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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, 1997
[ ] 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)
500 Dallas
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:
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<S> <C>
Title of each class: Name of each exchange on which registered:
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Common Stock, par value $.10 per share American Stock Exchange
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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
$284,421,835 on March 24, 1998 (based on $17 3/8 per share, the last sale
price of the Common Stock as reported on the American Stock Exchange Composite
Tape on such date).
16,744,272 shares of the registrant's Common Stock were outstanding as of March
20, 1998.
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. [x]
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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 California in the Los Angeles Basin (the "LA
Basin") and the Arroyo Grande Field (collectively the "California Properties"),
the Sunniland Trend of South Florida (the "Sunniland Trend") and the Illinois
Basin in southern Illinois (the "Illinois Basin"). The Company's midstream
marketing, terminalling and storage activities are concentrated in Oklahoma,
Texas, the Gulf Coast area of Louisiana and California. The Company's upstream
operations contributed approximately 87% of the Company's earnings before
interest, taxes, depreciation, depletion and amortization ("EBITDA") for the
fiscal year ending December 31, 1997, while the Company's midstream activities
accounted for the remainder. The Company conducts its upstream operations in
each of its three core areas through wholly owned subsidiaries. The California
Properties are operated by Stocker Resources Inc. ("Stocker"), the Sunniland
Trend properties are operated by Calumet Florida Inc. ("Calumet") and the
Illinois Basin Properties are operated by Plains Illinois Inc. ("Plains
Illinois"). The Company's midstream operations are conducted through various
wholly owned subsidiaries (referred to collectively as "Plains Marketing").
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 upstream business strategy is to increase its proved
reserves and cash flow by exploiting and producing crude oil and associated
natural gas from its existing properties, acquiring additional underdeveloped
crude 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. 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. The Company also seeks to capitalize on midstream
opportunities that exist as a result of inefficiencies within the crude oil
markets and the U.S. pipeline and transportation infrastructure. On March 21,
1998, Plains All American Inc. ("Plains All American"), a wholly owned
subsidiary of the Company, entered into a definitive agreement to acquire all of
the outstanding capital stock of the All American Pipeline Company, Celeron
Gathering Corporation and Celeron Trading & Transportation Company
(collectively, the "Celeron Companies") from The Goodyear Tire & Rubber Company
("Goodyear"). Aggregate proceeds to Goodyear through closing are estimated at
$420 million. The transaction is expected to be completed in
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/(1)/ As used in this Report, "Bbl" means barrel, "MBbl" means thousand
barrels, "MMBbl" means million barrels, "Mcf" means thousand cubic feet,
"MMcf" means million cubic feet, "Bcf" means billion cubic feet,"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.
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the third quarter after regulatory approvals have been secured. See "Business--
All American Pipeline Acquisition". The Company's marketing of its own crude oil
production takes advantage of the marketing expertise attributable to its
midstream activities.
During the five-year period ended December 31, 1997, the Company
incurred aggregate acquisition, exploitation, development, and exploration costs
of approximately $365.3 million, resulting in proved oil and natural gas reserve
additions (including revisions of estimates but excluding production) of
approximately 154.3 million BOE, or $2.37 per BOE, through implementation of its
business strategy. See Item 2, "Properties--Oil and Natural Gas Reserves".
Approximately 94% of these expenditures were directed toward the acquisition,
exploitation and development of proved reserves while approximately 6% were
incurred on exploration activities.
In order to manage its exposure to commodity price risk, the Company
routinely hedges a portion of its crude oil production. For 1998, 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 12,250 barrels of oil per day at a NYMEX crude oil spot price
("NYMEX Crude Oil Price") of approximately $19.80 per barrel. Thus, based on
the Company's average fourth quarter 1997 crude oil production rate, these
arrangements generally provide the Company with downside price protection for
approximately 60% of its crude oil production. In addition, the Company also
has fixed price arrangements on 6,000 barrels per day in 1999 at a NYMEX Crude
Oil Price of $18.55 per barrel, or approximately 30% of fourth quarter 1997
crude oil production levels. During the first quarter of 1998, the NYMEX Crude
Oil Price fluctuated significantly, closing as high as $17.82 per barrel and as
low as $13.21 per barrel. At March 23, 1998, the NYMEX Crude Oil Price was
approximately $16.50 per barrel.
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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".
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As of or for the Year Ended December 31,
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1997 1996 1995 1994 1993
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(in thousands, except ratios and per unit amounts)
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Present Value of Proved Reserves........ $510,993 (1) $764,774 (1) $366,780 $229,371 $134,539
Proved Reserves
Crude oil and natural
gas liquids (Bbls)................... 151,627 115,996 94,408 61,459 38,810
Natural gas (Mcf)..................... 60,350 37,273 43,110 51,009 49,397
Oil equivalent (BOE).................. 161,685 (1) 122,208 (1) 101,593 69,960 47,043
Reserve Replacement Ratio(2)............ 603%(3) 454% 647%(4) 619% 269%
Reserve Replacement Cost per BOE(5)..... $ 2.71 $ 1.76 $ 2.14 $ 1.49 $ 5.39
Total upstream capital costs incurred... $127,378 $ 51,255 $ 84,012 $ 40,849 $ 61,769
Percentage of total upstream capital
costs attributable to:
Acquisition........................... 34% 7% 71% 48% 40%
Development........................... 65% 88% 27% 38% 43%
Exploration........................... 1% 5% 2% 14% 17%
Year-end NYMEX Crude Oil Price.......... $ 18.34 $ 25.92 $ 19.55 $ 17.76 $ 14.17
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(1) A large portion of the Company's reserve base (approximately 94% of
year-end 1997 reserve volumes) is comprised of long-life oil properties that
are sensitive to crude oil price volatility. By comparison, calculating
these amounts using the NYMEX Crude Oil Price in effect at December 31,
1995, of $19.55 per barrel, results in a Present Value of Proved Reserves of
$633 million and $452 million and estimated net proved reserves of 168
million BOE and 112 million BOE at December 31, 1997 and 1996, respectively.
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".
(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 effect of
revisions, if any ("Reserve Additions"), by (b) each respective year's
production.
(3) Pro forma as if the acquisitions of the Montebello and Arroyo Grande
Fields occurred on January 1, 1997. Such acquisitions closed in March and
November 1997, respectively, with effective dates of February 1, 1997, and
November 1, 1997, respectively.
(4) 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.
(5) Reserve Replacement Cost per BOE for a year is calculated by dividing
upstream capital 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
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
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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 implementing its exploitation plan, 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, 1997, net additions and revisions to proved reserves
totaled 73.5 million BOE or approximately 269% of cumulative net production for
such period. Such reserves were added at an aggregate average cost of $2.92 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 80.8 million BOE and were added at an aggregate
average cost of $1.86 per BOE.
The Company's properties in its three core areas represent approximately
99% of total proved reserves at December 31, 1997. 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 1998, the Company estimates it will spend
approximately $91 million on the development and exploitation of its California,
Sunniland Trend and Illinois Basin Properties. Set forth below is a discussion
of such properties.
Current Exploitation Projects
California 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 USA's ("Chevron") producing oil properties in the LA Basin.
Following the initial acquisition, the Company expanded its holdings in this
area by acquiring additional interests within the existing fields, including all
of Texaco Exploration and Production, Inc.'s interest in the Vickers Lease. All
of the Company's properties in the LA Basin acquired prior to 1997 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, 1997, the LA Basin Properties have
produced over 420 MMBbls of oil and 360 Bcf of natural gas. 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 6,700 BOE
per day in 1992 to an average of 10,640 BOE per day during the fourth quarter of
1997.
The Company has expended approximately $110.7 million in direct
acquisition, development and exploitation capital on the LA Basin Properties.
