
described in Section 4.2) and shall credit each such Member's share to the
Member's Salary Deferral Contribution Account.
5.3 ALLOCATION OF EMPLOYER MATCHING CONTRIBUTION. The Administrative
Committee shall separately allocate the Employer Matching Contribution among
the Employer's Members in the proportion which the Matched Salary Deferral
Contributions of each such Member bears to the total Matched Salary Deferral
Contributions of all such Members. Each Member's proportionate share shall be
credited to his Employer Matching Contribution Account.
5.4 ALLOCATION OF QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTION. The
Administrative Committee shall separately allocate the Qualified Nonelective
Employer Contribution among the Non-Highly Compensated Employees who are
Members based upon each such Member's Considered Compensation as compared to
the Considered Compensation of all such Members.
5.5 ALLOCATION OF DIVIDENDS ON SPONSOR STOCK. Cash and Sponsor Stock
dividends paid with respect to Sponsor Stock shall be allocated among the
Members and former Members with Account balances in proportion to the number of
shares of Sponsor Stock (of the class with respect to which the dividend is
paid) allocated to Member's or former Member's Employer Matching Contribution
Account as of the record date for the dividend.
5.6 SPONSOR STOCK SPLITS. If the shares of Company Stock are
subdivided, the additional shares acquired by the Trustee upon the subdivision
will be allocated among the Members and former Members with Account balances in
proportion to the number of shares of Sponsor Stock (of the class with respect
to which the subdivision is made) allocated to the Member's or former Member's
Employer Matching Contribution Account as of the record date for the
subdivision.
5.7 VALUATION OF ACCOUNTS. A Member's or former Member's Accounts
shall be valued at fair market value on each Valuation Date. The earnings and
losses attributable to any asset in the Trust Fund will be allocated solely to
the Account of the Member or former Member on whose behalf the investment in
the asset was made. In determining the fair market value of the Members' or
former
V-1
<PAGE> 32
Member's Accounts, the Trustee shall utilize such sources of information as it
may deem reliable including, but not limited to, stock market quotations,
statistical evaluation services, newspapers of general circulation, financial
publications, advice from investment counselors or brokerage firms, or any
combination of sources which in the opinion of the Trustee will provide the
price such assets were last traded at on a registered stock exchange; provided,
however, that with respect to regulated investment company shares, the Trustee
shall rely exclusively on information provided to it by the investment adviser
to such funds.
5.8 ALLOCATION OF FORFEITURES. As of the last day of each Calendar
Quarter the Trustee shall determine the total amount of forfeitures arising
under the Plan during the Calendar Quarter then ended. As soon as practicable
after the last day of the Calendar Quarter such forfeitures and Investment Gain
or Loss thereon shall first be applied to restore any Employer Matching
Contribution Account required to be restored under the provisions of Section
5.9. Any remaining forfeitures and Investment Gain or Loss thereon
attributable to such Calendar Quarter shall be applied during each succeeding
Calendar Quarter to restore Accounts required to be restored during succeeding
Calendar Quarters; provided, however, that any forfeitures and Investment Gain
or Loss thereon that have not been applied to reinstate Accounts by the last
day of the Plan Year during which such forfeitures arose shall be allocated to
the Members (without regard to which Employer contributed the amount forfeited)
for the Plan Year in the manner provided in Section 5.3 as if such forfeitures
and Investment Gain or Loss thereon were part of the Employer Matching
Contribution for the Plan Year.
5.9 RESTORATION OF FORFEITED AMOUNTS. If a Member or former Member who
forfeited any portion of his Employer Matching Contribution Account pursuant to
the provisions of Section 8.4 resumes employment covered under the Plan, then
the following provisions shall apply:
(a) REPAYMENT REQUIREMENT. The Member's Employer Matching
Contribution Account shall be restored if he repays to the Trustee the
full amount of any distribution from the Employer Matching Contribution
Account with respect to which the forfeiture arose. Such repayment must
be made prior to the earlier of (a) the date on which he incurs a Period
of Severance of five years, or (b) the fifth anniversary of the first
date on which the Member is subsequently re-employed by the Employer.
(b) MEMBERS WITH NO VESTED INTEREST. If a Member or former
Member who forfeited any portion of his Employer Matching Contribution
Account pursuant to the provisions of Section 8.4 received no
distribution from his Employer Matching Contribution Account as a result
of his termination of participation in the Plan (because his vested
percentage was zero), that Account will be restored if, and only if, he
resumes employment covered under the Plan prior to incurring a Period of
Severance of five years.
(c) AMOUNT RESTORED. The amount to be restored under the
preceding provisions of this Section shall be the dollar value of the
amount in the Member's Employer Matching Contribution Account, both the
amount distributed and the amount forfeited, unadjusted by any
subsequent gains or losses. The Member's Employer Matching Contribution
Account balance shall be restored as soon as administratively
practicable after the later of the date the Member resumes employment
covered under the Plan or the date on which any required
V-2
<PAGE> 33
repayment is completed. No distribution shall be made to a Member from
his Employer Matching Contribution Account as a result of a prior
Separation from service after the restoration of such Account has been
effectuated.
(d) NO OTHER BASIS FOR RESTORATION. Except as otherwise
provided above, a Member's Employer Matching Contribution Account shall
not be restored upon resumption of employment covered by the Plan. Any
portion of the Trust Fund attributable to Years of Service prior to
resumption of employment by a Member whose Employer Matching
Contribution Account has not been restored shall be held and distributed
in accordance with applicable provisions of the Plan and elections made
thereunder. A separate Employer Matching Contribution Account shall be
established and maintained for Employer Matching Contributions allocable
to such a Member after his resumption of employment covered by the Plan.
5.10 NO VESTING UNLESS OTHERWISE PRESCRIBED. No allocations,
adjustments, credits, or transfers shall ever vest in any Member or former
Member any right, title, or interest in the Trust Fund except at the times and
upon the terms and conditions herein set forth.
V-3
<PAGE> 34
ARTICLE VI
LIMITATIONS ON ALLOCATIONS
6.1 BASIC LIMITATION. The Annual Additions which may be credited to a
Member's Accounts under this Plan for any Limitation Year will not exceed the
Maximum Permissible Amount reduced by the Annual Additions credited to a
Member's Account for the same Limitation Year under any other qualified defined
contribution plans, Welfare Benefit Funds, and Individual Medical Accounts
maintained by any Affiliated Employer. If the Annual Additions with respect to
the Member under such other plans, funds, and accounts are less than the
Maximum Permissible Amount and the Employer Contribution that would otherwise
be contributed or allocated to the Member's Accounts under this Plan would
cause the Annual Additions for the Limitation Year to exceed this limitation,
the amount contributed or allocated will be reduced so that the Annual
Additions under all such plans, funds, and accounts for the Limitation Year
will equal the Maximum Permissible Amount. If the Annual Additions with respect
to the Member under such other plans, funds, and accounts in the aggregate are
equal to or greater than the Maximum Permissible Amount, no amount will be
contributed or allocated to the Member's Account under this Plan for the
Limitation Year.
6.2 ESTIMATION OF MAXIMUM PERMISSIBLE AMOUNT. Prior to determining
the Member's actual Annual Compensation for the Limitation Year, the Employer
may determine the Maximum Permissible Amount on the basis of a reasonable
estimation of the Member's Annual Compensation for such Limitation Year,
uniformly determined for all Members similarly situated. As soon as is
administratively feasible after the end of the Limitation Year, the Maximum
Permissible Amount for the Limitation Year shall be determined on the basis of
the Member's actual Annual Compensation for such Limitation Year.
6.3 ATTRIBUTION OF EXCESS AMOUNTS. If, pursuant to Section 6.2 or as a
result of the allocation of forfeitures, or for any other reason permitted by
the Internal Revenue Service, a Member's Annual Additions under this Plan and
all such other plans, funds, and accounts result in an Excess Amount, such
Excess Amount shall be deemed to consist of the Annual Additions last
allocated, except that Annual Additions attributable to a Welfare Benefit Fund
or Individual Medical Account will be deemed to have been allocated first
regardless of the actual allocation date. If an Excess Amount was allocated to
a Member's Account on an allocation date of this Plan which coincides with an
allocation date of another plan, the Excess Amount attributed to this Plan will
be the product of:
(a) the total Excess Amount allocated as of such date, times
(b) the ratio of (i) the Annual Additions allocated to the
Member's Account for the Limitation Year as of such date under this
Plan, to (ii) the total Annual Additions allocated to the Member's
Accounts for the Limitation Year as of such date under all qualified
defined contribution plans.
6.4 TREATMENT OF EXCESS AMOUNTS. If an Excess Amount attributed to
this Plan is held or contributed as a result of the allocation of forfeitures,
reasonable error in estimating a Member's
VI-1
<PAGE> 35
Considered Compensation, reasonable error in calculating the maximum Salary
Deferral Contribution that may be made with respect to a Member under Section
415 of the Code or because of any other facts and circumstances which the
Commissioner of Internal Revenue finds to be justified, the Excess Amount shall
be reduced as follows:
(a) If the Member is in the Eligible Class at the end of the
Limitation Year, then such Excess Amounts shall not be distributed to
the Member, but shall be reallocated to a suspense account and shall be
reapplied to reduce future Employer Contributions (including any
allocation of forfeitures) under this Plan for such Member in the next
Limitation Year, and for each succeeding Limitation Year, if necessary.
(b) If, after application of paragraph (a) of this Section, an
Excess Amount still exists, and the Member is not in the Eligible Class
at the end of the Limitation Year, then such Excess Amounts in the
Member's Accounts shall not be distributed to the Member, but shall be
reallocated to a suspense account and shall be reapplied to reduce
future Employer Contributions (including allocation of any forfeitures),
for all remaining Members in the next Limitation Year and each
succeeding Limitation Year if necessary.
(c) If a suspense account is in existence at any time during the
Limitation Year pursuant to this Section, it will not participate in the
allocation of the Trust Fund's investment gains and losses. If a
suspense account is in existence at any time during a particular
Limitation Year, all amounts in the suspense account must be allocated
and reallocated to Members' Accounts before any Employer Contribution
may be made to the Plan for that Limitation Year. Excess Amounts may
not be distributed to Members or former Members. If the Plan is
terminated while a suspense account described in this Section is in
existence, the amount in such suspense account shall revert to the
Employer(s) to which it is attributable.
6.5 MEMBERS PARTICIPATING IN QUALIFIED DEFINED BENEFIT PLAN. If any
Affiliated Employer maintains, or at any time maintained, a qualified defined
benefit plan covering any Member in this Plan, the sum of the Member's Defined
Benefit Fraction and Defined Contribution Fraction will not exceed 1.0 in any
Limitation Year. The Annual Additions credited to any such Member's Accounts
under this Plan in any Limitation Year will be limited as necessary to meet the
limitations of this Section.
VI-2
<PAGE> 36
ARTICLE VII
TOP-HEAVY REQUIREMENTS
7.1 APPLICATION. The requirements described in this Article will apply
to each Plan Year that this Plan is determined to be a Top-Heavy Plan under the
test set out in the following Section.
7.2 TOP-HEAVY TEST. If on the Determination Date the total of the
Accounts of Key Employees in the Plan exceeds 60 percent of the total of the
Accounts of all Employees in the Plan, this Plan will be a Top-Heavy Plan for
that Plan Year. In addition, if this Plan is required to be included in an
Aggregation Group and that group is a top-heavy group, this Plan will be
treated as a Top-Heavy Plan. An Aggregation Group is a top-heavy group if on
the Determination Date the sum of (a) the present value of the cumulative
accrued benefits for Key Employees under all defined benefit plans in the
Aggregation Group plus (b) the total of all of the accounts of Key Employees
under all defined contribution plans in the Aggregation Group is more than 60
percent of a similar sum determined for all employees covered in the
Aggregation Group. In determining the present value of the accumulated accrued
benefits for any Employee or the amount in the account of any Employee, the
value or amount will be increased by all distributions made to or for the
benefit of the Employee under the Plan during the five-year period ending on
the Determination Date. All rollover contributions made by the Employee to the
Plan will not be considered by the Plan for either test. If an Employee is a
Non-Key Employee under the Plan for the Plan Year but was a Key Employee under
the Plan for another prior Plan Year, his account will not be considered.
Benefits will not be taken into account in determining the top-heavy ratio for
any Employee who has not performed services for the Employer during the last
five-year period ending on the Determination Date. For purposes of computing
the top-heavy ratio, the valuation date of the Plan shall be the last day of
each Plan Year. For purposes of establishing present value to compute the top-
heavy ratio, any benefit shall be discounted only for mortality and interest
based on an interest rate of eight percent and the 1983 IAM mortality table
without setback.
7.3 VESTING RESTRICTIONS IF PLAN BECOMES TOP-HEAVY. If a Member has at
least one Hour of Service during a Plan Year when the Plan is a Top-Heavy Plan,
he will either vest under the normal vesting provisions of the Plan or under
the Top-Heavy vesting schedule set forth below in this Section, whichever is
more favorable. If the Plan ceases to be a Top-Heavy Plan, this requirement
will no longer apply, and the normal vesting provisions of the Plan will be
applicable to all subsequent contributions by the Employers. However, a Member
who has at least three Years of Vesting Service at the time that the Plan
ceases to be a Top-Heavy Plan will continue to vest under the Top-Heavy vesting
schedule or the normal vesting provisions of the Plan, whichever is more
favorable. The Top-Heavy vesting schedule is:
VII-1
<PAGE> 37
<TABLE>
<CAPTION>
Years of Active Service Vested Percentage
----------------------- -----------------
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
7.4 MINIMUM CONTRIBUTION IF PLAN BECOMES TOP-HEAVY. For any Plan Year
during which the Plan is a Top-Heavy Plan, the Employer Contributions and
forfeitures allocated on behalf of any Member who is not a Key Employee shall
not be less than the lesser of (a) three percent of such Member's Annual
Compensation, or (b) in the case where no Affiliated Employer has a defined
benefit plan that designates this Plan to satisfy Section 401 of the Code, the
largest percentage of Employer Contributions and forfeitures, as a percentage
of the Key Employee's Annual Compensation, allocated on behalf of any Key
Employee for that Plan Year. Each Employee who is eligible to be a Member and
is employed by any Affiliated Employer on the last day of the Plan Year shall
be entitled to receive an allocation under this Section, regardless of whether
he has made any Required Employee Contributions, whether his Annual
Compensation is less than a stated amount, or whether he has completed any
minimum number of Hours of Service during the Plan Year. All defined
contribution plans required to be included in the Aggregation Group will be
treated as one plan for purposes of meeting the three percent minimum, unless
this Plan is also required to be included in an Aggregation Group which
includes a defined benefit plan and this Plan enables that defined benefit plan
to meet the requirements of Sections 401(a)(4) or 410 of the Code. Salary
Deferral Contributions and Employer Matching Contributions made on behalf of
Key Employees are included in determining the highest rate of Employer
Contributions. Salary Deferral Contributions and Employer Matching
Contributions made on behalf of Non-Key Employees are not included for that
purpose. Salary Deferral Contributions that may be treated as Section 401(k)
Contributions or Section 401(m) Contributions made on behalf of Non-Key
Employees may not be included in determining the minimum contribution required
under this Section to the extent that they are treated as Section 401(m)
Contributions or Section 401(k) Contributions for purposes of the Actual
Deferral Percentage test or the Contribution Percentage test.
7.5 DISREGARD OF GOVERNMENT PROGRAMS. If this Plan is a Top-Heavy
Plan, it must meet the vesting and benefit requirements described in this
Article without taking into account contributions or benefits under Chapter 2
of the Code (relating to the tax on self-employment income), Chapter 21 of the
Code (relating to the Federal Insurance Contributions Act), Title II of the
Social Security Act, or any other Federal or State law.
7.6 COVERAGE UNDER MULTIPLE TOP-HEAVY PLANS. If a Non-Key Employee is
covered by both a Top-Heavy defined contribution plan and a defined benefit
plan, he will receive the defined benefit minimum, offset by the benefits
provided under the defined contribution plan.
VII-2
<PAGE> 38
7.7 RESTRICTIONS IF PLAN BECOMES SUPER TOP-HEAVY. If the Plan is
determined to be a Top-Heavy Plan, the number "1.00" shall be substituted for
the number "1.25" when applying the limitations of Section 415 of the Code to
this Plan, unless the Plan would not be a Top-Heavy Plan if "90 percent" were
substituted for "60 percent" and the Employer Contribution for the Plan Year
for each Non-Key Employee who is a Member is not less than four percent of the
Member's Annual Compensation.
VII-3
<PAGE> 39
ARTICLE VIII
BENEFITS AND EVENTS ENTITLING MEMBERS
TO DISTRIBUTION OF BENEFITS
8.1 VALUATION OF ACCOUNTS FOR WITHDRAWALS AND DISTRIBUTIONS. For the
purpose of making a distribution or withdrawal, a Member's or former Member's
Accounts shall be the value of his Accounts on the Valuation Date which is
coincident with the distribution or withdrawal. However, for purposes of
making a distribution or withdrawal of the Member's or former Member's interest
in the Sponsor Stock fund, the value of shares of Sponsor Stock allocated to
the Member's or former Member's Account will be the net cash proceeds of the
sale of Sponsor Stock when the Trustee sells it in order to make the
distribution or withdrawal.
8.2 DEATH, RETIREMENT, OR TOTAL PERMANENT DISABILITY. The amount
payable upon the death, Retirement, or Separation on account of Total and
Permanent Disability of a Member will be 100 percent of the amount credited to
his Accounts.
8.3 SEVERANCE BENEFIT. A Member or former Member whose Separation
occurs for any reason other than death, Retirement, or Total Permanent
Disability shall be entitled to a severance benefit equal to the "vested
interest" of such Member in his Accounts. For purposes of this Section, a
Member's or former Member's "vested interest" shall be an amount equal to the
sum of the total amount credited to all of his Accounts other than his Employer
Matching Contribution Account, plus the total amount credited to his Employer
Matching Contribution Account, adjusted for prior withdrawals, if any, and
multiplied by his vested percentage as shown in the vesting schedule set forth
below:
<TABLE>
<CAPTION>
YEARS OF
ACTIVE SERVICE VESTING PERCENTAGE
-------------- ------------------
<S> <C>
Less than 1 0%
1 0%
2 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
</TABLE>
8.4 FORFEITURE ON TERMINATION OF PARTICIPATION. If as a result of
terminating his participation in the Plan a former Member receives a
distribution of his entire vested interest in his Accounts, the nonvested
amount in his Employer Matching Contribution Account is immediately forfeited.
A former Member who received no distribution of Employer Contributions because
he had no vested interest shall be treated as if he received a distribution of
his entire vested interest in the Plan.
VIII-1
<PAGE> 40
If a former Member who has a vested interest in his Employer Matching
Contribution Account received no distribution or a distribution of less than
the full amount of his entire vested interest in his Employer Matching
Contribution Account as a result of his termination of participation in the
Plan, the nonvested amount in his Account is forfeited after he incurs five
consecutive one-year Periods of Severance.
A distribution shall be treated as if it were made as a result of
termination of participation in the Plan if it is made not later than the end
of the second Plan Year following the Plan Year in which the former Member's
termination occurs.
8.5 WITHDRAWAL OF ROLLOVER CONTRIBUTIONS. Each Member, upon giving
written notice to the Administrative Committee, shall be entitled to withdraw
from his Rollover Contribution Account such amount payable in a lump sum cash
payment as he may specify, but not in excess of the balance of such Account.
No vested benefit shall be forfeited because of a withdrawal under this
Section.
8.6 WITHDRAWAL UPON ATTAINMENT OF NORMAL RETIREMENT AGE. Each
Member, upon giving written notice to the Administrative Committee, shall be
entitled to withdraw from his Accounts such amount payable in a lump sum cash
payment as he may specify, but not in excess of the balance of his Accounts.
8.7 WITHDRAWAL FOR FINANCIAL HARDSHIP. Any Member may make application
to the Administrative Committee to withdraw from his Salary Deferral
Contribution Account, Employer Matching Contribution Account, and Rollover
Contribution Account an amount payable in a lump sum cash payment not in excess
of the balance of such Accounts. Withdrawals made pursuant to this Section will
be permitted only in the event of immediate and heavy financial need incurred
by the Member. Whether or not a Member has incurred an immediate and heavy
financial need shall be determined by the Administrative Committee on the basis
of all relevant facts available to the Administrative Committee and in
accordance with written procedures established by the Administrative Committee.
Such written procedures shall specify the requirements for requesting and
receiving distributions on account of hardship, including what forms must be
submitted and to whom. The Administrative Committee shall uniformly and
consistently apply such written procedures so that all Members in similar
circumstances are treated alike. All determinations regarding financial
hardship must be made in accordance with objective nondiscretionary criteria.
Such determinations must also comply with applicable Department of Treasury
regulations. A financial need shall not fail to qualify as immediate and heavy
merely because such need was reasonably foreseeable or voluntarily incurred by
the Member. A distribution will be deemed to be made on account of an immediate
and heavy financial need of the Member if the distribution is for (a) medical
expenses described in Section 213(d) of the Code previously incurred by the
Member, the Member's spouse, or any dependents of the Member (as defined in
Section 152 of the Code) or necessary for these persons to obtain medical care
described in Section 213(d) of the Code, not reimbursed by insurance or
otherwise, (b) costs directly related to the purchase of a principal residence
for the Member (excluding mortgage payments), (c) payment of tuition and
related educational fees for the next 12 months of post-secondary education for
the Member, or his or her spouse, children, or dependents, (d) payments
necessary to prevent the eviction of the Member from his principal residence or
foreclosure on the
VIII-2
<PAGE> 41
mortgage of the Member's principal residence, or (e) any other reason specified
by the Administrative Committee and designated as a "deemed immediate and heavy
financial need" in authority issued by the Internal Revenue Service. An
application for a withdrawal made pursuant to this Section must be in writing
and must state the reason or reasons for the need of such Member to make such a
withdrawal. Such application must specify the amount necessary to satisfy the
Member's immediate and heavy financial need, and the Member must have obtained
all distributions, other than hardship distributions, and all nontaxable (at
the time of the loan) loans currently available under all plans maintained by
the Affiliated Employers. The Administrative Committee shall be entitled to
rely upon the Employee's representations set forth in his application, to the
extent that such reliance is reasonable. A distribution made pursuant to this
Section shall not exceed the amount of the immediate and heavy financial need
of the Member. The amount of an immediate and heavy financial need may
include any amounts necessary to pay any federal, state, or local income taxes
or penalties reasonably anticipated to result from the distribution.
Applications under this Section shall be processed as soon as administratively
feasible. The Administrative Committee shall direct the Trustee when to
disburse any funds as a hardship withdrawal. Withdrawals made pursuant to this
Section shall be made in the following order: first, withdrawals shall be made
from a Member's Rollover Contribution Account, then from his Salary Deferral
Contribution Account, and finally from his Employer Matching Account.
Notwithstanding the foregoing, a Member shall not be entitled to make a
financial hardship withdrawal of any Investment Gain or Loss credited to the
Member's Salary Deferral Contribution Account after December 31, 1988. The
Member's election to withdraw funds pursuant to this Section shall suspend the
Member's right to have Salary Deferral Contributions made to the Plan on his
behalf for a period of twelve months beginning on the date that the Member
receives a hardship distribution pursuant to this Section. No withdrawal may
be made under this Section unless the Member is prohibited, under the terms of
the plan or an otherwise legally enforceable agreement, from making elective
contributions and employee contributions to any other plan maintained by any
Affiliated Employer for at least 12 months after receipt of the distribution
under this Section. For purposes of the immediately preceding sentence, the
phrase "any other plan" means all qualified and nonqualified plans of deferred
compensation, including a stock option, stock purchase, or similar plan, or a
cash or deferred arrangement that is part of a cafeteria plan within the
meaning of Section 125 of the Code. Such phrase, however, does not include the
mandatory employee contribution portion of a defined benefit plan, nor does it
include a health or welfare benefit plan (including one that is part of a
cafeteria plan within the meaning of Section 125). Moreover, the Member shall
not be entitled to have Salary Deferral Contributions made to the Plan on his
behalf for the Member's taxable year immediately following the taxable year of
the distribution in excess of the applicable limit of Code Section 402(g) for
such next taxable year less the amount of the Member's Salary Deferral
Contributions for the taxable year of the hardship distribution.
8.8 LOANS TO MEMBERS. The Administrative Committee shall determine
from time to time whether loans may be made to Members, former Members or
Beneficiaries. However, no loans shall be made to any shareholder-employee (as
defined in Section 1379 of the Internal Revenue Code of 1954 in effect on the
day before the enactment of the Subchapter S Revision Act of 1982), any owner-
employee (as defined in Section 401(c)(3) of the Code), or any member of the
family of either (as defined in Section 267(c)(4) of the Code).
VIII-3
<PAGE> 42
If the Administrative Committee permits loans to Members, the
opportunity shall be made available to all Members on an equal basis. If the
Administrative Committee permits loans, each Member may borrow up to the lesser
of (a) 50 percent of the vested interest in his Accounts, or (b) $50,000.00
reduced by the excess of the Member's highest outstanding loan balance from the
Plan during the one-year period ending on the day before the date on which such
loan was made over the Member's outstanding loan balance from the Plan on the
date the loan was made. In determining whether a loan would exceed these
limits, all loans under all qualified plans of the Employer and all Affiliated
Employers shall be treated as loans under this Plan.
A loan to a Member shall be a Member directed investment of his Account.
The principal amount of the loan shall be made on a pro-rata basis from the
Member's Salary Deferral Contribution Account, Rollover Contribution Account,
Employer Matching Contribution Account, and Qualified Nonelective Employer
Contribution Account. All principal and interest paid on the loan shall be
credited to the Member's Loan Account which may be invested in such Plan
investment funds as may be directed by the Member pursuant to Section 11.1.
All loans shall be secured by the Member's vested interest in his
Accounts at the date of the loan. The loan shall (a) be evidenced by a written
note and security agreement, (b) require level amortization of the loan (with
payments not less frequently than quarterly) over the term of the loan, and (c)
have a term of not more than five years.
Notwithstanding any other provision of the Plan, a Member may not make a
withdrawal or receive a distribution if the remaining balance of the Member's
Account would be less than the outstanding loan balance or the withdrawal or
distribution would violate any security requirements of the loan.
The Administrative Committee is authorized to establish written
guidelines which, if and when adopted, shall become part of this Plan and shall
establish the class of Members eligible for loans under the plan (which shall
not exclude any Member who is a party in interest with respect to the Plan,
within the meaning of Section 3(14) of ERISA) a procedure for applying for
loans, the basis on which loans will be approved or denied, limitations (if
any) on the types and amounts of loans offered, the procedure for determining a
reasonable rate of interest, the events causing acceleration of the note or
constituting default and steps that will be taken to preserve plan assets in
the event of a default.
Prior to the time that a Member is entitled to receive a distribution
from his Salary Deferral Contribution Account, his Account balance will not be
reduced as a result of his default on a loan.
8.9 RECEIPT OF DOMESTIC RELATIONS ORDER. The receipt of a judicial
decree or order shall constitute an event permitting distribution under the
Plan, provided that such judicial decree or order would constitute a Qualified
Domestic Relations Order if the requirement that such an order not require a
plan to make distribution to an alternate payee prior to a Member's or former
Member's earliest retirement age, as defined in Section 414(p)(4)(B) of the
Code, were disregarded.
VIII-4
<PAGE> 43
8.10 DISTRIBUTIONS UPON DISPOSITION OF ASSETS OR A SUBSIDIARY. An
individual employed by an Employer that is a corporation is entitled to receive
a lump sum distribution of his nonforfeitable interest in his Account in the
event of the sale or other disposition by the Employer of at least 85% of all
of the assets used by the Employer in a trade or business to an unrelated
corporation if (a) the Employer continues to maintain the Plan after the
disposition and (b) in connection with the disposition the individual is
transferred to the employ of the corporation acquiring the assets.
An individual employed by a subsidiary of the Sponsor is entitled to
receive a lump sum distribution of his nonforfeitable interest in his Account
in the event of the sale or other disposition by the Sponsor of its interest in
a subsidiary (within the meaning of Section 409(d)(3) of the Code) to an
unrelated entity or individual if (a) the Sponsor continues to maintain the
Plan after the disposition and (b) in connection with the disposition the
individual continues employment with the subsidiary.
The selling Employer is treated as continuing to maintain the Plan after
the disposition only if the purchaser does not maintain the Plan after the
disposition. A purchaser is considered to maintain the Plan if it adopts the
Plan, becomes an employer whose employees accrue benefits under the Plan, or if
the Plan is merged or consolidated with, or any assets or liabilities are
transferred from the Plan to, a plan maintained by the purchaser in a
transaction subject to Section 414(l)(1) of the Code.
An unrelated corporation, entity or individual is one that is not
required to be aggregated with the selling Employer under Section 414(b), (c),
(m), or (o) of the Code after the sale or other disposition.
If a Member's nonforfeitable Account balance at the date of the
disposition and at the time of any prior payment to the Member is $3,500 or
less, the Administrative Committee will direct the Trustee to pay to the Member
a lump sum cash distribution of his nonforfeitable interest in his Account as
soon as administratively practicable following the disposition and any Internal
Revenue Service approval of the distribution that the Administrative Committee
deems advisable to obtain.
If a Member's nonforfeitable Account balance at the date of the
disposition or at the time of any prior payment to the Member is more than
$3,500, he may elect (1) to receive a lump sum cash distribution of his Account
balance as soon as administratively practicable following the disposition and
any Internal Revenue Service approval of the distribution that the
Administrative Committee deems advisable to obtain, or (2) he may elect to
defer receipt of his nonforfeitable Account balance until the first day of the
month coincident with or next following the date that he attains age 65. In
the manner and at the time required under Regulations, the Administrative
Committee will provide the Member with a notice of his right to defer receipt
of his Account balance.
However, no distribution shall be made to a Member under this Section
after the end of the second calendar year following the calendar year in which
the disposition occurred. In addition, no distribution shall be made under
this Section unless it is a lump sum distribution within the meaning
VIII-5
<PAGE> 44
of Section 402(d)(4) of the Code, without regard to subparagraphs (A)(i)
through (iv), (B), and (H) of that Section.
VIII-6
<PAGE> 45
ARTICLE IX
DISTRIBUTION OF BENEFITS
9.1 FORM OF DISTRIBUTION. Any distribution from the Plan shall be paid
in a single sum in cash.
9.2 INFORMATION PROVIDED TO MEMBERS. Information regarding the
benefits available under the Plan shall be provided to Members or former
Members in accordance with the following provisions:
(a) GENERAL INFORMATION. Except as otherwise provided in
paragraph (c), each Member or former Member shall be provided with a
written explanation of the Member's or former Member's right, if any, to
defer receipt of the distribution.
(b) TIME FOR GIVING NOTICE. The written explanation shall be
provided to a Member or former Member no less than 30 days and no more
than 90 days before the Annuity Starting Date unless the Member or
former Member legally waives this requirement.
(c) EXCEPTION FOR MEMBERS WITH SMALL BENEFIT AMOUNTS.
Notwithstanding the preceding provisions of this Section, no information
regarding any form of benefit payable in whole or in part during the
life of the Member or former Member shall be provided to the Member or
former Member if his benefit is payable in a single sum under Section
9.3.
9.3 AUTOMATIC PAYMENT OF SMALL AMOUNTS. Notwithstanding any other
provision of the Plan, each Member or former Member (a) who does not die before
the Annuity Starting Date and (b) whose vested Account balance at the time of
distribution and at the time of any other payment to him is $3,500 or less
shall be paid in the form of a single sum payment.
9.4 TIME OF DISTRIBUTION. Subject to any contrary provisions in this
Article, distributions provided for in the Plan shall be made or commenced as
soon as practical, and in any event, within one year after the Member's or
former Member's Separation.
9.5 MEMBER CONSENT TO EARLY DISTRIBUTIONS. Notwithstanding any other
provision of the Plan, no benefit shall be distributed or commence to be
distributed to a Member or former Member prior to his attainment of the later
of age 62 or Normal Retirement Age without his consent, unless the benefit is
payable in a single sum under Section 9.3. Any such consent shall be valid only
if given not more than 90 days prior to the Member's or former Member's Annuity
Starting Date and after his receipt of the notice regarding benefits described
in Section 9.2(b).
9.6 COMPLIANCE WITH STATUTORY REQUIREMENTS. Notwithstanding any other
provision of the Plan, all benefits payable under the Plan shall be
distributed, or commence to be distributed, in compliance with the following
provisions:
IX-1
<PAGE> 46
(a) DISTRIBUTION DEADLINES FOR MEMBERS OR FORMER MEMBERS WHO ARE
70 1/2 OR OLDER. If a Member or former Member attains 70 1/2, the
Member or former Member must elect to receive the distribution required
under Section 401(a)(9) of the Code in one lump sum or in installments
which must commence by his Required Beginning Date. If installments are
elected, each installation paid must be equal to or greater than the
minimum required distribution under Section 401(a)(9) of the Code.
(b) DISTRIBUTION DEADLINE FOR DEATH BENEFITS. If a Member or
former Member dies before the distribution of his entire interest, his
entire interest shall be distributed within five years after his death.
(c) LIMITATIONS ON DEATH BENEFITS. Benefits payable under the
Plan shall not be provided in any form that would cause a Member's death
benefit to be more than incidental. Any distribution required to satisfy
the incidental benefit requirement shall be considered a required
distribution for purposes of Section 401(a)(9) of the Code.
(d) COMPLIANCE WITH SECTION 401(A)(9). All distributions under
the Plan will be made in accordance with the requirements of Section
401(a)(9) of the Code and all Regulations promulgated thereunder. The
provisions of the Plan reflecting Section 401(a)(9) of the Code override
any distribution options in the Plan inconsistent with such Section.
(e) COMPLIANCE WITH SECTION 401(A)(14). Unless the Member or
former Member otherwise elects, the payment of benefits under the Plan
to the Member or former Member will begin not later than the 60th day
after the close of the Plan Year in which occurs the latest of (a) the
date on which the Member or former Member attains the earlier of age 65
or the Normal Retirement Age, (b) the 10th anniversary of the year in
which the Member or former Member commenced participation in the Plan,
or (c) the Member's or former Member's Separation.
9.7 QUALIFIED DOMESTIC RELATIONS ORDERS. Payment will be made in
accordance with the provisions of any Qualified Domestic Relations Order.
9.8 DISTRIBUTIONS TO DISABLED. If the Administrative Committee
determines that any person to whom a payment is due is unable to care for his
affairs because of physical or mental disability, it will have the authority to
cause the payments to be made to the spouse, brother, sister, or other person
the Administrative Committee determines to have incurred, or to be expected to
incur, expenses for that person unless a prior claim is made by a qualified
guardian or other legal representative. The Administrative Committee will not
be responsible to oversee the application of those payments. Payments made
pursuant to this power will be a complete discharge of all liability under the
Plan. Any amount payable to a minor under any provision of this Plan including
the foregoing provisions of this Section may be paid directly to the minor.
The receipt by the minor will be a complete discharge of all liability under
the Plan.
9.9 DESIGNATION OF BENEFICIARY. Each Member and former Member has the
right to designate and to revoke the designation of his Beneficiary. Each
designation or revocation must be
IX-2
<PAGE> 47
evidenced by a written document in the form required by the Administrative
Committee, signed by the Member or former Member, and filed with the
Administrative Committee. If no designation is on file at the time of a
Member's or former Member's death or if the Administrative Committee determines
that the designation is ineffective, the designated Beneficiary will be the
Member's or former Member's spouse, if living, or if not, the executor,
administrator, or other personal representative of the Member's or former
Member's estate.
If a Member or former Member is considered to be married under local
law, the Member's or former Member's designation of any Beneficiary, other than
the Member's or former Member's spouse, will not be valid unless the spouse
acknowledges in writing that he or she understands the effect of the Member's
or former Member's beneficiary designation and consents to it. The consent
must be to a specific Beneficiary or must expressly permit the Member or former
Member to change Beneficiaries in the future without any further consent by the
spouse. The written acknowledgment and consent must be filed with the
Administrative Committee and signed by the spouse and a witness who is a notary
public or a member of the Administrative Committee. However, if the spouse
cannot be located or there exist other circumstances as described in Sections
401(a)(11) and 417(a)(2) of the Code, the requirement of the Member's or former
Member's spouse's acknowledgment and consent may be waived. If a Beneficiary
other than the Member's or former Member's spouse is named, the designation
will become invalid if the Member is later determined to be married under local
law, the Member's or former Member's missing spouse is located, or the
circumstances that supported waiver of the requirement of obtaining the consent
of the Member's or former Member's spouse no longer exist.
9.10 NO DUPLICATION OF BENEFITS. There will be no duplication of
benefits under this Plan. Without regard to any other language in this Plan,
all distributions are to be debited to a Member's or former Member's Account as
of the date of the distribution.
9.11 MISSING MEMBERS OR BENEFICIARIES. If a person entitled to a
distribution cannot be located within one year of the date any benefits payable
under the Plan should be paid or commence to be paid, his Account may be
forfeited and allocated as any other forfeiture pursuant to the provisions of
Section 6.6. Notwithstanding the preceding sentence, if at any time prior to
termination of the Plan and complete distribution of the Trust Fund, the former
Member or Beneficiary files a valid claim for the forfeited benefits payable
under the Plan, then (a) as soon as administratively practicable, the forfeited
benefits payable to such former Member or Beneficiary shall be reinstated, and
(b) as soon as administratively practicable following the reinstatement of such
forfeited benefits, the value of the reinstated benefits shall be paid pursuant
to the provisions of this Article to the former Member or Beneficiary thereof.
9.12 CLAIMS PROCEDURE. When a benefit is or is about to be due, the
Member, former Member or Beneficiary must submit a claim to the personnel
office of his most recent Employer. Under normal circumstances, a final
decision will be made as to a claim within 90 days after receipt of the claim.