From the effective dates of acquisition through December 31, 1997, net
production from such properties totaled 18.2 million BOE, generating cumulative
net margin (oil and natural gas revenue less production expenses) and proceeds
from minor property sales of approximately $141.9 million. Total estimated
proved reserves attributable to the LA Basin Properties have increased from 17.7
million BOE at initial acquisition to approximately 76.6 million BOE at December
31, 1997. As a result, the Company's aggregate reserve addition cost to date
for the LA Basin Properties is approximately $1.17 per BOE. During 1997, the
unit gross margin for this area averaged $8.83 per BOE. Estimated future net
revenues and the Present Value of Proved Reserves at December 31, 1997, were
estimated at $649.4 million and $300.6 million, respectively. The Company
estimates it will spend approximately $47 million during 1998 on the further
development and exploitation of the LA Basin Properties.
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During 1997, the Company expanded its operations in the LA Basin with the
acquisition of the Montebello Field (the "Montebello Acquisition"), and expanded
into another California area with the acquisition of the Arroyo Grande Field
(the "Arroyo Grande Acquisition"). Combined, these two fields added
approximately 43 million BOE to the Company's proved reserves at the acquisition
dates.
In March 1997, the Company completed the acquisition of Chevron's interest
in the Montebello Field for approximately $25 million, effective February 1,
1997. The assets acquired consist of a 100% working interest and a 99.2% net
revenue interest in 55 producing oil wells and related facilities and also
includes approximately 450 acres of surface fee land. The Montebello Field,
which is located approximately 15 miles from the Company's existing LA Basin
operations, has produced approximately 108 MMBbls of oil and 100 Bcf of natural
gas since its discovery in 1917. At the acquisition date, the field was
producing approximately 800 barrels of oil and 800 Mcf of natural gas per day
and added approximately 23 MMBbls of oil equivalent to the Company's proved
reserves.
In November 1997, the Company acquired a 100% working interest and a 97%
net revenue interest in the Arroyo Grande Field which is located in San Luis
Obispo County, California from subsidiaries of Shell Oil Company ("Shell"). The
Arroyo Grande field was discovered in 1906 and has produced approximately 10
MMBbls of crude oil or approximately 5% of the estimated original oil in place.
The assets acquired include surface and development rights to approximately
1,000 acres included in the 1,500 acre unit. The field is under continuous steam
injection and as of the acquisition date was producing approximately 1,600
barrels (approximately 1,500 barrels net to the Company's interest) of
approximately 14 degree API gravity oil per day from 70 wells and added
approximately 20 MMBbls to the Company's proved reserves. The aggregate
consideration for the Arroyo Grande Acquisition consisted of (i) rights to a
non-producing property interest conveyed to Shell, (ii) the issuance of 46,600
shares of Series D Cumulative Convertible Preferred Stock (the "Series D
Preferred Stock") with an aggregate stated value of $23.3 million, and (iii) a
five-year warrant to purchase 150,000 shares of the Company's common stock
("Common Stock") at $25 per share. No proved reserves had been assigned to the
rights to the property interest conveyed.
As with its other California properties, the Company intends to
aggressively exploit the properties acquired in 1997 to evaluate additional
reserve potential identified during its acquisition analyses. In addition, the
Company's exploitation plans for these properties target improving the unit
gross margin by decreasing unit production expenses and increasing production
volumes through production enhancement activities similar to those employed in
its other California properties. During 1998, the Company estimates that it
will spend approximately $17 million on the development and exploitation of the
Montebello and Arroyo Grande fields.
Sunniland Trend Properties. During the first quarter of 1993, the Company
acquired all of the capital stock of 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
and previously owned and operated by Exxon Corporation ("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 92
MMBls of oil through December 31, 1997. 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 5,430 barrels of oil per day during the fourth quarter of 1997.
The Company has expended approximately $68.7 million in direct acquisition,
development and exploitation capital on the Sunniland Trend Properties. From
the effective dates of acquisition through December 31, 1997, net production
from such properties totaled 6.3 MMBbl, generating cumulative net margin of
approximately $46.6 million. Total estimated proved reserves attributable to
the Sunniland Trend Properties have increased from approximately 5.0 MMBbls at
initial acquisition to approximately 22.2 MMBbls at December 31, 1997. As a
result, the Company's aggregate reserve addition cost to date for the Sunniland
Trend Properties is approximately $2.41 per BOE. During
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1997, the unit gross margin for this area averaged $7.62 per BOE. At December
31, 1997, estimated future net revenues and the Present Value of Proved Reserves
were estimated at $86.8 million and $68.6 million, respectively. During 1998,
the Company estimates it will spend approximately $18 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 1998. See
"--Exploration--Current Exploration Projects--Sunniland Trend".
Illinois Basin Properties. In December 1995, the Company acquired all of
Marathon Oil Company's ("Marathon") 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. At the acquisition date,
the Company added approximately 17.3 MMBls 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 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 410 MMBls of oil through
December 31, 1997.
The Company has expended approximately $68.8 million in direct acquisition,
development and exploitation capital on the Illinois Basin Properties. From the
effective date of acquisition through December 31, 1997, net production from
such properties totaled 2.8 MMBls, generating cumulative net margin of
approximately $28.2 million. The Company's initial exploitation plan for the
Illinois Basin Properties included improving the unit gross margin by decreasing
unit production expenses and increasing price realizations. Unit production
expenses for these properties, which averaged $12.00 per BOE in the fourth
quarter of 1995, averaged approximately $8.56 per BOE during 1997. 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 $10.60 per
BOE during 1997 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 MMBbls at initial acquisition to approximately 20.6 MMBbls
at December 31, 1997. As a result, the Company's aggregate reserve addition
cost to date for the Illinois Basin Properties is approximately $2.94 per BOE.
Estimated future net revenues and the Present Value of Proved Reserves at
December 31, 1997, were estimated at $141.8 million and $73.2 million,
respectively. The Company intends to aggressively exploit these properties to
evaluate additional reserve potential identified during its acquisition
analysis. During 1998, the Company estimates it will spend approximately $9
million implementing its exploitation plan on the Illinois Basin Properties.
The primary focus of such development and exploitation program during 1998 will
be directed towards aggressively implementing projects to evaluate alternative
waterflood realignment patterns and injection methods.
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.
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EXPLORATION
Exploration Strategy
The Company seeks to complement its strategy of acquiring and exploiting
mature but underdeveloped crude 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 Technologies Inc. ("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 and the
Gulf Coast areas of Texas and 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 8% to 20% of
the Company's working interests in certain projects. 3DX will have certain
rights to participate for up to 20% in the Company's new exploration and
exploitation projects in these areas.
Current Exploration 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 in
1943, 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.
In February 1998, the Company and Collier Resources Company ("Collier")
executed an exploration agreement (the "Exploration Agreement") covering
approximately 800,000 mineral acres which are located onshore South Florida in
Collier, Lee and Hendry Counties. Approximately 50% of such acreage is located
under federally-owned surface land. Terms of the Exploration Agreement provide
for a minimum term of two years with extensions at the Company's option for up
to eight years. Work commitments of the Exploration Agreement provide for the
Company to spend up to $20 million on exploration activities involving Collier's
mineral holdings over the next several years. Such activities include acquiring
a specified amount of 2-D and 3-D seismic data across leads and prospects and
drilling a minimum number of wells.
Portions of the acreage will be subject to existing joint ventures and
alliances with certain industry participants, including 3DX, which will perform
the geophysical and geological analyses with regard to the Exploration
Agreement. Prior to the signing of the Exploration Agreement, the Company held
leasehold interests in approximately 132,000 gross acres.
Preliminary plans for 1998 include gathering 2-D and/or 3-D seismic data
over various prospects and leads and drilling one exploratory well in a new
prospect.
General. During 1998, the Company estimates it will spend approximately $6
million on exploration activities, principally in the Sunniland Trend. While
all drilling activities are subject to numerous risks, the risks associated with
exploration 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.
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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 1997, 1996 and 1995, 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 $2.7 million, $3.1
million and $7.4 million, respectively. As a result, approximately 99% of the
Company's 1997 year-end proved reserve volumes and proved reserve value were
associated with its properties in California, the Sunniland Trend and the
Illinois Basin.
MIDSTREAM ACTIVITIES
The Company's midstream activities include two distinguishable but
interrelated business activities. Such activities are (i) crude oil gathering
and marketing and (ii) crude oil terminalling, storage, blending and exchange.