If the Administrative Committee notifies the claimant in writing during the
initial 90-day period, it may extend the period up to 180 days after the
initial receipt of the claim. The written notice must contain the circumstances
necessitating the extension and the anticipated date for the final decision. If
a claim is denied during the claims period, the Administrative Committee must
notify the
IX-3
<PAGE> 48
claimant in writing. The denial must include the specific reasons for it, the
Plan provisions upon which the denial is based, and the claims review
procedure. If no action is taken during the claims period, the claim is treated
as if it were denied on the last day of the claims period.
9.13 CLAIMS APPEAL PROCEDURE. If a Member's, former Member's, or
Beneficiary's claim is denied and he wants a review, he must apply to the
Administrative Committee in writing. That application can include any comment
or argument the claimant wants to make. The claimant can either represent
himself or appoint a representative, either of whom has the right to inspect
all documents pertaining to the claim and its denial. The Administrative
Committee can schedule any meeting with the claimant or his representative that
it finds necessary or appropriate to complete its review. The request for
review must be filed within 90 days after the denial. If it is not, the denial
becomes final. If a timely request is made, the Administrative Committee must
make its decision, under normal circumstances, within 60 days of the receipt of
the request for review. However, if the Administrative Committee notifies the
claimant prior to the expiration of the initial review period, it can extend
the period of review up to 120 days following the initial receipt of the
request for a review. All decisions of the Administrative Committee must be in
writing and must include the specific reasons for its action and the Plan
provisions on which its decision is based. If a decision is not given to the
claimant within the review period, the claim is treated as if it were denied on
the last day of the review period.
9.14 DIRECT ROLLOVER OPTION FOR DISTRIBUTIONS MADE ON OR AFTER JANUARY
1, 1993. Effective for distributions made on or after January 1, 1993, a
Member, former Member, his spouse, his surviving spouse, or his former spouse
who is an alternate payee under a qualified domestic relations order (as
defined in Section 414(p) of the Code) will have the right to direct that any
portion of his eligible rollover distribution will be directly paid to an
eligible retirement plan specified by the distributee. Any payment made under
this Section will not be subject to the requirements of Section 414(l) of the
Code. The term "eligible rollover distribution" means any distribution of all
or any portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any distribution that is one
of a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any distribution that is not
includable in gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities). The term
"eligible retirement plan" means an individual retirement account described in
Section 408(a) of the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in Section 403(a) of the
Code, or a qualified trust described in Section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
IX-4
<PAGE> 49
ARTICLE X
ADMINISTRATIVE COMMITTEE
10.1 APPOINTMENT, TERM, RESIGNATION, AND REMOVAL. The Board of
Directors shall appoint an Administrative Committee of not less than two
persons, the members of which shall serve until their resignation, death, or
removal. The Sponsor shall notify the Trustee in writing of its composition
from time to time. Any member of the Administrative Committee may resign at any
time by giving written notice of such resignation to the Sponsor. Any member of
the Administrative Committee may be removed by the Board of Directors, with or
without cause. Vacancies in the Administrative Committee arising by
resignation, death, removal, or otherwise shall be filled by such persons as
may be appointed by the Board of Directors.
10.2 POWERS. The Administrative Committee shall have exclusive
responsibility for the administration of the Plan, according to the terms and
provisions of this document, and shall have all powers necessary to accomplish
such purposes, including, but not by way of limitation, the right, power, and
authority:
(a) To make rules and regulations for the administration of the
Plan which are not inconsistent with the terms and provisions thereof,
provided such rules and regulations are evidenced in writing;
(b) To construe all terms, provisions, conditions, and
limitations of the Plan; and its construction thereof made in good faith
and without discrimination in favor of or against any Member or former
Member shall be final and conclusive on all parties at interest;
(c) To correct any defect, supply any omission, or reconcile any
inconsistency which may appear in the Plan in such manner and to such
extent as it shall deem expedient to carry the Plan into effect for the
greatest benefit of all parties at interest, and its judgment in such
matters shall be final and conclusive as to all parties at interest;
(d) To select, employ, and compensate from time to time such
consultants, actuaries, accountants, attorneys, and other agents and
employees as the Administrative Committee may deem necessary or
advisable for the proper and efficient administration of the Plan, and
any agent, firm, or employee so selected by the Administrative Committee
may be a disqualified person, but only if the requirements of Section
4975(d) of the Code have been met;
(e) To resolve all questions relating to the eligibility of
Employees to become Members, and to determine the period of Active
Service and the amount of Considered Compensation upon which the
benefits of each Member shall be calculated;
X-1
<PAGE> 50
(f) To resolve all controversies relating to the administration
of the Plan, including but not limited to (1) differences of opinion
arising between the Employer and a Member or former Member, and (2) any
questions it deems advisable to determine in order to promote the
uniform and nondiscriminatory administration of the Plan for the benefit
of all parties at interest;
(g) To direct and instruct or to appoint an investment manager
or managers which would have the power to direct and instruct the
Trustee in all matters relating to the preservation, investment,
reinvestment, management, and disposition of the Trust Fund; provided,
however, that the Administrative Committee shall have no authority that
would prevent the Trustee from being an "agent independent of the
issuer," as that term is defined in Rule 10b-18 promulgated under the
Securities Exchange Act of 1934, at any time that the Trustee's failure
to maintain such status would result in the Sponsor or any other person
engaging in a "manipulative or deceptive device or contrivance" under
the provisions of Rule 10b-6 of such Act;
(h) To direct and instruct the Trustee in all matters relating
to the payment of Plan benefits and to determine a Member's or former
Member's entitlement to a benefit should he appeal a denial of his claim
for a benefit or any portion thereof; and
(i) To delegate such of its clerical and recordation duties
under the Plan as it may deem necessary or advisable for the proper and
efficient administration of the Plan.
10.3 ORGANIZATION. The Administrative Committee shall select from
among its members a chairman, who shall preside at all of its meetings, and
shall select a secretary, without regard as to whether that person is a member
of that Administrative Committee, who shall keep all records, documents, and
data pertaining to its supervision of the administration of the Plan.
10.4 QUORUM AND MAJORITY ACTION. A majority of the members of the
Administrative Committee shall constitute a quorum for the transaction of
business, and the vote of a majority of the members present at any meeting will
decide any question brought before that meeting. In addition, the
Administrative Committee may decide any question by a vote, taken without a
meeting, of a majority of its members.
10.5 SIGNATURES. The chairman, the secretary, and any one or more of
the members of the Administrative Committee to which the Administrative
Committee has delegated the power, shall each, severally, have the power to
execute any document on behalf of the Administrative Committee, and to execute
any certificate or other written evidence of the action of the Administrative
Committee. The Trustee, after being notified of any such delegation of power in
writing, shall thereafter accept and may rely upon any document executed by
such member or members as representing the action of the Administrative
Committee until the Administrative Committee files with the Trustee a written
revocation of that delegation of power.
X-2
<PAGE> 51
10.6 DISQUALIFICATION OF ADMINISTRATIVE COMMITTEE MEMBERS. A member of
the Administrative Committee who is also a Member of the Plan shall not vote or
act upon any matter relating solely to himself, unless he is the sole member of
the Administrative Committee.
10.7 DISCLOSURE TO MEMBERS. The Administrative Committee shall make
available to each Member, former Member, and Beneficiary for his examination
such records, documents, and other data as are required under ERISA, but only
at reasonable times during business hours. No Member, former Member, or
Beneficiary shall have the right to examine any data or records reflecting the
compensation paid to any other Member, former Member, or Beneficiary, and the
Administrative Committee shall not be required to make any data or records
available other than those required by ERISA.
10.8 STANDARD OF PERFORMANCE. The Administrative Committee and each of
its members shall use the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in conducting his business as the
administrator of the Plan; shall, when exercising its power to direct
investments, diversify the investments of the Plan so as to minimize the risk
of large losses, unless under the circumstances it is clearly prudent not to do
so; and shall otherwise act in accordance with the provisions of the Plan and
ERISA.
10.9 LIABILITY OF ADMINISTRATIVE COMMITTEE AND LIABILITY INSURANCE. No
member of the Administrative Committee shall be liable for any act or omission
of any other member of the Administrative Committee, the Trustee, any
investment manager, or any Member who directs the investment of his Account or
other agent appointed by the Administrative Committee except to the extent
required by the terms of ERISA, and any other applicable state or federal law,
which liability cannot be waived. No member of the Administrative Committee
shall be liable for any act or omission on his own part except to the extent
required by the terms of ERISA, and any other applicable state or federal law,
which liability cannot be waived. In this connection, each provision hereof is
severable and if any provision is found to be void as against public policy, it
shall not affect the validity of any other provision hereof.
Further, it is specifically provided that the Trustee may, at the
direction of the Administrative Committee, purchase out of the Trust Funds
hereof insurance for the members of the Administrative Committee and any other
fiduciaries appointed by the Administrative Committee, and for the Trust Fund
itself to cover liability or losses occurring by reason of the act or omission
of any one or more of the members of the Administrative Committee or any other
fiduciary appointed by them under this Plan, provided such insurance permits
recourse by the insurer against the members of the Administrative Committee or
the other fiduciaries concerned in the case of a breach of a fiduciary
obligation by one or more members of the Administrative Committee or other
fiduciary covered thereby.
10.10 BONDING. No member of the Administrative Committee shall be
required to give bond for the performance of his duties hereunder unless
required by a law which cannot be waived.
X-3
<PAGE> 52
10.11 COMPENSATION. The Administrative Committee shall serve without
compensation for their services, but shall be reimbursed by the Employers for
all expenses properly and actually incurred in the performance of their duties
under the Plan unless the Employers elect to have such expenses paid out of the
Trust Fund.
10.12 PERSONS SERVING IN DUAL FIDUCIARY ROLES. Any person, group of
persons, corporations, firm, or other entity may serve in more than one
fiduciary capacity with respect to the Plan, including the ability to serve
both as a successor trustee and as a member of the Administrative Committee.
10.13 ADMINISTRATOR. For all purposes of ERISA, the Administrator of
the Plan shall be the Sponsor. The Administrator of the Plan shall have final
responsibility for compliance with all reporting and disclosure requirements
imposed with respect to the Plan under any federal or state law, or any
regulations promulgated thereunder.
10.14 NAMED FIDUCIARY. The members of the Administrative Committee
shall be the "named fiduciary" for purposes of Section 402(a)(1) of ERISA, and
as such shall have the authority to control and manage the operation and
administration of the Plan, except to the extent such authority and control is
allocated or delegated to other parties pursuant to the terms of the Plan.
10.15 STANDARD OF JUDICIAL REVIEW OF ADMINISTRATIVE COMMITTEE ACTIONS.
The Administrative Committee has full and absolute discretion in the exercise
of each and every aspect of its authority under the Plan, including without
limitation, the authority to determine any person's right to benefits under the
Plan, the correct amount and form of any such benefits; the authority to decide
any appeal; the authority to review and correct the actions of any prior
administrative committee; and all of the rights, powers, and authorities
specified in Sections 9.12, 9.13, and 10.2. Notwithstanding any provision of
law or any explicit or implicit provision of this document or, any action
taken, or ruling or decision made, by the Administrative Committee in the
exercise of any of its powers and authorities under the Plan will be final and
conclusive as to all parties other than the Sponsor or Trustee, including
without limitation all Members and Beneficiaries, regardless of whether the
Administrative Committee or one or more members thereof may have an actual or
potential conflict of interest with respect to the subject matter of such
action, ruling, or decision. No such final action, ruling, or decision of the
Administrative Committee will be subject to de novo review in any judicial
proceeding; and no such final action, ruling, or decision of the Administrative
Committee may be set aside unless it is held to have been arbitrary and
capricious by a final judgment of a court having jurisdiction with respect to
the issue.
10.16 INDEMNIFICATION OF ADMINISTRATIVE COMMITTEE BY THE SPONSOR. The
Sponsor shall indemnify and hold harmless the Administrative Committee, the
Administrative Committee members, and any persons to whom the Administrative
Committee has allocated or delegated its responsibilities in accordance with
the provisions hereof, as well as any other fiduciary who is also an officer,
director, or Employee of an Employer, and hold each of them harmless from and
against all claims, loss, damages, expense, and liability arising from their
responsibilities in connection with the administration of the Plan which is not
otherwise paid or reimbursed by insurance, unless the same shall result from
their own willful misconduct.
X-4
<PAGE> 53
ARTICLE XI
INVESTMENT ELECTIONS
11.1 INVESTMENT FUNDS ESTABLISHED. It is contemplated that the assets
of this Plan shall be invested in such categories of assets as may be
determined from time to time by the Administrative Committee and announced and
made available on an equal basis to all Members and former Members. All
amounts contributed to a Member's Employer Matching Contribution Account in the
form of Sponsor Stock shall be deposited in the Sponsor Stock fund and shall
remain invested in the Sponsor Stock fund until the Member or former Member
instructs the Trustee to transfer all or a portion of such amounts to other
investment funds in accordance with procedures established by the
Administrative Committee. In accordance with procedures established by the
Administrative Committee, each Member and former Member may designate the
percentage of his Employer Matching Contribution Account (except as specified
above), Qualified Nonelective Employer Contribution Account, Rollover
Contribution Account, and Salary Deferral Contribution Account to be invested
in each investment fund available under the Plan. Up to one hundred percent
(100%) of the Trust assets may be invested in Sponsor Stock.
11.2 ELECTION PROCEDURES ESTABLISHED. The Administrative Committee
shall, from time to time, establish rules to be applied in a nondiscriminatory
manner as to all matters relating to the administration of the investment of
funds including, but not limited to, the following:
(a) The percentage of a Member's or former Member's Account as
it exists, from time to time, that may be transferred from one fund to
another and the limitations based on amounts, percentages, time, or
frequency, if any, on such transfers;
(b) The percentage of a Member's future contributions, when
allocated to his Account, that may be invested in any one or more funds
and the limitations based upon amounts, percentages, time, or frequency,
if any, on such investments in various funds;
(c) The procedures for making investment elections and
changing existing investment elections;
(d) The period of notice required for making investment
elections and changing existing investment elections;
(e) The handling of income and change of value in funds when
funds are in the process of being transferred between investment funds
and to investment funds; and
(f) All other matters necessary to permit the orderly
operation of investment funds within the Plan.
When the Administrative Committee changes any previous applicable rule, it
shall state the effective time of the change and the procedures for complying
with any such change. Any change shall remain
XI-1
<PAGE> 54
effective until such date as stated in the change, or if none is stated, then
until revoked or changed in a like manner.
XI-2
<PAGE> 55
ARTICLE XII
VOTING OF SPONSOR STOCK AND TENDER OFFERS
12.1 VOTING OF SPONSOR STOCK. When the Sponsor files preliminary or
final proxy solicitation materials with the Securities and Exchange Commission,
the Sponsor shall cause a copy of all materials to be simultaneously sent to
the Trustee. Based on these materials, the Trustee shall prepare a voting
instruction form. At the time of mailing of notice of each annual or special
stockholders' meeting of the Sponsor, the Sponsor shall cause a copy of the
notice and all proxy solicitation materials to be sent to each Member with an
interest in Sponsor Stock held in the Trust, together with the foregoing voting
instruction form to be returned to the Trustee or its designee. The form shall
show the number of full and fractional shares of the Sponsor Stock credited to
each Member's or former Member's Account. The Sponsor shall provide the
Trustee with a copy of any materials provided to the Members and shall certify
to the Trustee that the materials have been mailed or otherwise sent to the
Members and former Members.
Each Member and former Member with an interest in Sponsor Stock held in
the Trust shall have the right to direct the Trustee as to the manner in which
the Trustee is to vote the number of shares of the Sponsor Stock reflecting
such Member's or former Member's proportional interest in the Sponsor Stock
held in the Trust (both vested and unvested). Directions from a Member or
former Member to the Trustee concerning the voting of the Sponsor Stock shall
be communicated in writing, or by mailgram or similar means. These directions
shall be held in confidence by the Trustee and shall not be divulged to the
Sponsor, or any officer or employee thereof, or any other person except to the
extent that the Sponsor must have the safeguarded information in order to
comply with Federal laws or State laws not preempted by ERISA. Upon its
receipt of the directions, the Trustee shall vote the shares of the Sponsor
Stock reflecting the Member's or former Member's proportional interest in the
Sponsor Stock held in the Trust as directed by the Member or former Member.
The Trustee shall vote shares of the Sponsor Stock reflecting such Member's or
former Member's proportional interest in the Sponsor Stock held in the Trust
(both vested and unvested) for which it has received no directions from the
Member or former Member in the same proportion on each issue as it votes those
shares for which it received voting directions from Members and former Members.
The Trustee shall vote shares of the Sponsor Stock not credited to Members' or
former Members' Accounts in the same proportion on each issue as it votes those
shares credited to Members' and former Members' Accounts for which it received
voting directions from Members and former Members.
12.2 TENDER OFFERS. Upon commencement of a tender offer for any
securities held in the Trust that are the Sponsor Stock, the Sponsor shall
notify each Member and former Member of the tender offer and utilize its best
efforts to timely distribute or cause to be distributed to each Member and
former Member the same information that is distributed to other stockholders of
the Sponsor in connection with the tender offer, and, after consulting with the
Trustee, shall provide and pay for a means by which the Member or former Member
may direct the Trustee whether or not to tender the Sponsor Stock credited to
the Member's or former Member's vested and unvested Accounts. The Sponsor
shall provide the Trustee with a copy of any material provided to the Members
and former Members and shall certify to the Trustee that the materials have
been mailed or otherwise sent to Members and former Members.
XII-1
<PAGE> 56
Each Member and former Member shall have the right to direct the Trustee
to tender or not to tender some or all of the shares of the Sponsor Stock
reflecting his proportional interest in the Sponsor Stock held in the Trust
(both vested and unvested). Directions from a Member or former Member to the
Trustee concerning the tender of the Sponsor Stock shall be communicated in
writing, or by mailgram or such similar means as is agreed upon by the Trustee
and the Sponsor under the preceding paragraph. These directions shall be held
in confidence by the Trustee and shall not be divulged to the Sponsor, or any
officer or employee thereof, or any other person except to the extent that the
consequences of such directions are reflected in reports regularly communicated
to any such persons in the ordinary course of the performance of the Trustee's
services hereunder. The Trustee shall tender or not tender shares of Sponsor
Stock as directed by the Member or former Member. To the extent that Members
or former Members fail to affirmatively direct the Trustee or fail to issue
valid directions to the Trustee to tender shares of the Sponsor Stock credited
to their Accounts, those Members or former Members will be deemed to have
instructed the Trustee not to tender those shares. Accordingly, the Trustee
shall not tender shares of Sponsor Stock credited to a Member's or former
Member's Accounts for which it has received no directions or invalid directions
from the Member or former Member.
The Trustee shall tender that number of shares of the Sponsor Stock not
credited to Members' or former Members' Accounts which is determined by
multiplying the total number of shares of the Sponsor Stock not credited to
Members' or former Members' Accounts by a fraction of which the numerator is
the number of shares of the Sponsor Stock credited to Members' or former
Members' accounts for which the Trustee has received valid directions from
Members or former Members to tender (which directions have not been withdrawn
as of the date of this determination) and of which the denominator is the total
number of shares of the Sponsor Stock credited to Members' or former Members'
Accounts.
A Member or former Member who has directed the Trustee to tender some or
all of the shares of the Sponsor Stock credited to the Member's or former
Member's Accounts may, at any time prior to the tender offer withdrawal date,
direct the Trustee to withdraw some or all of the tendered shares, and the
Trustee shall withdraw the directed number of shares from the tender offer
prior to the tender offer withdrawal deadline. Prior to the withdrawal
deadline, if any shares of the Sponsor Stock not credited to Members' or former
Members' Accounts have been tendered, the Trustee shall redetermine the number
of shares of the Sponsor Stock that would be tendered under this Section if the
date of the foregoing withdrawal were the date of determination, and withdraw
from the tender offer the number of shares of the Sponsor Stock not credited to
Members' or former Members' Accounts necessary to reduce the amount of tendered
Sponsor Stock not credited to Members' or former Members' Accounts to the
amount so redetermined. A Member or former Member shall not be limited as to
the number of directions to tender or withdraw that the Member or former Member
may give to the Trustee.
A direction by a Member or former Member to the Trustee to tender shares
of the Sponsor Stock reflecting the Member's or former Member's proportional
interest in the Sponsor Stock held in the Trust shall not be considered a
written election under the Plan by the Member or former Member to withdraw, or
have distributed, any or all of his withdrawable shares. The Trustee shall
credit to each proportional interest of the Member or former Member from which
the tendered shares
XII-2
<PAGE> 57
were taken the proceeds received by the Trustee in exchange for the shares of
the Sponsor Stock tendered from that interest.
12.3 SHARES CREDITED. For all purposes of this Article, the number of
shares of the Sponsor Stock deemed "credited" to a Member's or former Member's
Accounts as of the relevant date (the record date or the date specified in the
tender offer) shall be calculated by reference to the number of shares
reflected on the books of the transfer agent as of the relevant date. In the
case of a tender offer, the number of shares credited shall be determined as of
a date as close as administratively feasible to the relevant date.
12.4 CONVERSION. All provisions in this Article shall also apply to
any securities received as a result of a conversion of the Sponsor Stock.
12.5 NAMED FIDUCIARY. For purposes of ERISA, each Member or former
Member shall be the named fiduciary for purposes of Section 403(a)(1) of ERISA
in connection with the exercise of voting and tender offer rights relating to
shares of the Sponsor Stock credited to the his Accounts and any shares of the
Sponsor Stock not credited to his Accounts that may be affected by his voting
or tender decision.
XII-3
<PAGE> 58
ARTICLE XIII
ADOPTION OF PLAN BY OTHER EMPLOYERS
13.1 ADOPTION PROCEDURE. Any business organization may, with the
approval of the Board of Directors, adopt this Plan by:
(a) executing an adoption instrument (approved by the board of
directors of the adopting Employer) agreeing to be bound as an Employer
by all the terms, conditions, and limitations of this Plan except
those, if any, specifically described in the adoption instrument; and
(b) providing all information required by the Administrative
Committee and the Trustee.
An adoption may be retroactive to the beginning of a Plan Year if these
conditions are complied with on or before the last day of that Plan Year.
13.2 NO JOINT VENTURE IMPLIED. The document which evidences the
adoption of the Plan by an Employer shall become a part of this Plan. However,
neither the adoption of this Plan by an Employer nor any act performed by it in
relation to this Plan shall ever create a joint venture or partnership relation
between it and any other Employer.
13.3 ALL TRUST ASSETS AVAILABLE TO PAY ALL BENEFITS. The Accounts of
Members and former Members employed by the Employers which adopt this Plan
shall be commingled for investment purposes. All assets in the Trust Fund
shall be available to pay benefits to all Members and former Members.
13.4 QUALIFICATION A CONDITION PRECEDENT TO ADOPTION AND CONTINUED
PARTICIPATION. The adoption of this Plan by a business organization is
contingent upon and subject to the express condition precedent that the initial
adoption does not cause the Plan to fail to qualify under Section 401(a) of the
Code. In the event the adoption causes the Plan to fail to qualify, the
adoption shall fail retroactively for failure to meet the condition precedent,
the portion of the Trust Fund attributable to the attempted adoption shall be
immediately returned to the adopting business organization, and the adoption
shall be void ab initio. In the event the adoption of the Plan by a business
organization later causes the Plan to be disqualified for any reason, the
adoption shall fail retroactively for failure to meet the condition precedent
and the portion of the Trust Fund attributable to the adoption by that business
organization shall be immediately spun off, retroactively as of the last date
for which the Plan qualified, to a separate trust fund for its sole benefit and
an identical but separate plan shall be created, retroactively effective as of
the last date the Plan as adopted by that business organization qualified, for
the benefit of the Members covered by that adoption.
XIII-1
<PAGE> 59
ARTICLE XIV
AMENDMENT AND TERMINATION
14.1 SPONSOR'S RIGHT TO AMEND. Subject to the limitations prescribed
by Section 14.2, the Board of Directors may at any time and from time to time
modify or amend the Plan in whole or in part. Any amendment shall be made by
an instrument in writing, executed by the appropriate officer of the Sponsor,
setting forth the nature of the amendment and its effective date.
14.2 LIMITATIONS ON RIGHT TO AMEND. No amendment shall vest in any
Employer, directly or indirectly, any right, title or interest in or to control
over any Trust Fund or any portion thereof. No part of the Trust Fund shall by
reason of any amendment be used for or diverted to purposes other than the
exclusive benefit of Members and their Beneficiaries. If the Plan is amended in
any manner, the nonforfeitable percentage of the accrued benefit derived from
Employer Contributions (determined as of the later of the date of the adoption
of the amendment or of the effective date of the amendment) of each Member
shall not be less than such nonforfeitable percentage computed under the Plan
without regard to such amendment. If the Plan's vesting schedule is amended, if
the Plan is amended in any way that directly or indirectly affects the
computation of the Member's nonforfeitable percentage, each Member with at
least three Years of Vesting Service may elect, within a reasonable period
after the adoption of the amendment or change, to have the nonforfeitable
percentage computed under the Plan without regard to such amendment or change.
The period during which the election may be made shall begin on the date on
which the amendment is adopted or deemed to be made and shall end on the day
which is 60 days after the latest of (a) the day the amendment is adopted or
deemed to be made; (b) the day the amendment becomes effective; or (c) the day
the Member is issued written notice of the amendment by the Employer. No
amendment shall decrease the Account balance of a Member or eliminate an
optional form of benefit with respect to benefits attributable to service
before the amendment in violation of Section 411(d)(6) of the Code. No
amendment shall increase substantially the duties or responsibilities of the
Trustee without its written consent.
14.3 RETROACTIVE AMENDMENTS TO MEET LABOR OR TAX REQUIREMENTS. It is
the intention of the Sponsor that Employer Contributions to the Plan be
deductible under the applicable provisions of the Code; that the Plan meet all
requirements of ERISA; that (except as otherwise prescribed by applicable law)
such contributions not be subject to the Federal Social Security Act; that to
the extent permitted under applicable law such contributions not be subject to
withholding under the Internal Revenue Code of 1986 or the Federal Social
Security Act; and that such contributions not be subject to the Fair Labor
Standards Act of 1938, as amended, as part of its Employees' "regular rate."
The Sponsor shall make such amendments to the Plan as may be necessary to carry
out this intention. All such amendments may be made retroactively as limited by
the applicable federal law.
14.4 TERMINATION OF PLAN. The Sponsor may terminate this Plan and its
related Trust Fund with respect to all Employers by executing and delivering to
the Administrative Committee and the Trustee a notice of termination,
specifying the date of termination. Any Employer may terminate this Plan and
its related Trust Fund with respect to itself by executing and delivering to
the Trustee a notice of termination, specifying the date of termination.
Likewise, this Plan and its related Trust
XIV-1
<PAGE> 60
Fund shall automatically terminate with respect to any Employer if there is a
general assignment by that Employer to or for the benefit of its creditors, or
a liquidation or dissolution of that Employer without a successor. Upon the
termination of this Plan as to an Employer, the Trustee shall, subject to the
provisions of Section 15.5, distribute to each Member employed by the
terminating Employer the amount certified by the Administrative Committee to be
due the Member.
The Employer should apply to the Internal Revenue Service for a
determination letter with respect to its termination, and the Trustee should
not distribute the Trust Funds until a determination is received. However,
should it decide that a distribution before receipt of the determination letter
is necessary or appropriate it should retain sufficient assets to cover any tax
that may become due upon that determination.
14.5 VESTING UPON TERMINATION, PARTIAL TERMINATION, AND SUSPENSION OR
DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS. Notwithstanding any other provision
of the Plan, in the event there is a total or partial termination, or a
complete discontinuance of the Employer's contributions hereunder, the vesting
schedules contained in this Plan will be inapplicable and each affected Member
employed by the Employers will thereupon have a full one hundred percent (100%)
vested and nonforfeitable interest in the amount standing to his credit in his
Account as of the total or partial termination or complete discontinuance of
the Employer's contributions. If the Employers should thereafter resume making
substantial Employer Contributions, all amounts credited or allocated to the
affected Member's Account with respect to the Plan Years for which the
contributions are resumed by the Employers and the Plan Years for which they
are continued will again vest only in accordance with the vesting schedules set
forth herein. During any period of termination or complete discontinuance of
the Employer Contributions all other provisions of its Plan will continue in
full force and effect other than the provision for the Employer Contributions
and their allocation to the affected Member's Accounts.
14.6 PLAN MERGERS. Notwithstanding any other provision hereof, the
Plan will not be merged or consolidated with, nor shall any assets or
liabilities of the Plan be transferred to, any other plan unless each Member
would (if the plan then terminated) receive a benefit immediately after the
merger, consolidation, or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated).
XIV-2
<PAGE> 61
ARTICLE XV
MISCELLANEOUS
15.1 NO REVERSIONARY INTEREST. In no event shall the principal or
income of the Trust be paid to or revert to the Employer or be used for any
purpose other than the exclusive benefit of the Members or Beneficiaries and
the reasonable expenses of administering the Plan, except that:
(a) If the Employer makes a contribution by mistake of fact,
such mistaken contribution may revert and be repaid to the Employer
within one year after the payment of the contribution.
(b) The Employer's Contribution is conditioned upon the
deductibility thereof under Section 404 of the Code. To the extent the
deduction is disallowed the contribution may revert and be repaid to the
Employer within one year after the disallowance of the deduction.
The Employer shall, subject to the limitations set forth below, have
exclusive authority and absolute discretion to determine whether a
contribution, or any part thereof, shall revert and be repaid to it or shall
instead remain a part of the Trust Fund. The amount which may be repaid to the
Employer may not exceed the excess of the amount contributed over the amount
that would have been contributed had there not occurred a mistake of fact, or
the amount disallowed as a deduction. Earnings attributable to such excess
contribution shall not be repaid, and losses attributable thereto shall reduce
the amount which may be returned. If the repayment of the amount attributable
to the mistaken contribution would cause the balance of any Member's Accounts
to be reduced to less than the balance which would have been in the Accounts
had the mistaken amount not been contributed, then the amount which may be
repaid to the Employer shall be limited so as to avoid such reduction.
15.2 PLAN DOES NOT CONSTITUTE AN EMPLOYMENT CONTRACT. The adoption and
maintenance of the Plan shall not be deemed to be a contract between any
Employer and any Member. Nothing contained herein shall be deemed to give any
Member the right to be retained in the employment of the Employer or to
interfere with the rights of the Employer to discharge any Member at any time,
nor shall it interfere with the Member's right to terminate his employment at
any time.
15.3 BENEFITS PROVIDED SOLELY BY TRUST. All benefits payable under the
Plan shall be paid or provided for solely from the Trust, and the Employer
assumes no liability or responsibility therefor.
15.4 SPENDTHRIFT CLAUSE. Except as otherwise specifically provided, no
principal or income payable or to become payable from the Trust Fund shall be
subject to anticipation or assignment by any Member or by any Beneficiary or be
subject to attachment by, or to the interference or control of, any creditor of
a Member or Beneficiary, or be taken or reached by any legal or equitable
process in satisfaction of any debt or liability of a Member or Beneficiary
prior to its actual receipt by such Member or Beneficiary. The interests of the
Employer in the assets, earnings and profits of the Trust Fund shall not be
subject to garnishment, attachment, levy, or execution of any kind for debts or
defaults of any person, natural or legal, having an interest in any portion of
the Trust Fund. Any
XV-1
<PAGE> 62
attempted conveyance, transfer, assignment, mortgage, pledge, or encumbrance of
the Trust estate, or any part thereof, or any interest therein, by a Member or
Beneficiary, prior to distribution as herein provided, shall be absolutely and
wholly void, whether such conveyance, transfer, assignment, mortgage, pledge,
or encumbrance be intended to take place or become effective before or after
the expiration of the period herein fixed for the continuance of the said Trust
estate. The Trustee shall never under any circumstances be required to
recognize any conveyance, transfer, assignment, mortgage, or pledge by a Member
or Beneficiary hereunder, of any part of the Trust estate, or of any interest
therein, and the Trustee shall never be required to pay any money or thing of
value thereon or therefor to any creditor of a Member or Beneficiary, nor upon
any debt created by a Member or Beneficiary for any cause whatsoever. This
Section shall also apply to the creation, assignment, or recognition of a right
to any benefit payable with respect to a participant pursuant to a domestic
relations order, unless such order is determined to be a Qualified Domestic
Relations Order, or any domestic relations order entered before January 1,
1985. Notwithstanding any provision of this Section 16.4, a Member may make a
voluntary revocable assignment of his Plan benefits to the extent permitted in
Regulations.
15.5 GOVERNING LAWS; PARTIES TO LEGAL ACTIONS. The provisions of the
Plan shall be construed, administered and enforced according to the laws of the
United States and the State of Texas. The Trustee or the Employer may at any
time initiate any legal action or proceeding for the settlement of the accounts
of the Trustee or for the determination of any questions, including questions
of construction which may arise, or for instruction, and the only necessary
parties to such action or proceeding shall be the Trustee and the Employer,
except that any other person or persons may be included as parties defendant at
the election of the Trustee and the Employer.
15.6 PLAN DOCUMENT CONTROLLING. In the event that there is a
discrepancy between the terms of this document and the terms of any policy or
contract issued under the Plan, the provisions of this document shall control.
15.7 CROSS REFERENCES. All Section references are to Sections of this
document, unless otherwise specified.
15.8 TRUSTEE'S FEES AND EXPENSES. The Trustee shall receive for its
services as Trustee hereunder the compensation which from time to time may be
agreed upon by the Sponsor and the Trustee. All of such compensation, together
with the expenses incurred by the Trustee in connection with the administration
of this Trust, including fees for legal services rendered to the Trustee, all
other charges and disbursements of the Trustee, and all other expenses of the
Plan shall be charged to and deducted from the Trust Fund, unless the Sponsor
elects in writing to have any part or all of such compensation, expenses,
charges, and disbursements paid directly by the Sponsor. The Trustee shall
deduct from and charge against the Trust assets any and all taxes paid by it
which may be levied or assessed upon or in respect of the Trust hereunder or
the income thereof, and shall equitably allocate the same among the several
Members.
XV-2
<PAGE> 63
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
12th day of August, 1996, to be effective as of January 1, 1996, except as
otherwise specified or as otherwise required to comply with the provisions of
the Tax Reform Act of 1986, or any other applicable statute, regulation, or
ruling.
PLAINS RESOURCES INC.
By: Mary O. (Susie) Peters
-------------------------------
Title: Vice President
CALUMET FLORIDA, INC.
By: Michael R. Patterson
-------------------------------
Title: Vice President
PLX INGLESIDE INC.
By: Michael R. Patterson
-------------------------------
Title: Vice President
PLAINS ILLINOIS INC.
By: Michael R. Patterson
-------------------------------
Title: Vice President
STOCKER RESOURCES, INC.
By: Michael R. Patterson
-------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10(i)
FIRST AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") dated as of the 16th day of December, 1996, by and among
PLAINS RESOURCES INC., a Delaware corporation (the "Company"), ING (U.S.)
CAPITAL CORPORATION, f/k/a Internationale Nederlanden (U.S.) Capital
Corporation, as Agent ("Agent"), and the Lenders under the Original Agreement
(as defined herein).
W I T N E S S E T H:
WHEREAS, the Company, Agent and Lenders entered into that certain
Third Amended and Restated Credit Agreement dated as of April 11, 1996 (the
"Original Agreement") for the purposes and consideration therein expressed,
pursuant to which Lenders became obligated to make and made loans to the
Company as therein provided; and
WHEREAS, the Company, Agent and Lenders desire to amend the Original
Agreement to (i) set forth certain agreements relating to an indemnity or other
credit support which ING (U.S.) Capital Corporation may provide on behalf of
Borrower in connection with Hedging Transactions, and (ii) incorporate
amendments to the Bank of Boston/ING Capital Facility;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and in the Original Agreement, in
consideration of the loans which may hereafter be made by Lenders to the
Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
ARTICLE I. -- Definitions and References
Section 1.1. Terms Defined in the Original Agreement. Unless the
context otherwise requires or unless otherwise expressly defined herein, the
terms defined in the Original Agreement shall have the same meanings whenever
used in this Amendment.
Section 1.2. Other Defined Terms. Unless the context otherwise
requires, the following terms when used in this Amendment shall have the
meanings assigned to them in this Section 1.2.
"Amendment" means this First Amendment to Third Amended and
Restated Credit Agreement.
"Credit Agreement" means the Original Agreement as amended
hereby.
-1-
<PAGE> 2
ARTICLE II. -- Amendments
Section 2.1. Definitions. The definitions of "Applicable Margin",
"Bank of Boston/ING Capital Facility" and "Hedging Agreement" set forth in
Section 1.01 of the Original Agreement are hereby amended in their entirety to
read as follows:
"Applicable Margin" shall mean (i) with respect to
Base Rate Loans zero percent (0%) per annum and (ii) with respect to
Eurodollar Loans, one and three-eighths percent (1.375%) per annum.
"Bank of Boston/ING Capital Facility" shall mean,
collectively, two uncommitted secured demand transactional line of
credit facilities, in an aggregate amount not to exceed $90,000,000,
dated August 23, 1995, as amended as of November 20, 1996, among The
First National Bank of Boston, individually and as agent, ING (U.S.)
Capital Corporation, the other lenders named therein, and (i) Plains
Marketing, and (ii) PMCT, together with the security documents and
other documents and agreements executed in connection with each such
facility.