The Company's midstream activities have expanded significantly, with midstream
gross margin (revenues less direct expenses of purchases, transportation,
storage and terminalling) having increased approximately 635% from $1.7 million
in 1992 to $12.5 million in 1997.
The crude oil distribution chain extends from the wellhead, where crude oil
moves by truck and gathering systems to terminal and pipeline injection stations
and major pipelines, to major crude oil trading locations for ultimate
consumption by refineries and other end markets (the "Distribution Chain"). The
Company's gathering and marketing operations include the purchase of crude oil
at the wellhead and the bulk purchase of crude oil at pipeline and terminal
facilities for aggregation and subsequent resale at various points along the
crude oil Distribution Chain. In most cases, the Company performs a merchant
function generating profit margins by buying crude oil at competitive prices,
efficiently transporting or exchanging the crude oil along the Distribution
Chain and marketing the crude oil to refineries or other customers at favorable
prices. The Company aggregates 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. Except for crude oil purchased from time to time as
inventory to service the needs of its terminalling and storage customers, 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 1993 through 1997. 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 Company owns and operates a two million barrel, above-ground crude oil
storage and terminalling facility in Cushing, Oklahoma (the "Cushing Terminal").
The Company utilizes the Cushing Terminal to provide storage and terminalling
services for its own account and for third parties on a negotiated basis and to
serve as an aggregation, terminalling and distribution point for establishing
and maintaining markets for up to 24 different varieties of foreign and domestic
crude oils. The Company estimates that approximately 60% to 70% of the tankage
capacity available at the Cushing Terminal was used in 1997; accordingly,
substantial additional capacity is available without the expenditure of
additional capital. The Company recently received regulatory approval to
construct an additional one million barrels of tank capacity at the Cushing
Terminal and is formulating its plans with respect thereto. 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 $10.00 per barrel of shell
capacity. In addition, the Company owns a 360,000 barrel terminal and dock
facility located in Ingleside, Texas, just north of the Port of Corpus Christi
(the "Ingleside Terminal"). Approximately 60% of the Ingleside Terminal's
storage capacity is committed to a lease agreement with five years remaining on
the term and the remaining 40% is used to support the Company's crude oil
purchasing activities. The Company acquired the Ingleside Terminal in early
1996.
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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 Company's total
capital investment in the Cushing Terminal through December 31, 1997, was
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 primarily 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. The Company generates revenue
from the Cushing Terminal through a combination of storage, reservation and
throughput fees from (i) refiners and gatherers seeking to segregate or custom
blend crudes for refining feedstocks, (ii) pipelines, refiners and traders
requiring segregated tankage for foreign cargoes, (iii) traders who make or take
delivery under the NYMEX contract, and (iv) producers seeking to increase their
marketing alternatives and arbitrage opportunities entered into for the
Company's own account in contango market crude oil trading activities. The
storage and terminal business is generally counter-cyclical to the marketing
business insofar as the demand for storage opportunities is higher and the
Company's ability to capture profits from arbitrage opportunities existing in
the market is enhanced in a contango market as opposed to a market in
backwardation. Conversely, marketing margins are typically stronger in a
backward market. A contango crude oil futures market exists when the futures
price of a subsequent month exceeds the price of a prior month, whereas a market
is in backwardization when the opposite condition exists. Such market allows
the Company to simultaneously purchase and sell crude oil and lock-in a profit.
Because of its designation as an official NYMEX delivery point and its physical
capacity to receive, store and redeliver crude oil, the Cushing Terminal
provides the optimal mechanism to capitalize on a contango market.
ALL AMERICAN PIPELINE ACQUISITION
On March 21, 1998, Plains All American, a wholly owned subsidiary of the
Company, entered into a definitive agreement to acquire all of the outstanding
capital stock of the Celeron Companies from Goodyear. Aggregate proceeds to
Goodyear through closing are estimated at $420 million. The principal assets of
the entities to be acquired include the All American Pipeline System, a 1,233-
mile crude oil pipeline extending from California to Texas, and a 45-mile crude
oil gathering system in the San Joaquin Valley of California, as well as other
assets related to such operations. The purchase price is subject to certain
adjustments through the closing date, and the transaction is subject to
regulatory review and approval by the United States Department of Justice and
the Federal Trade Commission under the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976, as amended, and by the Public Utilities Commission of the State of
California. The transaction is expected to be completed in the third quarter
of 1998 after regulatory approvals have been secured.
A major portion of the financing for the transaction will be provided
through a $325 million, limited recourse bank facility made available to Plains
All American by ING Barings and BankBoston. In addition to the bank facility,
the Company will make a capital contribution to Plains All American of up to
$130 million, which will be used to fund the balance of the purchase price and
transaction costs and provide initial working capital. To finance its capital
contribution, the Company will borrow approximately $50 million under its
existing revolving bank facility and has entered into financing commitments for
a new issue of privately placed, convertible preferred stock aggregating
approximately $80 million. Commitments for the preferred stock placement have
been obtained from a group of equity investors comprised primarily of existing
shareholders. The preferred stock has an aggregate stated value of $80 million
and bears a cumulative dividend of 9.5% per annum, payable semi-annually in
either cash or additional shares of
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preferred stock at the Company's option. Each share of preferred stock is
convertible into 27.78 shares of Common Stock (an effective conversion price of
$18.00 per share) and in certain circumstances may be converted at the Company's
option into Common Stock if the average trading price for any thirty-day trading
period is equal to or greater than $21.60 per share. The preferred stock is
redeemable at the option of the Company at 110% of stated value after March 31,
1999, and at declining amounts thereafter. If not previously redeemed or
converted, the preferred stock is required to be redeemed in 2012.
The All American Pipeline is the single largest crude oil pipeline
connecting California to West Texas, where it connects with pipelines that
transport crude oil to Cushing, Oklahoma and the Gulf Coast. The 45-mile
gathering system is located in the San Joaquin Valley, currently the most
prolific crude oil producing region in the continental United States. The areas
serviced by the pipeline and gathering system currently produce over 700,000
barrels of crude oil per day, representing approximately 15% of total oil
production in the continental United States. For 1997, the operations to be
acquired generated approximately $65 million in EBITDA.
OPERATING ACTIVITIES
The following table presents certain information with respect to the
Company's upstream oil and natural gas producing activities and its midstream
marketing, transportation, terminalling and storage activities during the three
years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995
--------- -------- --------
(in thousands)
<S> <C> <C> <C>
Sales to unaffiliated customers:
Oil and natural gas.................................. $109,403 $ 97,601 $ 64,080
Marketing, transportation and storage................ 752,522 531,698 339,826
Operating profits:
Oil and natural gas (1).............................. $ 64,098 $ 59,085 $ 34,029
Marketing, transportation and storage (2)............ 12,618 9,621 6,480
Identifiable assets:
Oil and natural gas.................................. $408,503 $309,107 $271,248
Marketing, transportation and storage................ 148,316 121,142 80,798
</TABLE>
- ------------
(1) Consists primarily of oil and natural gas sales less production expenses.
(2) Consists primarily of marketing, transportation and storage sales less
purchases, transportation and storage expenses. Includes approximately
$2.5 million of operating profit attributable to contango market
transactions in 1997.
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 crude oil purchased for
resale is higher, as a percentage of sales price, than the Company's cost to
produce oil and natural gas. See "--Midstream Activities".
GENERAL
The Company was incorporated under the laws of the State of Delaware in
1976. The Company's executive offices are located at 500 Dallas, Suite 700,
Houston, Texas 77002, and its telephone number is (713) 654-1414. Prior to
March 30, 1998, the Company's executive offices were located at 1600 Smith
Street, Suite 1500, Houston, Texas 77002.
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 prices received by the Company for its oil and
natural gas production and the levels of such production are subject to wide
fluctuations and depend on numerous factors beyond the Company's control,
including
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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. A large
portion of the Company's reserve base (approximately 94% of year-end 1997
reserve volumes) is comprised of long-life oil properties that are sensitive to
crude oil price volatility. The crude oil price received by the Company at
December 31, 1997, upon which proved reserve volumes, the Present Value of
Proved Reserves and the Standardized Measure as of such date were based, was
$18.34 per barrel. During the first quarter of 1998, the NYMEX Crude Oil Price
fluctuated significantly, closing as high as $17.82 per barrel and as low as
$13.21 per barrel. At March 23, 1998, the NYMEX Crude Oil Price was
approximately $16.50 per barrel. 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".