"Hedging Agreement" shall mean (i) any currency rate
swap, rate cap, rate floor, rate collar, exchange transaction, forward
rate agreement, or other exchange or rate protection agreements or any
option with respect to any such transaction now existing or hereafter
entered into between any Obligor and Agent, AIG Trading Corporation,
or any Lender, or (ii) any swap agreement, cap, floor, collar,
exchange transaction, forward agreement, or other exchange or
protection agreements relating to crude oil, natural gas or other
hydrocarbons, or any option with respect to any such transaction now
existing or hereafter entered into between any Obligor and Agent, AIG
Trading Corporation, or any Lender.
Section 2.2 Hedging Agreement Indemnity. Article 2 of the
Original Agreement is hereby amended by adding a new Section 2.10 to read as
follows:
2.10. Hedging Agreement Indemnity. From time to time ING
(U.S.) Capital Corporation ("ING Capital") may provide an indemnity or
other credit support on behalf of Obligors to AIG Trading Corporation,
whereby ING Capital agrees to pay the obligations of such Obligor
arising from time to time under a Hedging Agreement (a "Hedging
Agreement Indemnity"). In consideration thereof, the Company hereby
promises and agrees to pay to ING Capital each amount which ING
Capital is called upon to pay on behalf of or for the benefit of such
Obligor under a Hedging Agreement Indemnity. The Company shall pay
each such amount, immediately upon demand, in legal tender of the
United States in same day funds. Such promise and agreement of the
Company is irrevocable and unconditional. ING Capital is authorized
and instructed to pay all demands for payment under any such Hedging
Agreement Indemnity after exercising reasonable care to determine
whether such demand or the amount thereof is correct. The Company
hereby promises to pay to ING Capital, on demand, interest at the
Post-Default Rate on any amount payable by the Company
-2-
<PAGE> 3
under this section from the date such amounts become due until they
are paid. The Company may enter into a separate Reimbursement
Agreement governing such promise and agreement of the Company to pay
to ING Capital each amount which ING Capital is called upon to pay on
behalf of or for the benefit of such Obligor under a Hedging Agreement
Indemnity. Notwithstanding the existence of any such separate
Reimbursement Agreement, the obligation of the Company described in
this section shall be an "Obligation" arising under this Agreement and
shall be secured by and entitled to the benefit of all Guaranties and
Security Documents, whether or not the Security Documents specifically
describe such separate Reimbursement Agreement or the obligations of
the Company under this section. Each payment under a Hedging
Agreement Indemnity (whether in response to a demand for payment or
otherwise) shall constitute a loan by ING Capital and shall be secured
by and entitled to all benefits under the Security Documents.
Section 2.3. Indebtedness. Section 8.09(e) is hereby amended in
its entirety to read as follows:
(e) (i) Indebtedness of Plains Marketing, PMCT and their
Wholly-Owned Subsidiaries under the Bank of Boston/ING Capital
Facility, and the guaranty by the Company of such Indebtedness
(together with reimbursement obligations of the Company in connection
with the Support Letter of Credit), (ii) the unsecured guaranty by
PMCT of the indebtedness of the Company under the Senior Subordinated
Indenture and the Senior Subordinated Notes, (iii) other Indebtedness
of Plains Marketing, PMCT and their Wholly-Owned Subsidiaries arising
in the ordinary course of their businesses under crude oil purchase or
sale agreements, crude oil future, forward or similar contracts, or
letters of credit supporting such obligations, and the unsecured
guaranty by the Company of such other Indebtedness, and (iv) the
unsecured guaranty by the Company of indebtedness of Plains Marketing,
PMCT and their Wholly-Owned Subsidiaries arising in the ordinary
course of their businesses under crude oil purchase or sale
agreements, crude oil future, forward or similar contracts, or letters
of credit supporting such obligations; provided, the aggregate
outstanding amount of such Indebtedness under the preceding clauses
(iii) and (iv) shall not at any time exceed (A) $125,000,000 minus (B)
the outstanding Indebtedness under the Bank of Boston/ING Capital
Facility.
ARTICLE III. -- Miscellaneous
Section 3.1. Representations and Warranties of the Company. In
order to induce Agent and Lenders to enter into this Amendment, the Company
represents and warrants to Agent and Lenders that the representations and
warranties contained in Section 7 of the Original Agreement, are true and
correct at and as of the time of the effectiveness hereof, subject to the
amendment of certain of the Schedules to the Credit Agreement as attached
hereto.
Section 3.2. Ratification of Agreements. The Original Agreement,
as hereby amended, is hereby ratified and confirmed in all respects. The Basic
Documents, as they may be amended
-3-
<PAGE> 4
or affected by this Amendment are hereby ratified and confirmed in all
respects. Any reference to the Credit Agreement in any Basic Document shall be
deemed to refer to this Amendment also. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein
or therein, operate as a waiver of any right, power or remedy of Agent or any
Lender under the Credit Agreement or any other Basic Document nor constitute a
waiver of any provision of the Credit Agreement or any other Basic Document.
Section 3.3. Ratification of Security Documents. The Company,
Agent and Lenders each acknowledge and agree that any and all indebtedness,
liabilities or obligations arising under or in connection with the Notes are
Obligations and is secured indebtedness under, and is secured by, each and
every Security Document to which the Company is a party. The Company hereby
re-pledges, re-grants and re-assigns a security interest in and lien on every
asset of the Company described as collateral in any Security Document.
Section 3.4. Survival of Agreements. All representations,
warranties, covenants and agreements of the Company herein shall survive the
execution and delivery of this Amendment and the performance hereof and
thereof, including without limitation the making or granting of each Loan, and
shall further survive until all of the Obligations are paid in full. All
statements and agreements contained in any certificate or instrument delivered
by the Company or any Subsidiary hereunder or under the Credit Agreement to
Agent or any Lender shall be deemed to constitute representations and
warranties by, or agreements and covenants of, the Company under this Amendment
and under the Credit Agreement.
Section 3.5. Basic Document. This Amendment is a Basic Document,
and all provisions in the Credit Agreement pertaining to Basic Documents apply
hereto and thereto.
Section 3.6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA IN ALL RESPECTS, INCLUDING
CONSTRUCTION, VALIDITY AND PERFORMANCE.
Section 3.7. Counterparts. This Amendment may be separately
executed in counterparts and by the different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute one
and the same Amendment.
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
PLAINS RESOURCES INC.
By: /s/ Phillip D. Kramer
------------------------------------
Phillip D. Kramer
Vice President and Chief Financial
Officer
-4-
<PAGE> 5
ING (U.S.) CAPITAL CORPORATION,
f/k/a Internationale Nederlanden (U.S.)
Capital Corporation, individually as a
Lender and as Agent
By: /s/ Robi Artman-Hodge
--------------------------------------
Robi Artman-Hodge, Managing Director
THE FIRST NATIONAL BANK OF BOSTON,
Lender
By: /s/ George W. Passela
--------------------------------------
George W. Passela, Managing Director
DEN NORSKE BANK AS, Lender
By: /s/ Byron L. Cooley
--------------------------------------
Byron L. Cooley,Senior Vice President
By: /s/ Morten Bjornsen
--------------------------------------
Morten Bjornsen, Senior Vice
President
WELLS FARGO BANK (TEXAS)
NATIONAL ASSOCIATION
(f/k/a First Interstate Bank of Texas,
N.A.), Lender
By: /s/ Ann M. Rhoads
--------------------------------------
Ann M. Rhoads, Vice President
-5-
<PAGE> 6
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Lender
By: /s/ Scott H. Richardson
--------------------------------------
Scott H. Richardson, Vice President
-6-
<PAGE> 7
CONSENT AND AGREEMENT
Each of the undersigned Subsidiary Guarantors hereby consents to the
provisions of this Amendment and the transactions contemplated herein and
hereby (i) acknowledges and agrees that any and all indebtedness, liabilities
or obligations arising under or in connection with the Notes are Obligations
and are secured indebtedness under, and are secured by, each and every Security
Document to which it is a party, (ii) re-pledges, re-grants and re-assigns a
security interest in and lien on all of its assets described as collateral in
any Security Document, (iii) ratifies and confirms its Amended and Restated
Guaranty dated April 11, 1996 made by it for the benefit of Agent and Lenders,
and (iv) expressly acknowledges and agrees that such Subsidiary Guarantor
guarantees all indebtedness, liabilities and obligations arising under or in
connection with the Notes pursuant to the terms of such Amended and Restated
Guaranty, and agrees that its obligations and covenants thereunder are
unimpaired hereby and shall remain in full force and effect. Each of the
undersigned hereby further agrees that any obligation of the Company arising
pursuant to Section 2.10 of the Credit Agreement shall constitute "Obligations"
under the Guaranty.
PLAINS MARKETING & TRANSPORTATION INC.
By: /s/ Phillip D. Kramer
--------------------------------------
Phillip D. Kramer, Vice President
PLAINS RESOURCES INTERNATIONAL INC.
By: /s/ Phillip D. Kramer
--------------------------------------
Phillip D. Kramer, Vice President
PLAINS TERMINAL & TRANSFER CORPORATION
By: /s/ Phillip D. Kramer
--------------------------------------
Phillip D. Kramer, Vice President
PLX CRUDE LINES INC.
By: /s/ Phillip D. Kramer
--------------------------------------
Phillip D. Kramer, Vice President
-7-
<PAGE> 8
STOCKER RESOURCES, INC.
By: /s/ Phillip D. Kramer
----------------------------------------
Phillip D. Kramer, Vice President
PLX INGLESIDE INC.
By: /s/ Phillip D. Kramer
----------------------------------------
Phillip D. Kramer, Vice President
STOCKER RESOURCES, L.P.
By: Stocker Resources, Inc.,
its General Partner
By: /s/ Phillip D. Kramer
--------------------------------
Phillip D. Kramer, Vice
President
CALUMET FLORIDA, INC.
By: /s/ Phillip D. Kramer
----------------------------------------
Phillip D. Kramer, Vice President
PLAINS ILLINOIS INC.
By: /s/ Phillip D. Kramer
----------------------------------------
Phillip D. Kramer, Vice President
-8-
<PAGE> 1
EXHIBIT 10(j)
Dated as of November 22, 1996
Plains Marketing & Transportation Inc.
1600 Smith Street
Houston, TX 77002
Re: Amendment No. 4 to Uncommitted Secured
Demand Transactional Line of Credit Facility
Gentlemen:
Reference is made to that certain letter agreement outlining the parameters
of an uncommitted secured demand transactional line of credit facility dated
August 23, 1995 (as further amended to date and including all exhibits,
schedules and annexes thereto, the "Marketing Letter Agreement") among The
First National Bank of Boston ("FNBB"), Internationale Nederlanden (U.S.)
Capital Corporation ("ING"), Den Norske Bank ASA, Comerica Bank-Texas and such
other banks as may from time to time become parties thereto, (collectively, the
"Lenders") and FNBB, as agent for the Lenders (in such capacity, the "Agent")
and Plains Marketing & Transportation Inc. (the "Borrower"). All capitalized
terms used herein without definition which are defined in the Marketing Letter
Agreement shall have the same meaning herein as therein.
Wells Fargo Bank (Texas), National Association ("Wells") wishes to become a
party to the Marketing Letter Agreement as a Lender to the Borrower and
simultaneously with the execution hereof will execute an Instrument of
Accession in substantially the form attached as Exhibit A to the Marketing
Letter Agreement.
Borrower, the Lenders (which term for all purposes in this Amendment shall
include Wells) and the Agent wish to amend certain terms of the Marketing
Letter Agreement as follows:
1. FACILITY AMOUNT. Section 1(b) of the Marketing Letter Agreement
is hereby amended by deleting the first sentence thereof and substituting the
following therefor:
"The aggregate amount of the Accommodations which may be made
available by the Lenders and which will be allowed to be outstanding
at any one time under the Marketing Facility shall be restricted to
the excess of (i) $90,000,000 (subject to adjustment as set forth in
the proviso below) over (ii) the then aggregate amount of the
outstanding
<PAGE> 2
-2-
Accommodations made by the Lenders to or for the account of PMCT Inc.,
a Delaware corporation ("PMCT"), under that certain letter agreement
of even date herewith, as amended and in effect from time to time (the
"PMCT AGREEMENT"), among the Lenders, the Agent and PMCT (such
difference in amount, as in effect from time to time under the
Marketing Facility, hereinafter referred to as the "MARKETING FACILITY
AMOUNT"); provided that for purposes of determining the Marketing
Facility Amount, the amount set forth in clause (i) of this Section
1(b) shall be limited to $80,000,000 until such time as the Agent
shall have received, in form and substance satisfactory to the Agent,
a copy of an amendment to the Resources Credit Agreement duly executed
by all parties thereto pursuant to which the lenders under the
Resources Credit Agreement consent to the increase to $90,000,000 of
the maximum aggregate Marketing Facility Amount available under the
Marketing Facility subject to decreases as provided in clause (ii)
above and the guaranty by Resources of such maximum Marketing Facility
Amount."
2. EXPIRATION DATE. Section 1(e)(i) of the Marketing Letter
Agreement is hereby amended and restated in its entirety to read as follows:
"(e) EXPIRATION: (i) No request for any Accommodation may
be made after November 21, 1997, unless the Lenders, in their
sole discretion and without any obligation to do so, extend
such date in writing."
3. RESOURCES CREDIT AGREEMENT. Section 1(j)(vi) of the Marketing
Letter Agreement is hereby amended by deleting the phrase "that certain Second
Amended and Restated Credit Agreement dated as of February 11, 1994" and
substituting therefor the phrase "that certain Third Amended and Restated
Credit Agreement dated as of April 11, 1996", which Third Amended and Restated
Credit Agreement shall be the agreement referred to in the Marketing Letter
Agreement as the "Resources Credit Agreement".
4. CUSHING TERMINAL REPORT. Section 1(j) of the Marketing Letter
Agreement is hereby amended by renumbering the current clause (ix) to be clause
(x) and by inserting the following paragraph as a new clause (ix):
"(ix) on a monthly basis, a certificate signed by the
Borrower's chief financial officer, chief accounting officer
or chief operating officer certifying that as of a date which
shall be not more than one week prior to the date of the
certificate the aggregate sum of (i) the aggregate current
crude oil inventory volumes held by the Borrower and/or PMCT,
plus (ii) the aggregate volume of current crude oil positions
subject to time spreads as described in paragraph (v)(D) of
Schedule 4 of the Marketing Letter Agreement for both the
Borrower and PMCT, plus (iii) the aggregate volume of all
current cash and carry crude oil positions for both the
Borrower and PMCT, plus (iv) the aggregate volume of all crude
oil which the
<PAGE> 3
-3-
Borrower and/or PMCT is otherwise obligated to take pursuant
to the terms of existent contracts, does not exceed the then
currently available crude oil storage capacity at the Cushing
Terminal; and"
5. SCHEDULE 1. Schedule 1 to the Marketing Letter Agreement is
hereby amended by substituting therefor the Schedule 1 attached hereto.
6. FINANCIAL AND OTHER GUIDELINES. Schedule 4 to the Marketing
Letter Agreement is hereby amended as follows:
(a) paragraph (v)(C) of Schedule 4 is amended by deleting the text
thereof in its entirety and substituting the following therefor:
"(C) The aggregate of (a) crude oil pipeline inventory and
(b) crude oil inventory in the Cushing Terminal shall not
exceed, in the aggregate for both PMCT Inc. and Marketing, a
maximum of 250,000 barrels and such barrels shall be hedged
(i) on the NYMEX for delivery within the next 6 months;
provided that of such aggregate amount up to 100,000 barrels
may be hedged on the NYMEX for delivery between the next 6 and
12 months or (ii) in the cash market with counterparties
satisfactory to the Lenders for delivery within the next 60
days. Notwithstanding the above, inventories in crude oil
pipelines shall be limited to 175,000 barrels."
(b) paragraph (v)(D) of Schedule 4 is amended by deleting the text
thereof in its entirety and substituting the following therefor:
"(D) Inventory positions (other than fully hedged
cash-and-carry positions which qualify under subsection (C)
above) and positions which do not otherwise qualify under
subsection (C) above shall be limited to time spreads for
periods up to a maximum of twelve months for up to a maximum
of 500,000 barrels, in the aggregate for both PMCT Inc. and
Marketing, of crude oil hedged on the NYMEX."
(c) paragraph (xi) of Schedule 4 is amended by deleting
from the first sentence thereof the phrase "that certain Indenture dated as of
October 1, 1992 among Resources, certain subsidiaries and Ameritrust Texas
National Association" and substituting therefor the phrase "that certain
Indenture dated as of March 15, 1996 among Resources, certain subsidiaries of
Resources and Texas Commerce Bank National Association as Trustee, pursuant to
which Resources issued 10 1/4% Senior Subordinated Notes due 2006, Series A and
Series B, in the aggregate principal amount of $150,000,000".
<PAGE> 4
-4-
7. SECURITY. The Borrower hereby confirms that the reference to
"Marketing Letter Agreement" in the term "Marketing Obligations" as used in
that certain Security Agreement dated as of August 23, 1995 between Marketing
and the Agent includes the Marketing Letter Agreement as amended hereby and
that references to the Demand Loans and L/C's issued pursuant to the Marketing
Letter Agreement refers to all Demand Loans and L/C's issued pursuant to the
Marketing Letter Agreement, as amended hereby.
8. CONDITIONS PRECEDENT. This Amendment shall become effective
upon receipt by the Agent of the following:
(a) a counterpart of this Amendment duly signed where indicated
below by each Lender, the Agent, the Borrower and Plains Resources Inc.;
(b) a counterpart of the Instrument of Accession duly signed where
indicated by the Borrower and each Lender as indicated thereon, evidencing
Wells' accession to the Marketing Letter Agreement and certain other agreements
referenced therein;
(c) a promissory note (the "Wells Note") duly signed by the
Borrower evidencing the Borrower's obligations to repay to Wells the Demand
Loans advanced by Wells and any drawings under the L/C's funded by Wells in
form and substance of Exhibit I to the Marketing Letter Agreement;
(d) a counterpart of Amendment No. 4 to the PMCT Agreement duly
signed where indicated by PMCT, each Lender and the Agent;
(e) a legal opinion of even date herewith from the Borrower's
general counsel in form and substance satisfactory in all respects to the Agent
and its counsel;
(f) evidence satisfactory to the Agent that the execution and
delivery of this Amendment and the Wells Note have been duly authorized by all
necessary corporate action and that the Borrower is validly incorporated and in
good standing in all relevant jurisdictions;
(g) an acknowledgment from the lenders under the Resources Credit
Agreement that the terms of that certain letter agreement dated August 23, 1995
from the Agent to ING as Agent under the Resources Credit Agreement are in full
force and effect and applicable to the Marketing Letter Agreement as amended
hereby;
(h) a counterpart of the Security Agreement and Assignment of
Hedging Account and Agency Agreement in form and substance satisfactory to the
Agent duly executed by the Borrower, the Agent and Bear, Stearns Securities
Corp. in connection with the Borrower's commodity account #J278 0L60 00757 at
Bear, Stearns Securities Corp; and
<PAGE> 5
-5-
(i) a counterpart of the Security Agreement and Assignment of
Hedging Account and Agency Agreement in form and substance satisfactory to the
Agent duly executed by the Borrower, the Agent and Citicorp Futures Corporation
in connection with the Borrower's commodity account #10730 at Citicorp Futures
Corporation.