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 California crude oil and natural gas
production and its Sunniland Trend and Illinois Basin oil production is
transported by pipelines, trucks and barges owned by third parties. The
inability or unwillingness of these parties 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.
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.
All of the Company's natural gas production in California is produced as a
by-product of the Company's crude oil production. As a result of high inert
content, the Company's gas production in the Montebello Field is difficult to
market and currently is delivered for no value. To ensure that the Company is
able to develop and produce its oil reserves without restriction due to lack of
markets, the Company has made arrangements with the former owner of the
Montebello Field to take its natural gas production volumes at no incremental
value when the Company is unable to find a market for the gas. The Company
intends to spend approximately $2.5 million during 1998 and 1999 to improve the
quality of the gas through upgrading and refining the existing gas collection
system, as well as adding additional processing capacity. The Company believes
that this will enable it to obtain an alternate market for the gas production,
although such market cannot be assured.
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.
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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--Capital Resources, Liquidity and Financial Condition--
Changing Oil and Natural Gas Prices" and Item 2, "Properties--Production and
Sales".
Sales to Koch Oil Company ("Koch") and Sempra Energy Trading Corporation
(formerly AIG Trading Corporation) accounted for 27% and 11%, respectively, of
the Company's total revenue (exclusive of interest and other income) during
1997. Customers accounting for more than 10% of total revenue for 1996 and 1995
were as follows: 1996 -- Koch - 16% and Basis Petroleum, Inc. ("Basis",
formerly Phibro Energy USA, Inc.) - 11%; 1995 -- Phibro Inc. ("Phibro") - 16%
and Basis - 12%. No other single customer accounted for as much as 10% of total
sales during 1997, 1996 or 1995. Additionally during 1997, Unocal Energy
Trading Inc. ("Unocal"), Marathon Oil Company and Exxon accounted for
approximately 52%, 23% and 10%, respectively, of the Company's oil and gas
sales. During 1997, Unocal and Marathon Oil Company purchased the crude oil
from the LA Basin Properties and the Illinois Basin 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.
Midstream 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
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<PAGE>
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
regulatory considerations affecting the Company's operations.
OSHA
The Company is also subject to the requirements of the Federal Occupational
Safety and Health Act ("OSHA") and comparable state statutes. The Company
believes that its operations are in substantial compliance with OSHA
requirements, including general industry standards, record keeping requirements
and monitoring of occupational exposure to regulated substances.
Commodities Regulation
The Company's hedging activities operations are subject to constraints
imposed under the Commodity Exchange Act and the rules of the NYMEX. The
futures and options contracts that are traded on the NYMEX are subject to strict
regulation by the Commodity Futures Trading Commission.
Trucking Regulation
The Company operates a fleet of trucks to transport crude oil as a private
carrier. As a private carrier, the Company is subject to certain motor carrier
safety regulations issued by the Department of Transportation ("DOT"). The
trucking regulations cover, among other things, driver operations, keeping of
log books, truck manifest preparations, the placement of safety placards on the
trucks and trailer vehicles, drug and alcohol testing, safety of operation and
equipment, and many other aspects of truck operations. The Company is also
subject to OSHA with respect to its trucking operations.
Pipeline Regulation
The Company's crude oil pipelines and natural gas gathering pipelines are
subject to construction, installation, operating and safety regulation by the
DOT and various other federal, state and local agencies. The Pipeline Safety
Act of 1992, among other things, amends the Hazardous Liquid Pipeline Safety Act
of 1979 ("HLPSA") in several important respects. It requires the Research and
Special Programs Administration ("RSPA") of DOT to consider environmental
impacts, as well as its traditional public safety mandate, when developing
pipeline safety regulations. In addition, the Pipeline Safety Act mandates the
establishment by DOT of pipeline operator qualification rules requiring minimum
training requirements for operators, and requires that pipeline operators
provide maps and records to RSPA. It also authorizes RSPA to require that
pipelines be modified to accommodate internal inspection devices, to mandate the
installation of emergency flow restricting devices for pipelines in populated or
sensitive areas, and to order other changes to the operation and maintenance of
petroleum and natural gas pipelines. Significant expenses could be incurred in
the future if additional safety measures are required or if safety standards are
raised and exceed the current pipeline control system capabilities.
States are largely preempted from regulating pipeline safety by federal law
but may assume responsibility for enforcing federal intrastate pipeline
regulations and inspection of intrastate pipelines. In practice, states vary
considerably in their authority and capacity to address pipeline safety. The
Company does not anticipate any significant problems in complying with
applicable state laws and regulations in those states in which it operates.
Transportation and Sale of Crude Oil
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,
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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 crude oil and
condensate by pipeline. On October 28, 1994, the FERC issued two separate
Orders (No. 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.
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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. The 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 has plugged and abandoned the wells drilled on its
Miami Fee acreage in prior years and is currently completing the requirements
established by the Regional Director of the Refuge.
Although the Company obtained environmental studies on its properties in
California, the Sunniland Trend and the 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
15
<PAGE>
LA 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 hazardous
components, such as volatile organic substances and heavy metals, and the
Company agreed to excavate and remediate nonhazardous crude oil contaminated
soils. The Company is obligated to construct and operate (for the next 13 years)
a minimum of five acres of 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.
Approximately 183 acres of the 450 acres acquired in the Montebello
Acquisition have been designated as California Coastal Sage Scrub, a known
habitat for the gnatcatcher, a species of bird designated as a federal
threatened species under the Endangered Species Act. Approximately 40 pairs of
gnatcatchers are believed to inhabit the property. In addition, the 450 acres
acquired have been or will shortly be committed to the Natural Community
Conservation Program/Coastal Sage Scrub Project, a voluntary conservation
program. A variety of existing laws, rules and guidelines govern activities
that can be conducted on properties that contain coastal sage scrub and
gnatcatchers. These laws, rules and guidelines generally limit the scope of
operations that can be conducted on such properties to those activities which do
not materially interfere with such vegetation, the gnatcatcher or its habitat.
While there can be no assurance that the presence of coastal sage scrub and
gnatcatchers on the Montebello Field and existing or future laws, rules and
guidelines will not prohibit or limit the Company's operations and its planned
activities or future commercial and/or residential development, the Company
believes that it will be able to operate the existing wells and realize the
reserve potential identified in its acquisition analysis without undue
restrictions or prohibitions.
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
16
<PAGE>
and obtained any necessary storm water discharge permits, and is currently in
substantial compliance with applicable 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.
17
<PAGE>
FEDERAL TAXATION
At December 31, 1997, the Company and its subsidiaries, which together file
a consolidated federal income tax return, had federal income tax net operating
loss ("NOL") carryforwards of approximately $172 million. Of that amount,
approximately $12 million is subject to separate return limitation year
restrictions and may only be utilized to the extent certain subsidiaries which
generated the NOL's have taxable income. At December 31, 1997, the Company had
approximately $159 million of alternative minimum tax ("AMT") net operating loss
carryforwards available as a deduction against future AMT income. In addition,
the Company had approximately $.5 million of investment tax credit carryforwards
and $7 million of percentage depletion carryforwards at December 31, 1997. The
NOL carryforwards expire from 1998 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 NOL's.
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, 1997, or will occur as a result of the issuance of the preferred
stock in connection with the acquisition of the Celeron Companies. See Item 1,
"Business--All American Pipeline Acquisition". 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 on the annual utilization of NOL's.
In the event of an Ownership Change, the amount of the Company's NOL's
available for use each year will depend upon future events that cannot currently
be predicted and upon interpretation of complex rules under Treasury
Regulations. If less than the full amount of the annual limitation is utilized
in any given year, the unused portion may be carried forward and may be used in
addition to successive years' annual limitation.
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.
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
18
<PAGE>
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 California crude oil and natural gas
production and its Sunniland Trend and Illinois Basin oil production is
transported by pipelines, trucks and barges owned by third parties. The
inability or unwillingness of these parties 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'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. A large portion of the Company's reserve base (approximately 94% of
year-end 1997 reserve volumes) is comprised of long-life oil properties that are
sensitive to crude oil price volatility. The crude oil price received by the
Company at December 31, 1997, upon which proved reserve volumes, the Present
Value of Proved Reserves and the Standardized Measure as of such date were
based, was $18.34 per barrel. During the first quarter of 1998, the NYMEX Crude
Oil Price fluctuated significantly, closing as high as $17.82 per barrel and as
low as $13.21 per barrel. At March 23, 1998, the NYMEX Crude Oil Price was
approximately $16.50 per barrel. 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 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 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
19
<PAGE>
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".
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.
EMPLOYEES
As of March 1, 1998, the Company had 230 full-time employees, none of whom is
represented by any labor union. Approximately 103 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 California
in the Los Angeles Basin and the Arroyo Grande Field, the Sunniland Trend and
the Illinois Basin. The Company's midstream marketing, terminalling and storage
activities are concentrated in Oklahoma, Texas, the Gulf Coast area of Louisiana
and California. The Company's upstream operations contributed approximately 87%
of the Company's EBITDA for the fiscal year ending December 31, 1997, while the
Company's midstream activities accounted for the remainder. The Company conducts
its upstream operations in each of its three core areas through wholly owned
subsidiaries. The California Properties are operated by Stocker, the Sunniland
Trend properties are operated by Calumet and the Illinois Basin Properties are
operated by Plains Illinois. The Company's midstream operations are conducted
through Plains
20
<PAGE>
Marketing. See Item 1, "Business" for a discussion of the Company's acquisition,
development, exploitation and exploration activities and midstream 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. and System
Technology Associates Inc. with respect to the California 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.
<TABLE>
<CAPTION>
As of or for the Year Ended December 31,
---------------------------------------------------------------
1997 1996 1995
----------------- ------------------- --------------------
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.......... 115,996 37,273 94,408 43,110 61,459 51,009
Revisions of previous
estimates................. (16,091) 3,805 19,424 6,641 5,423 2,792
Extensions, discoveries,
improved recovery and
other additions......... 17,884 8,126 8,179 1,294 15,489 1,730
Sale of reserves in place.. (26) (547) (5) (12,491) (1,227) (9,773)
Purchase of reserves in
place..................... 40,764 14,566 45 862 17,640 130
Production................. (6,900) (2,873) (6,055) (2,143) (4,376) (2,778)
------- ------ ------- ------- -------- ------
Ending balance............. 151,627 60,350 115,996 37,273 94,408 43,110
======= ====== ======= ======= ======== ======
PROVED DEVELOPED RESERVES
Beginning balance.......... 86,515 25,629 67,266 29,397 48,978 30,869
======= ====== ======= ======= ======== ======
Ending balance............. 99,193 38,233 86,515 25,629 67,266 29,397
======= ====== ======= ======= ======== ======
</TABLE>
The following table sets forth the Present Value of Proved Reserves as of
December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Proved developed........... $386,463 $574,686 $272,634
Proved undeveloped......... 124,530 190,088 94,146
-------- -------- --------
Total proved............ $510,993 $764,774 $366,780
======== ======== ========
</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. 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. A large portion of the Company's
21
<PAGE>
reserve base (approximately 94% of year-end 1997 reserve volumes) is comprised
of long-life oil properties that are sensitive to crude oil price volatility.
The crude oil price received by the Company at December 31, 1997, 1996, and 1995
upon which proved reserve volumes, the Present Value of Proved Reserves and the
Standardized Measure as of such dates were based, was $18.34 per barrel, $25.92
per barrel and $19.55 per barrel, respectively. Revisions of previous estimates
set forth above include downward price related revisions of 16 MMBls in 1997 and
positive price related revisions of 10 MMBbls in 1996. During the first quarter
of 1998, the NYMEX Crude Oil Price fluctuated significantly, closing as high as
$17.82 per barrel and as low as $13.21 per barrel. At March 23, 1998, the NYMEX
Crude Oil Price was approximately $16.50 per barrel. 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".
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, 1997, is based on the NYMEX Crude Oil Price received by
the Company of $18.34 per barrel 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, 1997, these arrangements
provided for a NYMEX Crude Oil Price for: (i) 12,250 barrels per day from
January 1, 1998, through December 31, 1998, at approximately $19.80 per barrel
and (ii) 2,000 barrels per day from January 1, 1999, through December 31, 1999,
at approximately $20.08 per barrel. Since December 31, 1997, the Company has
entered into additional arrangements for 1999, which when combined with
arrangements in effect at December 31, 1997, provide for a NYMEX Crude Oil Price
for approximately 6,000 barrels per day from January 1, 1999, through December
31, 1999, at $18.55 per barrel. Arrangements in effect at December 31, 1997,
are reflected in the reserve reports through the term of the arrangements.
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, 1997, were $13.91 per barrel of crude oil, condensate and
natural gas liquids and $2.13 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, 1996, 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, 1997, the Company had working interests in 1,767 gross
(1,758 net) active oil wells. These totals do not include the Company's royalty
and overriding royalty interests in approximately 141 gross (5 net) producing
oil wells.
22
<PAGE>
The following table sets forth certain information with respect to the
developed and undeveloped acreage of the Company as of December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------
DEVELOPED ACRES(1) UNDEVELOPED ACRES(2)
------------------ --------------------
GROSS NET GROSS NET(3)
------- ------ ------- ---------
<S> <C> <C> <C> <C>
California................ 6,260 6,187 10 10
Florida(4)................ 12,339 12,147 90,539 79,440
Illinois.................. 15,887 13,885 33,528 15,459
Indiana................... 1,155 854 1,280 575
Kansas.................... -- -- 48,147 37,807
Kentucky.................. -- -- 1,321 521
Louisiana................. -- -- 4,875 4,858
------ ------ ------- -------
Total................ 35,641 33,073 179,700 138,670
====== ====== ======= =======
</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 4% of total net undeveloped acres are covered by leases that
expire from 1998 through 2001.
(4) Does not include approximately 800,000 acres covered by the Exploration
Agreement entered into in February 1998 or 29,000 gross (28,000 net)
acres under seismic option. See Item 1, "Exploration--Current Exploration
Projects--Sunniland Trend".
DRILLING ACTIVITIES
Certain information with regard to the Company's drilling activities during
the years ended December 31, 1997, 1996 and 1995 is set forth below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory Wells:
Oil............... 2.00 2.00 0.00 0.00 0.00 0.00
Natural gas....... 0.00 0.00 0.00 0.00 0.00 0.00
Dry............... 0.00 0.00 2.00 0.63 1.00 0.40
----- ----- ----- ----- ---- ----
Total......... 2.00 2.00 2.00 0.63 1.00 0.40
===== ===== ===== ===== ==== ====
Development Wells:
Oil............... 58.00 57.06 24.00 24.00 0.00 0.00
Natural gas....... 0.00 0.00 0.00 0.00 0.00 0.00
Dry............... 0.00 0.00 0.00 0.00 1.00 0.50
----- ----- ----- ----- ---- ----
Total......... 58.00 57.06 24.00 24.00 1.00 0.50
===== ===== ===== ===== ==== ====
Total Wells:
Oil............... 60.00 59.06 24.00 24.00 0.00 0.00
Natural gas....... 0.00 0.00 0.00 0.00 0.00 0.00
Dry............... 0.00 0.00 2.00 0.63 2.00 0.90
----- ----- ----- ----- ---- ----
Total......... 60.00 59.06 26.00 24.63 2.00 0.90
===== ===== ===== ===== ==== ====
</TABLE>
At December 31, 1997, the Company was in the process of drilling 7 gross (7
net) development wells. See Item 1, "Business--Acquisition and Exploitation"
and "--Productive Wells and Acreage" for additional information regarding
exploitation activities, including waterflood patterns, workovers and
recompletions.