<PAGE> 6
-6-
If you agree to and accept the foregoing amendment, please so indicate
by signing a counterpart of this letter and returning it to the Agent. Upon
satisfaction of the conditions set forth in Section 8 hereof, this Amendment
shall take effect as a binding agreement among us, to be construed and
enforceable in accordance with the laws of The Commonwealth of Massachusetts.
PLAINS MARKETING &
TRANSPORTATION INC.
By: /s/ Phil Kramer
---------------------------------
Phil Kramer, Vice President
THE FIRST NATIONAL BANK OF BOSTON,
Individually and as Agent
By: /s/ Christopher Holmgren
---------------------------------
Christopher Holmgren, Director
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By: /s/ Robi Artman-Hodge
---------------------------------
Robi Artman-Hodge, Managing
Director
DEN NORSKE BANK ASA DEN NORSKE BANK ASA
By: /s/ William V. Moyer By: /s/ Byron L. Cooley
--------------------------------- ----------------------------------
William V. Moyer, Vice President Byron L. Cooley, Senior Vice
President
<PAGE> 7
-7-
COMERICA BANK-TEXAS
By: /s/ Daniel G. Steele
----------------------------------
Daniel G. Steele, Senior Vice
President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: /s/ Ann M. Rhoades
----------------------------------
Ann M. Rhoades, Vice President
<PAGE> 8
-8-
RATIFICATION OF GUARANTY
The undersigned Guarantor acknowledges and accepts the foregoing Amendment
and ratifies and confirms in all respects such Guarantor's obligations under
the Guaranty dated as of August 23, 1995 (the "Guaranty") executed and
delivered by the Guarantor to the Agent and the Lenders. The undersigned
Guarantor further agrees that references in the Guaranty to the Resources
Credit Agreement shall be references to the Third Amended and Restated Credit
Agreement dated as of April 11, 1996 among the undersigned Guarantor, ING as
agent and the lenders named therein.
PLAINS RESOURCES INC.
By: /s/ Phil Kramer
--------------------------------
Title: Vice President
<PAGE> 9
-9-
SCHEDULE 1
LENDER PERCENTAGES
<TABLE>
<CAPTION>
Lender Percentage
------ ----------
<S> <C>
The First National Bank of Boston 30.555556%
Internationale Nederlanden (U.S.)
Capital Corporation 30.555556%
Den Norske Bank ASA 16.666667%
Comerica Bank - Texas 11.111111%
Wells Fargo Bank (Texas),
National Association 11.111111%
==========
100%
</TABLE>
<PAGE> 1
EXHIBIT 10(k)
Dated as of November 22, 1996
PMCT Inc.
1600 Smith Street
Houston, TX 77002
Re: Amendment No. 4 to Uncommitted Secured
Demand Transactional Line of Credit Facility
Gentlemen:
Reference is made to that certain letter agreement outlining the
parameters of an uncommitted secured demand transactional line of credit
facility dated August 23, 1995 (as further amended to date and including all
exhibits, schedules and annexes thereto, the "PMCT Letter Agreement") among The
First National Bank of Boston ("FNBB"), Internationale Nederlanden (U.S.)
Capital Corporation ("ING"), Den Norske Bank ASA, Comerica Bank-Texas and such
other banks as may from time to time become parties thereto, (collectively, the
"Lenders") and FNBB, as agent for the Lenders (in such capacity, the "Agent")
and PMCT Inc. (the "Borrower"). All capitalized terms used herein without
definition which are defined in the PMCT Letter Agreement shall have the same
meaning herein as therein.
Wells Fargo Bank (Texas), National Association ("Wells") wishes to
become a party to the PMCT Letter Agreement as a Lender to the Borrower and
simultaneously with the execution hereof will execute an Instrument of
Accession in substantially the form attached as Exhibit A to the PMCT Letter
Agreement.
Borrower, the Lenders (which term for all purposes in this Amendment
shall include Wells) and the Agent wish to amend certain terms of the PMCT
Letter Agreement as follows:
1. FACILITY AMOUNT. Section 1(b) of the PMCT Letter Agreement is
hereby amended by deleting the first sentence thereof and substituting the
following therefor:
"The aggregate amount of the Accommodations which may be made available
by the Lenders and which will be allowed to be outstanding at any one
time under the PMCT Facility shall be restricted to the excess of (i)
$90,000,000 (subject to adjustment as set forth in the proviso below)
over (ii) the then aggregate amount of the outstanding Accommodations
made by the Lenders to or for the account of Plains Marketing &
<PAGE> 2
-2-
Accommodations made by the Lenders to or for the account of Plains
Marketing and Transportation Inc., a Delaware corporation ("MARKETING"),
under that certain letter agreement of even date herewith, as amended
and in effect from time to time (the "MARKETING AGREEMENT"), among the
Lenders, the Agent and Marketing (such difference in amount, as in
effect from time to time under the PMCT Facility, hereinafter referred
to as the "PMCT FACILITY AMOUNT"); provided that for purposes of
determining the PMCT Facility Amount, the amount set forth in clause (i)
of this Section 1(b) shall be limited to $80,000,000 until such time as
the Agent shall have received, in form and substance satisfactory to the
Agent, a copy of an amendment to the Resources Credit Agreement duly
executed by all parties thereto pursuant to which the lenders under the
Resources Credit Agreement consent to the increase to $90,000,000 of the
maximum aggregate PMCT Facility Amount available under this PMCT
Facility subject to decreases as provided in clause (ii) above and the
guaranty by Resources of such maximum amount of Accommodations available
under the Marketing Agreement."
2. EXPIRATION DATE. Section 1(e)(i) of the PMCT Letter Agreement is
hereby amended and restated in its entirety to read as follows:
"(e) EXPIRATION: (i) No request for any Accommodation may be
made after November 21, 1997, unless the Lenders, in their sole
discretion and without any obligation to do so, extend such date
in writing."
3. RESOURCES CREDIT AGREEMENT. Section 1(d)(iii) of the PMCT Letter
Agreement is hereby amended by deleting the phrase "that certain Second Amended
and Restated Credit Agreement dated as of February 11, 1994" and substituting
therefor the phrase "that certain Third Amended and Restated Credit Agreement
dated as of April 11, 1996", which Third Amended and Restated Credit Agreement
shall be the agreement referred to in the PMCT Letter Agreement as the
"Resources Credit Agreement".
4. CUSHING TERMINAL REPORT. Section 1(j) of the PMCT Letter
Agreement is hereby amended as follows:
(a) by deleting the reference to "Marketing Letter Agreement" in
clause (i) thereof and substituting the phrase "PMCT Letter Agreement"
therefor; and
(b) by renumbering the current clause (ix) to be clause (x) and by
inserting the following paragraph as a new clause (ix):
"(ix) on a monthly basis, a certificate signed by the Borrower's
chief financial officer, chief accounting officer or chief
operating officer certifying that as of a date which shall be not
more than one week prior to the date of the certificate the
<PAGE> 3
-3-
aggregate sum of (i) the aggregate current crude oil inventory
volumes held by the Borrower and/or Marketing, plus (ii) the
aggregate volume of current crude oil positions subject to time
spreads as described in paragraph (v)(D) of Schedule 4 of the
PMCT Letter Agreement for both the Borrower and Marketing, plus
(iii) the aggregate volume of all current cash and carry crude
oil positions for both the Borrower and Marketing, plus (iv) the
aggregate volume of all crude oil which the Borrower and/or
Marketing is otherwise obligated to take pursuant to the terms of
existent contracts, does not exceed the then currently available
crude oil storage capacity at the Cushing Terminal; and"
5. SCHEDULE 1. Schedule 1 to the PMCT Letter Agreement is hereby
amended by substituting therefor the Schedule 1 attached hereto.
6. FINANCIAL AND OTHER GUIDELINES. Schedule 4 to the PMCT Letter
Agreement is hereby amended as follows:
(a) paragraph (v)(C) of Schedule 4 is amended by deleting the text
thereof in its entirety and substituting the following therefor:
"(C) The aggregate of (a) crude oil pipeline inventory and (b)
crude oil inventory in the Cushing Terminal shall not exceed, in
the aggregate for both PMCT Inc. and Marketing, a maximum of
250,000 barrels and such barrels shall be hedged (i) on the NYMEX
for delivery within the next 6 months; provided that of such
aggregate amount up to 100,000 barrels may be hedged on the NYMEX
for delivery between the next 6 and 12 months or (ii) in the cash
market with counterparties satisfactory to the Lenders for
delivery within the next 60 days. Notwithstanding the above,
inventories in crude oil pipelines shall be limited to 175,000
barrels."
(b) paragraph (v)(D) of Schedule 4 is amended by deleting the text
thereof in its entirety and substituting the following therefor:
"(D) Inventory positions (other than fully hedged cash-and-
carry positions which qualify under subsection (C) above) and
positions which do not otherwise qualify under subsection (C)
above shall be limited to time spreads for periods up to a
maximum of twelve months for up to a maximum of 500,000 barrels,
in the aggregate for both PMCT Inc. and Marketing, of crude oil
hedged on the NYMEX."
(c) paragraph (xi) of Schedule 4 is amended by deleting from the
first sentence thereof the phrase "that certain Indenture dated as of October
1, 1992 among Resources, certain
<PAGE> 4
-4-
subsidiaries and Ameritrust Texas National Association" and substituting
therefor the phrase "that certain Indenture dated as of March 15, 1996 among
Resources, certain subsidiaries of Resources and Texas Commerce Bank National
Association as Trustee, pursuant to which Resources issued 10 1/4% Senior
Subordinated Notes due 2006, Series A and Series B, in the aggregate principal
amount of $150,000,000".
7. SECURITY. The Borrower hereby confirms that the reference to
"PMCT Letter Agreement" in the term "PMCT Obligations" as used in that certain
Security Agreement dated as of August 23, 1995 between PMCT and the Agent
includes the PMCT Letter Agreement as amended hereby and that references to the
Demand Loans and L/C's issued pursuant to the PMCT Letter Agreement refers to
all Demand Loans and L/C's issued pursuant to the PMCT Letter Agreement, as
amended hereby.
8. CONDITIONS PRECEDENT. This Amendment shall become effective upon
receipt by the Agent of the following:
(a) a counterpart of this Amendment duly signed where indicated below
by each Lender, the Agent and the Borrower;
(b) a counterpart of the Instrument of Accession duly signed where
indicated by the Borrower and each Lender as indicated thereon, evidencing
Wells' accession to the PMCT Letter Agreement and certain other agreements
referenced therein;
(c) a promissory note (the "Wells Note") duly signed by the Borrower
evidencing the Borrower's obligations to repay to Wells the Demand Loans
advanced by Wells and any drawings under the L/C's funded by Wells in form and
substance of Exhibit I to the PMCT Letter Agreement;
(d) a counterpart of Amendment No. 4 to the Marketing Agreement duly
signed where indicated by Marketing, each Lender, the Agent and Resources;
(e) a legal opinion of even date herewith from the Borrower's general
counsel in form and substance satisfactory in all respects to the Agent and its
counsel;
(f) evidence satisfactory to the Agent that the execution and
delivery of this Amendment and the Wells Note have been duly authorized by all
necessary corporate action and that the Borrower is validly incorporated and in
good standing in all relevant jurisdictions;
(g) an acknowledgment from the lenders under the Resources Credit
Agreement that the terms of that certain letter agreement dated August 23, 1995
from the Agent to ING as Agent
<PAGE> 5
-5-
under the Resources Credit Agreement are in full force and effect and
applicable to the PMCT Letter Agreement as amended hereby;
(h) a counterpart of the Security Agreement and Assignment of Hedging
Account and Agency Agreement in form and substance satisfactory to the Agent
duly executed by Marketing, the Agent and Bear, Stearns Securities Corp. in
connection with Marketing's commodity account #J278 0L60 00751 at Bear, Stearns
Securities Corp; and
(i) a counterpart of the Security Agreement and Assignment of Hedging
Account and Agency Agreement in form and substance satisfactory to the Agent
duly executed by Marketing, the Agent and Citicorp Futures Corporation in
connection with Marketing's commodity account #10730 at Citicorp Futures
Corporation.
<PAGE> 6
-6-
If you agree to and accept the foregoing amendment, please so indicate
by signing a counterpart of this letter and returning it to the Agent. Upon
satisfaction of the conditions set forth in Section 8 hereof, this Amendment
shall take effect as a binding agreement among us, to be construed and
enforceable in accordance with the laws of The Commonwealth of Massachusetts.
PMCT INC.
By: /s/ Phil Kramer
--------------------------------------
Phil Kramer, Vice President
THE FIRST NATIONAL BANK OF BOSTON,
Individually and as Agent
By: /s/ Christopher Holmgren
--------------------------------------
Christopher Holmgren, Director
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION
By: /s/Robi Artman-Hodge
--------------------------------------
Robi Artman-Hodge, Managing
Director
DEN NORSKE BANK ASA DEN NORSKE BANK ASA
By: /s/ William V. Moyer By: /s/ Byron L. Cooley
----------------------------------- ------------------------------------
William V. Moyer, Vice President Byron L. Cooley, Senior Vice
President
<PAGE> 7
-7-
COMERICA BANK-TEXAS
By: /s/ Daniel G. Steele
--------------------------------------
Daniel G. Steele, Senior Vice
President
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: /s/ Ann M. Rhoades
--------------------------------------
Ann M. Rhoades, Vice President
<PAGE> 8
-8-
SCHEDULE 1
LENDER PERCENTAGES
<TABLE>
<S> <C>
Lender Percentage
------ ----------
The First National Bank of Boston 30.555556%
Internationale Nederlanden (U.S.)
Capital Corporation 30.555556%
Den Norske Bank ASA 16.666667%
Comerica Bank - Texas 11.111111%
Wells Fargo Bank (Texas),
National Association 11.111111%
==========
100%
</TABLE>
<PAGE> 1
EXHIBIT 10(l)
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of August 27, 1996, between Plains Resources
Inc., a Delaware corporation (the "Company"), and Greg L. Armstrong (the
"Optionee").
WHEREAS, on May 23, 1996, the Board of Directors (the "Board") of the
Company authorized and empowered the Compensation Committee of the Board (the
"Compensation Committee") to grant to Greg L. Armstrong, President and Chief
Executive Officer of the Company, an option for the purchase of 300,000 shares
of the Company's common stock, $.10 per share par value ("Common Stock"), upon
such terms and provisions as the Compensation Committee deems to be in the best
interest of the Company; and
WHEREAS, pursuant to the authority granted by the Board, the
Compensation Committee has determined to grant an option to the Optionee as
provided herein.
NOW THEREFORE, the parties hereto agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right and option (the
"Option") to purchase, from time to time, all or any part of an aggregate of
300,000 whole shares of Common Stock (the "Option Shares") subject to, and in
accordance with, the terms and provisions set forth in this Agreement.
2. EXERCISE PRICE.
The price at which the Optionee shall be entitled to purchase the
Option Shares upon the exercise of the Option shall be $13.50 per share (the
"Exercise Price"), subject to adjustment from time to time in accordance with
the terms and provisions of this Agreement..
3. EXPIRATION DATE.
The Option shall be exercisable to the extent and in the manner
provided herein until 5:00 p.m., Houston time, on August 27, 2001 (the
"Expiration Date"): provided, however, that the Option may be earlier
terminated as provided in Paragraph 7 hereof.
4. EXERCISABILITY OF OPTION.
The Option shall not be exercisable by the Optionee, his guardian or
his legal representative unless and until one of the following events (a
"Vesting Event") occurs on or before the Expiration Date:
(a) The Per Share Market Value (as defined below) of the Common
Stock equals or exceeds the Vesting Price (as defined below)
for any 20 Trading Days (as defined below) in any 30
consecutive Trading Days.
(b) The distribution to the holders of the Company's Common Stock,
in connection with
<PAGE> 2
a merger or consolidation of the Company with another
corporation or entity, whether or not the Company is the
surviving entity, or the liquidation of the Company or the
sale or other disposition of substantially all of its assets
(such merger, consolidation, liquidation, or disposition of
assets being herein referred to as a "Transaction"), of
securities, cash or property having a value per share of such
Common Stock equal to or exceeding the Vesting Price.
Notwithstanding any other provision herein to the contrary, in
the event a Transaction is consummated (the date of such
consummation herein referred to as the "Consummation Date") on
or before August 27, 1999, the Option shall become exercisable
on the Consummation Date, if:
(i) the Per Share Market Value of the Common Stock
on the day prior to the Consummation Date equals or
exceeds $20.00 per share;
(ii) prior to the Consummation Date, the Per Share
Market Value of the Common Stock equals or exceeds
$20.00 per share for any 20 Trading Days in any 30
consecutive Trading Days; or
(iii) the securities, cash or property distributed in
such Transaction to the holders of the Company's
Common Stock has a value per share of such Common
Stock of $20.00 or more.
For purposes of this Paragraph 4 (b), the value of any
securities so distributed shall be determined on the same
basis set forth herein for determining the Per Share Market
Value of a share of Common Stock, and the value of any other
property so distributed shall be determined by a nationally
recognized or major regional investment banking firm or firm
of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the
financial statements of the Company) selected in good faith by
the Board of Directors of the Company.
(c) The death of the Optionee.
(d) The Disability (as defined below) of the Optionee.
(e) The Company terminates the employment of the Optionee, without
Cause (as defined below), in connection with or in
anticipation of a Change in Control (as defined below) of the
Company.
(f) A Change in Control of the Company occurs subsequent to August
27, 2000.
(g) Subsequent to August 27,1996, the Company terminates the
employment of the Optionee for any reason other than (i) Cause
or, (ii) a determination by at least a majority of the
Incumbent Board (as hereinafter defined), evidenced by a Board
resolution, that the Optionee has failed to perform his duties
consistent with the goals set forth in the Five Year Strategic
Plan adopted by the Board on November 9, 1995, and modified on
February 8, 1996, provided however, this clause (ii) shall be
null and void if the foregoing determination by the Incumbent
Board is made during a period within which Optionee could have
terminated his employment for Good Reason (as hereinafter
defined).
2
<PAGE> 3
(h) The Optionee terminates his employment with the Company for
Good Reason prior to August 27, 1999, and the Per Share Market
Value of the Common Stock prior to such date has equaled or
exceeded $20.00 per share for any 20 Trading Days in any 30
consecutive Trading Days.
From the date of the occurrence of a Vesting Event, the Option shall remain
exercisable until the Expiration Date unless the Company terminates the
Optionee's employment for Cause, in which case the Option will terminate in
accordance with Paragraph 7.1 below.
As used herein, the term "CAUSE" shall mean (i) the willful engaging
by the Optionee in gross misconduct resulting in demonstrable material injury
to the Company, or (ii) the nonappealable conviction of the Optionee of a
felony involving moral turpitude. For purposes of this definition, no act or
failure to act on the Optionee's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that his act or omission was in the best interest of the Company or
otherwise likely to result in no material injury thereto.