23
<PAGE>
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, 1997, 1996
and 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
-------- ------- -------
(in thousands, except per unit data)
<S> <C> <C> <C>
Production:
Crude oil and natural gas liquids (Bbls)..... 6,900 6,055 4,376
Natural gas (Mcf)............................ 2,873 2,143 2,778
BOE.......................................... 7,379 6,412 4,839
Revenue:
Crude oil and natural gas liquids............ $104,988 $95,224 $61,241
Natural gas.................................. 4,415 2,377 2,839
-------- ------- -------
Total........................................ $109,403 $97,601 $64,080
======== ======= =======
Average sales price:
Crude oil and natural gas liquids (per Bbl).. $ 15.21 $ 15.73 $ 13.99
Natural gas (per Mcf)........................ $ 1.54 $ 1.11 $ 1.02
Per BOE...................................... $ 14.83 $ 15.22 $ 13.24
Production expenses per BOE..................... $ 6.16 $ 6.04 $ 6.25
</TABLE>
CRUDE OIL STORAGE AND TERMINALLING FACILITIES
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. In
addition, the Company owns a 360,000 barrel terminal and dock facility located
in Ingleside, Texas, just north of the Port of Corpus Christi. See Item 1,
"Business -- Midstream Activities".
OTHER FACILITIES
The Company currently leases offices containing approximately 42,000 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 land 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
24
<PAGE>
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 disputes
over certain title issues. Motions have been filed requesting the Court to rule
on the disputes, but no hearing date has been set. The Company does not believe
that the disputes 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 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 39, 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 46, 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 40, 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, Senior Vice President, Chief Financial
Officer and Treasurer Officer Since 1987
Mr. Kramer, age 42, became Senior Vice President and Chief Financial
Officer of the Company in May 1997. He was Vice President and Chief Financial
Officer from 1992 to 1997, Vice President and Treasurer from 1988 to 1992,
Treasurer from 1987 to 1988, and Controller from 1983 to 1987.
Michael R. Patterson, Vice President and General Counsel Officer Since 1985
Mr. Patterson, age 50, 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 40, 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 49, 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>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's $.10 par value 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 March 20, 1998, was 1,409.
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
--------- ---------
<S> <C> <C>
1997:
1st Quarter....... $18 1/4 $12
2nd Quarter....... 15 3/16 11 7/8
3rd Quarter....... 18 1/2 15
4th Quarter....... 20 3/4 15 7/8
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 $200 million 10.25% Senior
Subordinated Notes Due 2006 (the "10.25% Notes") and the Company's $165 million
revolving credit facility (the "Revolving Credit Facility") from paying
dividends on the Common Stock.
26
<PAGE>
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,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
STATEMENT OF INCOME DATA:
Revenues:
Oil and natural gas sales................................... $109,403 $ 97,601 $ 64,080 $ 57,234 $ 57,507
Marketing, transportation and storage....................... 752,522 531,698 339,826 199,239 128,186
Other....................................................... 319 309 319 223 335
-------- -------- -------- -------- --------
Total revenue............................................ 862,244 629,608 404,225 256,696 186,028
-------- -------- -------- -------- --------
Expenses:
Production expenses......................................... 45,486 38,735 30,256 27,220 28,285
Purchases, transportation and storage....................... 740,042 522,167 333,460 193,049 124,390
General and administrative.................................. 8,340 7,729 7,215 6,966 7,724
Depreciation, depletion and amortization.................... 23,778 21,937 17,036 16,305 36,980(1)
Interest expense............................................ 22,012 17,286 13,606 12,585 8,847
Litigation settlement....................................... -- 4,000(2) -- -- --
-------- -------- -------- -------- --------
Total expenses........................................... 839,658 611,854 401,573 256,125 206,226
-------- -------- -------- -------- --------
Income (loss) before income taxes and extraordinary item....... 22,586 17,754 2,652 571 (20,198)
Income tax expense (benefit)
Current..................................................... 352 -- -- -- --
Deferred.................................................... 7,975 (3,898) -- -- --
-------- -------- -------- -------- --------
Income (loss) before extraordinary item........................ 14,259 21,652 2,652 571 (20,198)
Extraordinary item, net of tax benefit......................... -- (5,104)(3) -- -- --
-------- -------- -------- -------- --------
Net income (loss).............................................. $ 14,259 $ 16,548 $ 2,652 $ 571 $(20,198)
======== ======== ======== ======== ========
Earnings (loss) per common share - basic:
Before extraordinary item................................... $ 0.85 $ 1.32 $ 0.19 $ 0.04 $ (1.77)
Extraordinary item, net of income taxes..................... - (0.31) -- -- --
-------- -------- -------- -------- --------
$ 0.85 $ 1.01 $ 0.19 $ 0.04 $ (1.77)
======== ======== ======== ======== ========
Earnings (loss) per common share - assuming dilution:
Before extraordinary item................................... $ 0.77 $ 1.23 $ 0.16 $ 0.04 $ (1.77)
Extraordinary item, net of income taxes..................... - (.29) -- -- --
-------- -------- -------- -------- --------
$ 0.77 $ 0.94 $ 0.16 $ 0.04 $ (1.77)
======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Cash flow from operations(4)................................... $ 46,233 $ 39,942 $ 19,688 $ 16,876 $ 16,782
EBITDA(5)...................................................... 68,310 57,184 33,294 29,461 25,629
Net cash provided by operating activities...................... 30,307 39,008 16,984 18,369 10,397
Net cash used in investing activities.......................... 107,634 52,496 64,398 40,158 76,451
Net cash provided by financing activities...................... 78,524 9,876 52,252 19,297 44,688
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 3,714 $ 2,517 $ 6,129 $ 2,791 $ 4,862
Working capital (deficit)...................................... (6,011) (4,843) (4,749) (4,465) (13,986)
Property and equipment, net.................................... 413,308 311,040 280,538 217,602 191,985
Total assets................................................... 556,819 430,249 352,046 266,904 236,667
Long-term debt................................................. 285,728 225,399 205,089 149,600 141,600
Other long-term liabilities.................................... 5,107 2,577 1,547 3,754 967
Redeemable preferred stock..................................... -- -- -- 20,937 --
Total stockholders' equity..................................... 133,193 95,572 77,029 46,462 44,997
</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.
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
For the three years ended December 31, 1997, the Company reported continued
improvement in its fundamental operating and financial results. Upstream
production volumes and midstream gross margin, the primary operating drivers for
each segment, were up significantly in 1997, versus 1996 and 1995. For the
three years ended December 31, 1997, the Company also reported significant
increases in proved reserves and cash flow from oil and natural gas producing
activities. Such increases are primarily the result of acquisition and
exploitation activities in the Company's three core areas of California, the
Sunniland Trend and the Illinois Basin. During 1997, the Company added to it's
existing LA Basin Properties with the acquisition of the Montebello Field in
March, and expanded into another California area with the acquisition of the
Arroyo Grande Field in November. Combined, these two fields added approximately
43 million BOE to the Company's proved reserves at the acquisition dates. The
Company's three core areas are comprised primarily of crude oil properties and
together account for approximately 99% of the Company's year-end 1997 proved
reserves. See Item 1, "Business--Acquisition and Exploitation--Current
Exploitation Projects".
RESULTS OF OPERATIONS
For the year ended December 31, 1997, the Company reported net income of
$14.3 million, or $.85 per share ($.77 per share assuming dilution), on total
revenue of $862.2 million compared to net income for 1996 of $16.5 million, or
$1.01 per share ($.94 per share assuming dilution). Net income for 1995 was
$2.7 million or $.19 per share ($.16 per share assuming dilution). Earnings per
share for 1996 and 1995 has been restated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per Share. For
1997, the Company reported pretax income of $22.6 million as compared to $17.8
million of pretax income in 1996 on higher oil prices. Net income for 1996
included an $11.0 million benefit associated with the recognition of a portion
of a deferred tax asset that was previously fully reserved and a $5.1 million
extraordinary charge net of taxes for early extinguishment of debt. EBITDA
increased 19% in 1997 to $68.3 million from the $57.2 million reported in 1996
and 105% from the $33.3 million reported in 1995. Cash flow from operations
(cash provided by operating activities before changes in assets and liabilities)
increased to $46.2 million in 1997, 16% and 135% above the $39.9 million and
$19.7 million reported in 1996 and 1995, respectively. Net cash provided by
operating activities was $30.3 million for the year ended December 31, 1997, as
compared to $39.0 million for 1996 and $17.0 million in 1995. The decrease in
1997 from 1996 is attributable to the purchase of crude oil inventory in
contango market transactions. Such inventory was hedged against price risk and
was sold during the first quarter of 1998.