As used herein a "CHANGE IN CONTROL" shall be deemed to have occurred
if, prior to the Expiration Date of the Option;
(i) Any "person" for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), (A)
acquires beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) 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 ("Voting Stock"), and (B)
such person seeks to elect or cause to be elected two or more members
of the Company's Board of Directors or otherwise exerts or attempts to
exert a controlling influence on the management of the Company;
provided, however, that if the transaction in which such person
becomes the beneficial owner of 25% or more of the Voting Stock is
approved by a majority of the Incumbent Board (as defined below), such
transaction shall not be deemed to constitute a Change in Control, or
(ii) The individuals who are directors of the Company on the date
hereof (the "Incumbent Board") cease to constitute a majority of the
Board of Directors of the Company, provided, however, that if either
the election of any new director or the nomination for election of any
new director was approved by a majority of the Incumbent Board, such
new director shall be considered as a member of the Incumbent Board.
Notwithstanding the foregoing, a "Change in Control" of the Company shall not
be deemed to have occurred solely as a result of (i) 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 or (ii) 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.
3
<PAGE> 4
As used herein, the term "DISABILITY" shall mean a physical or mental
infirmity which impairs the Optionee's ability to perform substantially his
duties for a period of one hundred eighty (180) consecutive days or which the
Board determines constitutes a Disability.
As used herein, the term "PER SHARE MARKET VALUE" for any particular
date shall mean, (a) the last sale price per share of the Common Stock on such
date on the principal stock exchange on which the Common Stock has been listed
or if there is no such price on such date, then the last price on such exchange
on the date nearest preceding such date, or (b) if the Common Stock is not
listed on any stock exchange, the average between the high and low prices for a
share of Common Stock in the over-the -counter market, as reported by the
Nasdaq National Market at the close of business on such date, or the last sales
price if such price is reported and high and low prices are not available, or
(c) if the Common Stock is not quoted on the Nasdaq National Market, the
average between the high and low prices for a share of Common Stock in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices), or (d) if the Common Stock is no longer publicly traded,
as determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) selected in good faith by the Board of Directors of the Company,
provided that none of the transactions related to the foregoing shall include
purchases by the Optionee or any "affiliate" (as such term is defined in the
General Rules and Regulations under the Securities Act of 1933) of the Company.
As used herein, the term "VESTING PRICE" shall mean $24.00 per share
of Common Stock. Upon any adjustment of the Exercise Price pursuant to
Paragraph 10 hereof, the Vesting Price shall be adjusted, as of the date of
such adjustment of the Exercise Price, to that price determined by multiplying
the Vesting Price in effect immediately prior to such adjustment of the
Exercise Price by a fraction (i) the numerator of which shall be the Exercise
Price in effect immediately after such adjustment of the Exercise Price, and
(ii) the denominator of which shall be the Exercise Price in effect immediately
prior to such adjustment.
As used herein, the term "TRADING DAY" shall mean (a) a day on which
the Common Stock is traded on the principal stock exchange on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on any stock
exchange, a day on which the Common Stock is traded in the over-the-counter
market, as reported by the Nasdaq National Market, or (c) if the Common Stock
is not quoted on the Nasdaq National Market, a day on which the Common Stock is
traded in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices).
5. MANNER OF EXERCISE AND PAYMENT.
5.1 Subject to the terms and conditions of this Agreement, the
Option may be exercised by delivery of written notice to the Company, at its
principal executive office. Such notice shall state
4
<PAGE> 5
that the Optionee is electing to exercise the Option and the number of Option
Shares in respect of which the Option is being exercised and shall be signed by
the person or persons exercising the Option.
5.2 The notice of exercise shall be accompanied by the full
purchase price for the Option Shares in respect of which the Option is being
exercised, (i) in cash, (ii) by check or (iii) by transferring shares of
Common Stock to the Company (other than shares held by the Optionee for less
than 6 months prior to the date of exercise) the number of which shares shall
be determined by dividing the full purchase price for the Option Shares in
respect of which the Option is being exercised by the Per Share Market Value of
the Common Stock on the Trading Day preceding the date of exercise.
5.3 Upon receipt of the notice of exercise and full payment for
the Option Shares in respect of which the Option is being exercised, the
Company shall take such action as may be necessary promptly to effect the
transfer to the Optionee of the number of Option Shares as to which such
exercise was effective.
5.4 The Optionee shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to any Option Shares subject to
the Option until (i) the Option shall have been exercised pursuant to the terms
of this Agreement and the Optionee shall have paid the full purchase price for
the number of Option Shares in respect of which the Option was exercised, (ii)
the Company shall have issued and delivered the Option Shares to the Optionee,
and (iii) the Optionee's name shall have been entered as a stockholder of
record on the books of the Company, whereupon the Optionee shall have full
voting and other ownership rights with respect to such Option Shares.
6. COMPLIANCE WITH LAWS, RULES AND REGULATIONS.
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of the Company to sell or issue any Option Shares under the
Option shall be suspended during any period of time when the issuance of such
Option Shares would constitute a violation by Optionee or the Company of any
provisions of any law or regulation of any governmental authority. The Option
shall be subject to the requirements that, if at any time the Board shall, in
good faith and upon a reasonable basis, determine that the listing,
registration or qualification of the Option Shares upon any stock exchange or
under any state or federal law of the United States or any governmental
subdivision thereof, or the consent or approval of any governmental regulatory
body, or investment or other representation, are necessary or desirable in
connection with the issue or purchase of Option Shares, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent, approval or representations shall have been effected or obtained free
of any conditions not acceptable to the Board acting reasonably and in good
faith. In the event the Option Shares issuable on exercise of an Option are
not registered under the Securities Act of 1933, as amended (the "Act"), the
Company may imprint on the certificate for such Option Shares the following
legend which counsel for the Company considers necessary or advisable to comply
with the Act:
5
<PAGE> 6
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 or under the securities laws of any
state and may reoffered or sold only if registered or if an exemption
from registration is available."
Notwithstanding any other provision in this Agreement to the contrary,
if within 10 days preceding the Expiration Date, the Company is unable to issue
Option Shares under the Option, the term of the Option shall be extended and
written notice given to Optionee (at least 7 days prior to the Expiration Date)
of such extension so as to provide a reasonable opportunity for Optionee to
exercise the Option; provided, however, in no event shall such extension exceed
the period during which the Company was unable to issue Option Shares under the
Option plus 10 days.
7. TERMINATION OF OPTION
7.1 Notwithstanding any other provision in this Agreement to the
contrary, if on or before the Expiration Date of the Option, the Company
terminates the Optionee's employment with the Company, with Cause, the Option
shall terminate on the date of such termination and after such date no rights
thereunder may be exercised.
7.2 Notwithstanding any other provision in this Agreement to the
contrary, if prior to the date the Option becomes exercisable and on or before
the Expiration Date of the Option, the Optionee terminates his employment with
the Company, other than for Good Reason (as defined below) or as a result of
his Disability, the Option shall terminate on the date of such termination and
after such date no rights thereunder may be exercised.
As used herein, the term "GOOD REASON" shall mean (i) any
removal of the Optionee from, or any failure to re-elect the Optionee to the
positions of President and Chief Executive Officer of the Company, except in
connection with termination of Optionee's employment for Cause, (ii) a material
breach by the Company of the Optionee's Employment Agreement with the Company
dated as of March 1, 1993, as amended or replaced prior to the Expiration Date
of the Option, or (iii) a Change in Control of the Company.
8. NONTRANSFERABILITY.
The Option shall not be transferrable other than by will or by the
laws of descent and distribution. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee or his guardian or legal
representative.
9. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing in this Agreement shall be interpreted or construed to confer
upon the Optionee any right with respect to continuance of employment with the
Company, nor shall this Agreement interfere
6
<PAGE> 7
in any way with the right of the Company to terminate the Optionee's employment
at any time.
10. ADJUSTMENTS UPON CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
10.1 If the Company shall effect a subdivision or consolidation of
the Common Stock or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares of Common
Stock outstanding, without receiving compensation therefor in money, services,
or property, then the number of Option Shares purchasable under the Option and
the Exercise Price shall be appropriately adjusted in such a manner as to
entitle the Optionee to receive, upon exercise of the Option, for the same
aggregate consideration, the same total number of Option Shares and other
securities as he would have received after the happening of any of the events
described above had he exercised the Option in full immediately prior to such
event.
10.2 If (i) a Transaction described in Paragraph 4(b) is
consummated while the Option remains outstanding, and (ii) the Option becomes
exercisable as a result of such Transaction, (x) Optionee shall be entitled
upon exercise of the Option, to receive, in lieu of Option Shares, the number
and class or classes of shares of such stock or other securities or property to
which Optionee would have been entitled if, immediately prior to such
Transaction, Optionee had been the holder of the Option Shares or (y) the
Option may be canceled by the Board as of the Consummation Date of any such
Transaction upon payment to Optionee in cash equal to the amount by which the
value (as determined in good faith by the Board) of the securities or property
to which Optionee would have been entitled if, immediately prior to such
Transaction, Optionee had been the holder of the Option Shares exceeds the
aggregate Exercise Price of the Option Shares.
10.3 If the Company shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price less than the Per Share Market Value of Common Stock on the
record date of such issuance, the Exercise Price shall be reduced by
multiplying the Exercise Price in effect prior to such record date by a
fraction, of which the denominator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of such
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Per Share Market Price. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock, the issuance of
which resulted in an adjustment in the Exercise Price pursuant to this
paragraph 10.3, if any such right or warrant shall expire and shall not have
been exercised, the Exercise Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been had the adjustment of the Exercise Price made
upon the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights or warrants actually
exercised.
7
<PAGE> 8
10.4 If the Company shall distribute to all holders of Common Stock
evidences of its indebtedness or assets (excluding cash dividends or cash
distributions paid out of earned surplus) or rights or warrants to subscribe
for or purchase any security (excluding those referred to in paragraph 10.3
above) then in each such case the Exercise Price shall be determined by
multiplying the Exercise Price in effect prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction, of which the denominator shall be the Per Share Market Value of the
Common Stock on the record date, and of which the numerator shall be such Per
Share Market Value of the Common Stock, less the then fair market value (as
determined by the Board of the Company in good faith, whose determination
shall be conclusive if made in good faith; provided, however that in the event
of a distribution or series of related distributions exceeding 10% of the net
assets of the Company, then such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company)
selected in good faith by the Board of the Company, and in either case shall be
described in a statement provided to the Optionee) of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
10.5 If conditions shall arise by reason of action taken by the
Company, which, in the opinion of the Board of the Company, are not adequately
covered by the other provisions hereof and which might reasonably be expected
to materially and adversely affect the rights of the Optionee hereunder, or if
any such conditions are expected to arise by reason of any action contemplated
by the Company, the Board of the Company shall appoint a firm of independent
certified public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company), who shall give
their opinion as to the adjustment, if any (not inconsistent with the
standards established in this paragraph 10), of the Exercise Price (including,
if necessary, any adjustment as to the securities which may be purchased
hereunder) which is or would be required to preserve without dilution the
rights of the Optionee hereunder. The Board of the Company shall make the
adjustment recommended forthwith upon receipt of such opinion or the taking of
any such action contemplated, as the case may be: provided, however, that no
such adjustment of the Exercise Price shall be made which in the opinion of the
investment banking firm or firm of accountants giving the aforesaid opinion
would result in an increase of the Exercise Price to more than the Exercise
Price then in effect.
Except as hereinbefore expressly provided, the issue by the Company of
shares of any class, or securities convertible into shares of any class, for
cash or property, or for labor or services either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to the number or exercise price of Option Shares then subject to
the Option.
8
<PAGE> 9
11. WITHHOLDING OF TAXES.
Prior to the issuance of the Option Shares for an exercise of the
Option, the Optionee shall pay to the Company any federal, state and local
income taxes and other amounts (the "Withholding Taxes") as may be required by
law to be withheld. In satisfaction of the Withholding Taxes, the Optionee may
transfer shares of Common Stock to the Company (other than shares held by
Optionee for less than 6 months prior to the date of exercise) the number of
which shares shall be determined by dividing the total amount of the
Withholding Taxes by the Per Share Market Value on the Trading Day preceding
the date of exercise.
12. MODIFICATION OF AGREEMENT.
This Agreement may be modified, amended, suspended or terminated, and
any terms and conditions may be waived, but only by a written instrument
executed by the parties hereto.
13. SEVERABILITY.
Should any provision of the Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
14. GOVERNING LAW.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without giving
effect to the conflicts of laws principles thereof.
15. SUCCESSORS IN INTEREST.
This Agreement shall inure to the benefit of and be binding upon any
successor to the Company. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee
and all rights granted to the Company under this Agreement shall be final,
binding and conclusive upon the Optionee's heirs, executors, administrators and
legal representatives.
Attest: PLAINS RESOURCES INC.
/s/ Michael R. Patterson by: /s/ Tom H. Delimitros
------------------------------- ----------------------------
Secretary Chairman of the Compensation
Committee
/s/ Greg L. Armstrong
----------------------------
GREG L. ARMSTRONG, OPTIONEE
9
<PAGE> 1
EXHIBIT 10(m)
STOCK OPTION AGREEMENT
THIS AGREEMENT, made as of August 27, 1996, between Plains Resources
Inc., a Delaware corporation (the "Company"), and William C. Egg, Jr. (the
"Optionee").
WHEREAS, on May 23, 1996, the Board of Directors (the "Board") of the
Company authorized and empowered the Compensation Committee of the Board (the
"Compensation Committee") to grant to William C. Egg, Jr., Senior Vice
President of the Company, an option for the purchase of 200,000 shares of the
Company's common stock, $.10 per share par value ("Common Stock"), upon such
terms and provisions as the Compensation Committee deems to be in the best
interest of the Company; and
WHEREAS, pursuant to the authority granted by the Board, the
Compensation Committee has determined to grant an option to the Optionee as
provided herein.
NOW THEREFORE, the parties hereto agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right and option (the
"Option") to purchase, from time to time, all or any part of an aggregate of
200,000 whole shares of Common Stock (the "Option Shares") subject to, and in
accordance with, the terms and provisions set forth in this Agreement.
2. EXERCISE PRICE.
The price at which the Optionee shall be entitled to purchase the
Option Shares upon the exercise of the Option shall be $13.50 per share (the
"Exercise Price"), subject to adjustment from time to time in accordance with
the terms and provisions of this Agreement..
3. EXPIRATION DATE.
The Option shall be exercisable to the extent and in the manner
provided herein until 5:00 p.m., Houston time, on August 27, 2001 (the
"Expiration Date"): provided, however, that the Option may be earlier
terminated as provided in Paragraph 7 hereof.
4. EXERCISABILITY OF OPTION.
The Option shall not be exercisable by the Optionee, his guardian or
his legal representative unless and until one of the following events (a
"Vesting Event") occurs on or before the Expiration Date:
(a) The Per Share Market Value (as defined below) of the Common
Stock equals or exceeds the Vesting Price (as defined below)
for any 20 Trading Days (as defined below) in any 30
consecutive Trading Days.
(b) The distribution to the holders of the Company's Common Stock,
in connection with
<PAGE> 2
a merger or consolidation of the Company with another
corporation or entity, whether or not the Company is the
surviving entity, or the liquidation of the Company or the
sale or other disposition of substantially all of its assets
(such merger, consolidation, liquidation, or disposition of
assets being herein referred to as a "Transaction"), of
securities, cash or property having a value per share of such
Common Stock equal to or exceeding the Vesting Price.
Notwithstanding any other provision herein to the contrary, in
the event a Transaction is consummated (the date of such
consummation herein referred to as the "Consummation Date") on
or before August 27, 1999, the Option shall become exercisable
on the Consummation Date, if:
(i) the Per Share Market Value of the Common Stock
on the day prior to the Consummation Date equals or
exceeds $20.00 per share;
(ii) prior to the Consummation Date, the Per Share
Market Value of the Common Stock equals or exceeds
$20.00 per share for any 20 Trading Days in any 30
consecutive Trading Days; or
(iii) the securities, cash or property distributed in
such Transaction to the holders of the Company's
Common Stock has a value per share of such Common
Stock of $20.00 or more.
For purposes of this Paragraph 4 (b), the value of any
securities so distributed shall be determined on the same
basis set forth herein for determining the Per Share Market
Value of a share of Common Stock, and the value of any other
property so distributed shall be determined by a nationally
recognized or major regional investment banking firm or firm
of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the
financial statements of the Company) selected in good faith by
the Board of Directors of the Company.
(c) The death of the Optionee.
(d) The Disability (as defined below) of the Optionee.
(e) The Company terminates the employment of the Optionee, without
Cause (as defined below), in connection with or in
anticipation of a Change in Control (as defined below) of the
Company.
(f) A Change in Control of the Company occurs subsequent to
August 27, 2000.
(g) Subsequent to August 27,1996, the Company terminates the
employment of the Optionee for any reason other than (i) Cause
or, (ii) a determination by at least a majority of the
Incumbent Board (as hereinafter defined), evidenced by a Board
resolution, that the Optionee has failed to perform his duties
consistent with the goals set forth in the Five Year Strategic
Plan adopted by the Board on November 9, 1995, and modified on
February 8, 1996, provided however, this clause (ii) shall be
null and void if the foregoing determination by the Incumbent
Board is made during a period within which Optionee could have
terminated his employment for Good Reason (as hereinafter
defined).
2
<PAGE> 3
(h) The Optionee terminates his employment with the Company for
Good Reason prior to August 27, 1999, and the Per Share Market
Value of the Common Stock prior to such date has equaled or
exceeded $20.00 per share for any 20 Trading Days in any 30
consecutive Trading Days.
From the date of the occurrence of a Vesting Event, the Option shall remain
exercisable until the Expiration Date unless the Company terminates the
Optionee's employment for Cause, in which case the Option will terminate in
accordance with Paragraph 7.1 below.
As used herein, the term "CAUSE" shall mean (i) the willful engaging
by the Optionee in gross misconduct resulting in demonstrable material injury
to the Company, or (ii) the nonappealable conviction of the Optionee of a
felony involving moral turpitude. For purposes of this definition, no act or
failure to act on the Optionee's part shall be considered "willful" unless
done, or omitted to be done, by him not in good faith and without reasonable
belief that his act or omission was in the best interest of the Company or
otherwise likely to result in no material injury thereto.
As used herein a "CHANGE IN CONTROL" shall be deemed to have occurred
if, prior to the Expiration Date of the Option;
(i) Any "person" for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), (A)
acquires beneficial ownership (within the meaning of Rule 13d-3
promulgated under the 1934 Act) 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 ("Voting Stock"), and (B)
such person seeks to elect or cause to be elected two or more members
of the Company's Board of Directors or otherwise exerts or attempts to
exert a controlling influence on the management of the Company;
provided, however, that if the transaction in which such person
becomes the beneficial owner of 25% or more of the Voting Stock is
approved by a majority of the Incumbent Board (as defined below), such
transaction shall not be deemed to constitute a Change in Control, or
(ii) The individuals who are directors of the Company on the date
hereof (the "Incumbent Board") cease to constitute a majority of the
Board of Directors of the Company, provided, however, that if either
the election of any new director or the nomination for election of any
new director was approved by a majority of the Incumbent Board, such
new director shall be considered as a member of the Incumbent Board.
Notwithstanding the foregoing, a "Change in Control" of the Company shall not
be deemed to have occurred solely as a result of (i) 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 or (ii) 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.
3
<PAGE> 4
As used herein, the term "DISABILITY" shall mean a physical or mental
infirmity which impairs the Optionee's ability to perform substantially his
duties for a period of one hundred eighty (180) consecutive days or which the
Board determines constitutes a Disability.
As used herein, the term "PER SHARE MARKET VALUE" for any particular
date shall mean, (a) the last sale price per share of the Common Stock on such
date on the principal stock exchange on which the Common Stock has been listed
or if there is no such price on such date, then the last price on such exchange
on the date nearest preceding such date, or (b) if the Common Stock is not
listed on any stock exchange, the average between the high and low prices for a
share of Common Stock in the over-the -counter market, as reported by the
Nasdaq National Market at the close of business on such date, or the last sales
price if such price is reported and high and low prices are not available, or
(c) if the Common Stock is not quoted on the Nasdaq National Market, the
average between the high and low prices for a share of Common Stock in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding to its functions
of reporting prices), or (d) if the Common Stock is no longer publicly traded,
as determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) selected in good faith by the Board of Directors of the Company,
provided that none of the transactions related to the foregoing shall include
purchases by the Optionee or any "affiliate" (as such term is defined in the
General Rules and Regulations under the Securities Act of 1933) of the Company.
As used herein, the term "VESTING PRICE" shall mean $24.00 per share
of Common Stock. Upon any adjustment of the Exercise Price pursuant to
Paragraph 10 hereof, the Vesting Price shall be adjusted, as of the date of
such adjustment of the Exercise Price, to that price determined by multiplying
the Vesting Price in effect immediately prior to such adjustment of the
Exercise Price by a fraction (i) the numerator of which shall be the Exercise
Price in effect immediately after such adjustment of the Exercise Price, and
(ii) the denominator of which shall be the Exercise Price in effect immediately
prior to such adjustment.
As used herein, the term "TRADING DAY" shall mean (a) a day on which
the Common Stock is traded on the principal stock exchange on which the Common
Stock has been listed, or (b) if the Common Stock is not listed on any stock
exchange, a day on which the Common Stock is traded in the over-the-counter
market, as reported by the Nasdaq National Market, or (c) if the Common Stock
is not quoted on the Nasdaq National Market, a day on which the Common Stock is
traded in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding to its
functions of reporting prices).
5. MANNER OF EXERCISE AND PAYMENT.
5.1 Subject to the terms and conditions of this Agreement, the
Option may be exercised by delivery of written notice to the Company, at its
principal executive office. Such notice shall state
4
<PAGE> 5
that the Optionee is electing to exercise the Option and the number of Option
Shares in respect of which the Option is being exercised and shall be signed by
the person or persons exercising the Option.
5.2 The notice of exercise shall be accompanied by the full
purchase price for the Option Shares in respect of which the Option is being
exercised, (i) in cash, (ii) by check or (iii) by transferring shares of
Common Stock to the Company (other than shares held by the Optionee for less
than 6 months prior to the date of exercise) the number of which shares shall
be determined by dividing the full purchase price for the Option Shares in
respect of which the Option is being exercised by the Per Share Market Value of
the Common Stock on the Trading Day preceding the date of exercise.
5.3 Upon receipt of the notice of exercise and full payment for
the Option Shares in respect of which the Option is being exercised, the
Company shall take such action as may be necessary promptly to effect the
transfer to the Optionee of the number of Option Shares as to which such
exercise was effective.
5.4 The Optionee shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to any Option Shares subject to
the Option until (i) the Option shall have been exercised pursuant to the terms
of this Agreement and the Optionee shall have paid the full purchase price for
the number of Option Shares in respect of which the Option was exercised, (ii)
the Company shall have issued and delivered the Option Shares to the Optionee,
and (iii) the Optionee's name shall have been entered as a stockholder of
record on the books of the Company, whereupon the Optionee shall have full
voting and other ownership rights with respect to such Option Shares.
6. COMPLIANCE WITH LAWS, RULES AND REGULATIONS.
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of the Company to sell or issue any Option Shares under the
Option shall be suspended during any period of time when the issuance of such
Option Shares would constitute a violation by Optionee or the Company of any
provisions of any law or regulation of any governmental authority. The Option
shall be subject to the requirements that, if at any time the Board shall, in
good faith and upon a reasonable basis, determine that the listing,
registration or qualification of the Option Shares upon any stock exchange or
under any state or federal law of the United States or any governmental
subdivision thereof, or the consent or approval of any governmental regulatory
body, or investment or other representation, are necessary or desirable in
connection with the issue or purchase of Option Shares, the Option may not be
exercised in whole or in part unless such listing, registration, qualification,
consent, approval or representations shall have been effected or obtained free
of any conditions not acceptable to the Board acting reasonably and in good
faith. In the event the Option Shares issuable on exercise of an Option are
not registered under the Securities Act of 1933, as amended (the "Act"), the
Company may imprint on the certificate for such Option Shares the following
legend which counsel for the Company considers necessary or advisable to comply
with the Act:
5
<PAGE> 6
"The shares represented by this certificate have not been registered
under the Securities Act of 1933 or under the securities laws of any
state and may reoffered or sold only if registered or if an exemption
from registration is available."
Notwithstanding any other provision in this Agreement to the contrary,
if within 10 days preceding the Expiration Date, the Company is unable to issue
Option Shares under the Option, the term of the Option shall be extended and
written notice given to Optionee (at least 7 days prior to the Expiration Date)
of such extension so as to provide a reasonable opportunity for Optionee to
exercise the Option; provided, however, in no event shall such extension exceed
the period during which the Company was unable to issue Option Shares under the
Option plus 10 days.
7. TERMINATION OF OPTION
7.1 Notwithstanding any other provision in this Agreement to the
contrary, if on or before the Expiration Date of the Option, the Company
terminates the Optionee's employment with the Company, with Cause, the Option
shall terminate on the date of such termination and after such date no rights
thereunder may be exercised.
7.2 Notwithstanding any other provision in this Agreement to the
contrary, if prior to the date the Option becomes exercisable and on or before
the Expiration Date of the Option, the Optionee terminates his employment with
the Company, other than for Good Reason (as defined below) or as a result of
his Disability, the Option shall terminate on the date of such termination and
after such date no rights thereunder may be exercised.
As used herein, the term "GOOD REASON" shall mean (i) any
removal of the Optionee from, or any failure to re-elect the Optionee to the
positions of President and Chief Executive Officer of the Company, except in
connection with termination of Optionee's employment for Cause, (ii) a material
breach by the Company of the Optionee's Employment Agreement with the Company
dated as of March 1, 1993, as amended or replaced prior to the Expiration Date
of the Option, or (iii) a Change in Control of the Company.
8. NONTRANSFERABILITY.
The Option shall not be transferrable other than by will or by the
laws of descent and distribution. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee or his guardian or legal
representative.
9. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing in this Agreement shall be interpreted or construed to confer
upon the Optionee any right with respect to continuance of employment with the
Company, nor shall this Agreement
6
<PAGE> 7
interfere in any way with the right of the Company to terminate the Optionee's
employment at any time.
10. ADJUSTMENTS UPON CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
10.1 If the Company shall effect a subdivision or consolidation of
the Common Stock or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares of Common
Stock outstanding, without receiving compensation therefor in money, services,
or property, then the number of Option Shares purchasable under the Option and
the Exercise Price shall be appropriately adjusted in such a manner as to
entitle the Optionee to receive, upon exercise of the Option, for the same
aggregate consideration, the same total number of Option Shares and other
securities as he would have received after the happening of any of the events
described above had he exercised the Option in full immediately prior to such
event.
10.2 If (i) a Transaction described in Paragraph 4(b) is
consummated while the Option remains outstanding, and (ii) the Option becomes
exercisable as a result of such Transaction, (x) Optionee shall be entitled
upon exercise of the Option, to receive, in lieu of Option Shares, the number
and class or classes of shares of such stock or other securities or property to
which Optionee would have been entitled if, immediately prior to such
Transaction, Optionee had been the holder of the Option Shares or (y) the
Option may be canceled by the Board as of the Consummation Date of any such
Transaction upon payment to Optionee in cash equal to the amount by which the
value (as determined in good faith by the Board) of the securities or property
to which Optionee would have been entitled if, immediately prior to such
Transaction, Optionee had been the holder of the Option Shares exceeds the
aggregate Exercise Price of the Option Shares.
10.3 If the Company shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price less than the Per Share Market Value of Common Stock on the
record date of such issuance, the Exercise Price shall be reduced by
multiplying the Exercise Price in effect prior to such record date by a
fraction, of which the denominator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of such
issuance of such rights or warrants plus the number of additional shares of
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Per Share Market Price. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock, the issuance of
which resulted in an adjustment in the Exercise Price pursuant to this
paragraph 10.3, if any such right or warrant shall expire and shall not have
been exercised, the Exercise Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been had the adjustment of the Exercise Price made
upon the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights or warrants actually
exercised.
7
<PAGE> 8
10.4 If the Company shall distribute to all holders of Common Stock
evidences of its indebtedness or assets (excluding cash dividends or cash
distributions paid out of earned surplus) or rights or warrants to subscribe
for or purchase any security (excluding those referred to in paragraph 10.3
above) then in each such case the Exercise Price shall be determined by
multiplying the Exercise Price in effect prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction, of which the denominator shall be the Per Share Market Value of the
Common Stock on the record date, and of which the numerator shall be such Per
Share Market Value of the Common Stock, less the then fair market value (as
determined by the Board of the Company in good faith, whose determination
shall be conclusive if made in good faith; provided, however that in the event
of a distribution or series of related distributions exceeding 10% of the net
assets of the Company, then such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company)
selected in good faith by the Board of the Company, and in either case shall be
described in a statement provided to the Optionee) of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
10.5 If conditions shall arise by reason of action taken by the
Company, which, in the opinion of the Board of the Company, are not adequately
covered by the other provisions hereof and which might reasonably be expected
to materially and adversely affect the rights of the Optionee hereunder, or if
any such conditions are expected to arise by reason of any action contemplated
by the Company, the Board of the Company shall appoint a firm of independent
certified public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company), who shall give
their opinion as to the adjustment, if any (not inconsistent with the
standards established in this paragraph 10), of the Exercise Price (including,
if necessary, any adjustment as to the securities which may be purchased
hereunder) which is or would be required to preserve without dilution the
rights of the Optionee hereunder. The Board of the Company shall make the
adjustment recommended forthwith upon receipt of such opinion or the taking of
any such action contemplated, as the case may be: provided, however, that no
such adjustment of the Exercise Price shall be made which in the opinion of the
investment banking firm or firm of accountants giving the aforesaid opinion
would result in an increase of the Exercise Price to more than the Exercise
Price then in effect.
Except as hereinbefore expressly provided, the issue by the Company of
shares of any class, or securities convertible into shares of any class, for
cash or property, or for labor or services either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to the number or exercise price of Option Shares then subject to
the Option.
8
<PAGE> 9
11. WITHHOLDING OF TAXES.
Prior to the issuance of the Option Shares for an exercise of the
Option, the Optionee shall pay to the Company any federal, state and local
income taxes and other amounts (the "Withholding Taxes") as may be required by
law to be withheld. In satisfaction of the Withholding Taxes, the Optionee may
transfer shares of Common Stock to the Company (other than shares held by
Optionee for less than 6 months prior to the date of exercise) the number of
which shares shall be determined by dividing the total amount of the
Withholding Taxes by the Per Share Market Value on the Trading Day preceding
the date of exercise.
12. MODIFICATION OF AGREEMENT.
This Agreement may be modified, amended, suspended or terminated, and
any terms and conditions may be waived, but only by a written instrument
executed by the parties hereto.
13. SEVERABILITY.
Should any provision of the Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
14. GOVERNING LAW.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without giving
effect to the conflicts of laws principles thereof.
15. SUCCESSORS IN INTEREST.
This Agreement shall inure to the benefit of and be binding upon any
successor to the Company. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee
and all rights granted to the Company under this Agreement shall be final,
binding and conclusive upon the Optionee's heirs, executors, administrators and
legal representatives.
<TABLE>
<S> <C>
Attest: PLAINS RESOURCES INC.
/s/ Michael R. Patterson by: /s/ Tom H. Delimitros
------------------------------- ----------------------------------
Secretary Chairman of the Compensation Committee
/s/ William C. Egg, Jr.
------------------------------------------
William C. Egg, Jr., OPTIONEE
</TABLE>
9
<PAGE> 1
EXHIBIT 10(n)
AMENDMENT OF 1992 STOCK INCENTIVE PLAN
1. Article 8 of the Plan is hereby amended and restated in its entirety to
read as follows:
8. Awards to Non-employee Directors in Lieu of Regular Meeting
Attendance Fees.
Each Non-employee Director shall have the right to make an
annual election to receive Shares (a "Shares Election") in lieu of
regular meeting attendance fees (excluding attendance fees for special
meetings, committee meetings and telephonic meetings) earned for
service on the Board in the year following receipt by the Company of a
Shares Election.
8.1 Shares Election. A Non-employee Director may make a
Shares Election by written notice to the Secretary of the Company on
or before each annual stockholders' meeting and such election shall be
irrevocable and remain in effect for a one-year period which shall
begin on the day of the annual stockholders' meeting and end on the
day before the succeeding annual stockholders' meeting (the "Election
Year"). Provided, however, a Non-employee Director who is elected or
appointed to the Board at a time other than the annual stockholders'
meeting may make a Shares Election by written notice to the Secretary
of the Company within 10 days after the date his term begins and such
election shall remain in effect for the remainder of the Election
Year.
8.2 Issuance of Shares. After each regular meeting of
the Board, the Company shall award to each Non-employee Director who
made a Shares Election and attended such meeting, a number of Shares
(rounded to the nearest whole Share) determined by dividing the amount
of the fee to which he would have otherwise been entitled for
attendance at such meeting by the Fair Market Value of a Share on the
date of such meeting. Certificates for the Shares awarded shall be
issued to the recipient Non-employee Director as soon as practicable
and thereupon the recipient Non-employee Director shall have full
voting, dividend and other ownership rights with respect to such
Shares.
2. Section 9.1 of the Plan is hereby amended and restated in its entirety to
read as follows:
9.1 The Plan shall terminate June 1, 2002, and no Options or
awards of Shares may be granted thereafter. The Board may sooner
terminate or, except as otherwise provided herein, amend the Plan at
any time and from time to time.
ADOPTED BY PLAINS RESOURCES INC. BOARD OF DIRECTORS ON FEBRUARY 6, 1997.
<PAGE> 1
Exhibit 11 (A)
EXHIBIT
Computation of Earnings Per Share
Year Ended December 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Assuming
Primary Full Dilution
-------------- --------------
<S> <C> <C>
Weighted average common shares outstanding 16,384 16,384
Other dilutive securities 1,348 1,707
-------------- --------------
Total shares outstanding for calculation 17,732 18,091
============== ==============
Net income before extraordinary item - as reported $ 21,652 $ 21,652
Extraordinary item, loss on early extinguishment
of debt, net of tax benefit (5,104) (5,104)
-------------- --------------
Net income for calculation $ 16,548 $ 16,548
============== ==============
Net income (loss) per share
Before extraordinary item $ 1.22 $ 1.19
Extraordinary item $ (0.29) $ (0.28)
--------------- ---------------
Net income per share $ 0.93 $ 0.91
============== ==============
</TABLE>
<PAGE> 1
Exhibit 11 (B)
EXHIBIT
Computation of Earnings Per Share
Year Ended December 31, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
Assuming
Primary Full Dilution
-------------- --------------
<S> <C> <C>
Weighted average common shares outstanding 13,859 13,859
Other dilutive securities 2,122 2,313
-------------- --------------
Total shares outstanding for calculation 15,981 16,172
============== ==============
Net income - as reported $ 2,652 $ 2,652
Deduct: Dividends on Cumulative
Convertible Preferred Stock (42) (42)
-------------- --------------
Net income for calculation $ 2,610 $ 2,610
============== ==============
Net income per share $ .16 $ .16
============== ==============
</TABLE>
<PAGE> 1
Exhibit 11 (C)
EXHIBIT
Computation of Earnings Per Share
Year Ended December 31, 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
Assuming
Primary Full Dilution
------------- --------------
<S> <C> <C>
Weighted average common shares outstanding 11,576 11,576
Other dilutive securities 49 1,694
------------- --------------
Total shares outstanding for calculation 11,625 13,270
============= ==============
Net income - as reported $ 571 $ 571
Deduct: Dividends on Cumulative
Convertible Preferred Stock (62) (62)
------------- --------------
Net income for calculation $ 509 $ 509
============= ==============
Net income per share $ .04 $ .04
============= ==============
</TABLE>
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF PLAINS RESOURCES INC.
o PMCT INC.
o Plains Terminal & Transfer Corporation
o Plains Marketing & Transportation Inc.
o Plains Resources International Inc.
o PLX Crude Lines Inc.
o Stocker Resources Inc.
o Calumet Florida, Inc.
o Plains Illinois Inc.
o PLX Ingleside Inc.
o Stocker Resources, L.P.
<PAGE> 1
Exhibit 23.(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each of the Registration
Statements on Form S-8 (Nos. 3332565, 33-43788, 33-53802 and 333-06191) of
Plains Resources Inc. of our report dated February 10, 1997 appearing on page
F-2 of this Form 10-K.
PRICE WATERHOUSE LLP
Houston, Texas
February 10, 1997
<PAGE> 1
Exhibit 23.(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in each Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-80364,
333-01851, 33-84064) of Plains Resources Inc. of our report dated February 10,
1997 appearing on page F-2 of the Annual Report on Form 10-K for the year ended
December 31, 1996.
PRICE WATERHOUSE LLP
Houston, Texas
February 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31,
1996, AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,517
<SECURITIES> 0
<RECEIVABLES> 93,686
<ALLOWANCES> 0
<INVENTORY> 4,563
<CURRENT-ASSETS> 101,858
<PP&E> 469,114
<DEPRECIATION> 158,074
<TOTAL-ASSETS> 430,249
<CURRENT-LIABILITIES> 106,701
<BONDS> 225,399
<COMMON> 1,652
0
0
<OTHER-SE> 93,920
<TOTAL-LIABILITY-AND-EQUITY> 430,249
<SALES> 629,299
<TOTAL-REVENUES> 629,608
<CGS> 560,902
<TOTAL-COSTS> 582,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,286
<INCOME-PRETAX> 17,754
<INCOME-TAX> (3,898)
<INCOME-CONTINUING> 21,652
<DISCONTINUED> 0
<EXTRAORDINARY> (5,104)
<CHANGES> 0
<NET-INCOME> 16,548
<EPS-PRIMARY> .93
<EPS-DILUTED> .91
</TABLE>