28
<PAGE>
Upstream Results
The following table sets forth certain operating information of the Company
for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER UNIT DATA)
AVERAGE DAILY PRODUCTION VOLUMES
Barrels of oil equivalent:
California (approximately 89% oil)............. 11.2 9.2 8.4
Sunniland Trend (100% oil)..................... 5.3 4.7 3.4
Illinois Basin (100% oil)...................... 3.6 3.5 0.6
Other.......................................... 0.1 0.1 0.9
------ ------ ------
Total....................................... 20.2 17.5 13.3
====== ====== ======
UNIT ECONOMICS
Average sales price per BOE.................... $14.83 $15.22 $13.24
Production expenses per BOE.................... 6.16 6.04 6.25
------ ------ ------
Gross margin per BOE........................... 8.67 9.18 6.99
Upstream G&A expenses per BOE.................. 0.65 0.74 0.99
------ ------ ------
Gross profit per BOE........................... $ 8.02 $ 8.44 $ 6.00
====== ====== ======
</TABLE>
Oil and natural gas production volumes in 1997 totaled 7.4 million BOE, a
15% increase over the 1996 level of 6.4 million BOE and 52% above the 1995 level
of 4.8 million BOE. Approximately 94% of 1997's equivalent production volumes
were crude oil. Production volumes increased in each of the Company's three core
areas due to the Company's acquisition and exploitation activities. Average net
daily production from the Company's California Properties increased to
approximately 11,200 BOE per day in 1997, up 2,000 BOE per day, or 22% over 1996
and 33% over the 1995 level. Excluding production from the Montebello and
Arroyo Grande Fields which were acquired during 1997, aggregate Company
production was up 8% from 1996. Net production from the Company's Sunniland
Trend properties averaged approximately 5,300 barrels of oil per day in 1997, a
13% increase compared to 4,700 barrels per day in 1996 and 56% over the 3,400
barrels per day in 1995. 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. Net
daily production in the Illinois Basin averaged approximately 3,600 barrels per
day during 1997, up 3% over 1996. The Company acquired the Illinois Basin
properties in the fourth quarter of 1995.
Oil and natural gas revenues increased to $109.4 million in 1997 as
compared to $97.6 million in 1996 and $64.1 million in 1995 due to increased
production volumes. 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 prices, averaged $14.83
per BOE in 1997, a 3% decrease from the average price received in 1996, and an
increase of 12% from the $13.24 per BOE in 1995. The NYMEX Crude Oil Price
averaged $20.63 per barrel in 1997, $21.99 per barrel in 1996, and $18.40 per
barrel in 1995. Financial swap arrangements and futures transactions entered
into by the Company to hedge production are included in the Company's average
product prices. Such transactions had the effect of decreasing the overall
average price per BOE received by the Company by $1.26 in 1997, $2.62 in 1996
and $.17 in 1995. Approximately 78% of the Company's crude oil production was
hedged throughout 1997 at an average NYMEX Crude Oil Price of approximately
$19.31 per barrel. The Company routinely hedges a portion of its crude oil
production. See "--Capital Resources, Liquidity and Financial Condition--
Changing Oil and Natural Gas Prices".
Upstream unit gross margin (well-head revenue less production expenses) for
1997 was $8.67 per BOE, compared to $9.18 per BOE in 1996 and $6.99 per BOE in
1995. Average unit production expenses were $6.16 per BOE, $6.04 per BOE and
$6.25 per BOE in 1997, 1996, and 1995, respectively. Total production expenses
increased to $45.5 million from $38.7 million and $30.3 million in 1996 and
1995, respectively, primarily due to increased production volumes resulting from
the Company's acquisition and exploitation activities.
29
<PAGE>
Unit G&A expense in the upstream segment decreased for the fifth
consecutive year. Unit G&A expense decreased 12% to $.65 per BOE during 1997
from $.74 per BOE during 1996. Unit G&A expense was $.99 per BOE in 1995, $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 control efforts.
As a result of the warm and abnormal weather generally referred to as El
Nino, weather patterns throughout the United States have experienced meaningful
variances from historical norms. In particular, California has been
significantly affected by unusually large amounts of rainfall. Through mid-
March 1998, areas within California where the Company's properties are located
have experienced actual rainfall exceeding 150% of the rainfall typically
received for an entire year. Such rainfall and associated high winds have an
adverse effect on the Company's California operations. Specifically, such
weather conditions cause erosion, flooding, electrical outages and various other
related side effects. Such conditions result in reduced production due to down
time and delays in implementing capital projects, as well as increased expenses
associated with repair and mitigation costs.
Through mid-March, aggregate production down time caused by El Nino was
estimated at approximately 20,000 barrels and incremental operating expenses
were estimated at approximately $500,000. While the Company believes it has
taken appropriate steps to mitigate the adverse effects of El Nino on its
operations, there can be no assurance that the preventative measures will prove
effective, and the Company cannot predict the extent to which such adverse
weather patterns will continue to impact the Company's 1998 operations,
financial results or planned capital program.
Midstream Results
The following table sets forth certain midstream operating information of
the Company for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
OPERATING RESULTS
Gross margin................................. $12,480 $ 9,531 $ 6,366
G&A expense.................................. (3,529) (2,974) (2,415)
------- ------- -------
Gross profit................................. $ 8,951 $ 6,557 $ 3,951
======= ======= =======
AVERAGE DAILY VOLUMES
Crude oil barrels marketed................... 71 59 46
Crude oil terminal throughput barrels........ 69 56 42
------- ------- -------
140 115 88
======= ======= =======
</TABLE>
The Company's midstream segment reported gross margin (revenues less direct
expenses of purchases, transportation, storage and terminalling) of $12.5
million for the year ended December 31, 1997, reflecting a 31% increase over the
$9.5 million reported for the 1996 period and an approximate 96% increase over
1995. Gross profit, which deducts G&A expenses attributable to this segment,
totaled $9.0 million for 1997, approximately 37% and 127% over the amounts
reported for 1996 and 1995, respectively. Net of interest expense associated
with contango inventory transactions, midstream gross margin and gross profit
for the current year were $11.6 million and $8.1 million, respectively,
representing increases of approximately 22% and 23% over the 1996 respective
amounts. Gross revenues from this segment were $752.5 million, $531.7 million
and $339.8 million for 1997, 1996 and 1995, respectively. The increases in
revenues and profitability are primarily due to increased volumes marketed and
activities at the Cushing Terminal. The Company's terminalling and storage
activities are generally counter cyclical to its crude oil marketing activities.
Typically, marketing margins are strongest in a backward market. During a
contango market, when marketing margins are generally smaller, the Company's
terminalling and storage operations at the Cushing Terminal typically become
more profitable due to (i) the Company's ability to take delivery on crude oil
which is simultaneously purchased and resold at a profit for delivery in a
subsequent month and (ii) the increased demand by third parties for storage
capacity. Storage and terminalling margins were generally stronger in 1997, and
marketing margins were stronger in 1996 and 1995. Aggregate marketing and
terminalling volumes averaged 140,000 barrels per day in 1997 versus 115,000
barrels per day in 1996 and 88,000 barrels per day in 1995. Midstream G&A
expenses were $3.5 million, $3.0
30
<PAGE>
million, and $2.4 million for 1997, 1996 and 1995, respectively. Such increases
are primarily attributable to the continued expansion of the Company's marketing
and terminalling activities.
General
Total G&A expenses, including midstream activities, were $8.3 million for
the year ended December 31, 1997, compared to $7.7 million and $7.2 million for
1996 and 1995, respectively. The increases are primarily attributable to
increased expenses associated with the Company's midstream activities.
Depreciation, depletion and amortization ("DD&A") per BOE declined to $2.83 in
1997 from $3.00 in 1996 and $3.02 in 1995 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, 1997 was $23.8
million as compared to $21.9 million and $17.0 million in 1996 and 1995,
respectively.
Interest expense, net of capitalized interest, for 1997 increased to $22.0
million as compared to $17.3 million in 1996 and $13.6 million in 1995. The
increases are primarily due to (i) higher debt levels related to the Company's
acquisition, exploitation, development and exploration activities, including the
acquisition of the Montebello Field, (ii) short-term borrowings in 1997 for the
purchase of crude oil inventory associated with contango crude oil inventory
transactions and (iii) a higher average interest rate, partially attributable to
the $50 million add-on to the 10.25% Notes in July 1997. During 1997, 1996 and
1995, the Company capitalized $3.3 million, $3.6 million and $3.1 million of
interest, respectively.
During 1996, the Company settled two lawsuits filed in 1992 and 1993,
relating to activities in 1991 and 1992, against certain of its officers and
directors 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.
For the year ended December 31, 1997, the Company recognized a deferred tax
provision of $8.0 million and a current tax provision of $.4 million. For 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 an $11.0 million reduction in
the valuation allowance reserved against the Company's net deferred tax asset.
In 1996, the Company also reported a $3.4 million deferred tax benefit as an
extraordinary item which was attributable to the $8.5 million pre-tax first
quarter extraordinary loss from the early redemption of the Company's 12% Senior
Subordinated Notes due 1999 (the "12% Notes"). Although the Company recorded
net income for 1995, no provision for income taxes was reflected, but rather the
valuation allowance discussed above was adjusted.
The Company has initiated a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue. The
Company expects to incur internal staff costs as well as some consulting and
other expenses necessary to prepare the systems for the year 2000. The Company
does not expect the amounts required to be expensed over the next year to have a
material effect on its results of operations. The Company expects all Year 2000
issues to be resolved in a timely manner during 1998 and 1999. There can be no
assurance that the systems of other companies on which the Company relies also
will be converted in a timely manner or that any such failure to convert by
another company would not have an adverse effect on the Company. In order to
minimize this impact, the Company is in contact with its vendors and customers
to work toward their compliance.
In July 1997, the FASB issued Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), Disclosures About Segments of an Enterprise and Related
Information, effective for fiscal years beginning after December 15, 1997. SFAS
131 introduces a new model for segment reporting and requires disclosures for
each segment that are similar to those required under current standards with the
addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures. Reportable segments are based on products and services,
geography, legal structure, management structure or any manner in which
management disaggregates a company. This statement replaces the notion of
industry and geographic segments in current FASB standards. Management is
currently evaluating the impact of this statement on the Company's disclosures.
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CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
In March 1997, the Company completed the acquisition of Chevron's interest
in the Montebello Field for approximately $25 million, effective February 1,
1997. The assets acquired consist of a 100% working interest and a 99.2% net
revenue interest in 55 producing oil wells and related facilities and also
include approximately 450 acres of surface fee land. At the acquisition date,
the Montebello Field, which is located approximately 15 miles from the Company's
existing LA Basin operations, was producing approximately 800 barrels of oil and
800 Mcf of gas per day and added approximately 23 million barrels of oil
equivalent to the Company's proved reserves. As a result of high intert
content, the Company's gas production in the Montebello Field is difficult to
market and currently is delivered for no value. To ensure that the Company is
able to develop and produce its oil reserves without restriction due to lack of
markets, the Company has made arrangements with the former owner of the
Montebello Field to take its natural gas production volumes at no incremental
value when the Company is unable to find a market for the gas. The Company
intends to spend approximately $2.5 million during 1998 and 1999 to improve the
quality of the gas through upgrading and refining the existing gas collection
system, as well as adding additional processing capacity. The Company believes
that this will enable it to obtain an alternative market for the gas production,
although such market cannot be assured. See Item 1, "Business--Product Markets
and Major Customers". The Montebello Acquisition was funded with proceeds from
the Revolving Credit Facility.
On November 12, 1997, the Company acquired a 100% working interest and a 97%
net revenue interest in the Arroyo Grande Field in San Luis Obispo County,
California, from subsidiaries of Shell. The assets acquired include surface and
development rights to approximately 1,000 acres included in the 1,500 acre unit.
At the acquisition date, the field was producing approximately 1,600 barrels
(approximately 1,500 barrels net to the Company) of 14(degree) API gravity oil
per day from 70 wells.
The aggregate purchase price of $22.1 million consisted of (i) rights to a
non-producing property interest conveyed to Shell, (ii) the issuance of 46,600
shares of Series D Preferred Stock with an aggregate stated value of $23.3
million and (iii) a 5 year warrant to purchase 150,000 shares of Common Stock at
$25 per share. No proved reserves had been assigned to the rights to the
property interest conveyed. Each share of the Series D Preferred Stock has a
stated value of $500 and is convertible into Common Stock at a ratio of $25.00
of stated value for each share of Common Stock to be issued. Commencing January
1, 2000, the Series D Preferred Stock will bear an annual dividend of $30.00 per
share. Prior to such date no dividends will accrue. The Series D Preferred
Stock is redeemable at the Company's option at 140% of stated value. If not
previously redeemed or converted, the Series D Preferred Stock will
automatically convert into 932,000 shares of Common Stock in 2012. The Series D
Preferred Stock was initially recorded at $20.5 million, a discount of $2.8
million from the stated value. This discount will be amortized to retained
earnings during the two year period dividends do not accrue.
In March 1997, the Company's Revolving Credit Facility and borrowing base
thereunder was increased to $165 million from $125 million. The Revolving
Credit Facility, as amended, converts to a term loan on July 1, 1999, with a
final maturity of July 1, 2004, and bears interest at the option of the Company
at LIBOR plus 1 3/8% or Base Rate (as defined therein). The Revolving Credit
Facility is guaranteed by all of the Company's subsidiaries except PMCT Inc. and
Plains All American and is secured by the upstream oil and gas properties
of the Company and the guaranteeing subsidiaries and the stock of all
subsidiaries except Plains All American. At December 31, 1997, the Company
had $80 million in borrowings and a $1.0 million standby letter of credit
outstanding under the Revolving Credit Facility.
On July 23, 1997, the Company sold $50 million of Senior Subordinated Notes
due 2006, Series C, bearing a stated coupon rate of 10.25% (the "Series C
10.25% Notes"). Such notes were issued pursuant to a Rule 144A private
placement at approximately 107.21% of par to yield a minimum yield to worst of
8.79%, or 9.03% yield to maturity. On October 30, 1997, the Company exchanged a
total of $49.95 million of the Series C 10.25% Notes for 10.25% Senior
Subordinated Notes due 2006, Series D, (the "Series D 10.25% Notes"). The
Series D 10.25% Notes are substantially identical (including principal amount,
interest rate, maturity and redemption rights) to the Series C 10.25% Notes for
which they were exchanged, except for certain transfer restrictions relating to
the Series C 10.25% Notes. Proceeds from the sale of the Series C & D 10.25%
Notes, net of offering costs, were approximately $53 million and were used to
reduce the balance outstanding on the Revolving Credit Facility.
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The stated coupon rate of interest and maturity date of the Series C 10.25%
Notes and the Series D 10.25% Notes (collectively, the "Series C & D 10.25%
Notes") are the same as those of the Company's existing $150 million principal
amount of senior subordinated notes currently outstanding (the "Series A & B
10.25% Notes"). The Series A 10.25% Notes, the Series B 10.25% Notes, the
Series C 10.25% Notes and the Series D 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 Series A &
B 10.25% Notes and up to $15 million in principal amount of the Series C & D
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")).
Plains Marketing has a $90 million Uncommitted Secured Demand Transactional
Line of Credit Facility (the "Transactional Facility") with five banks. The
purpose of the Transactional Facility is to provide standby letters of credit to
support the purchase of crude oil for resale and borrowings to finance crude oil
inventory that has been hedged against future price risk. In August 1997, the
sublimit for cash borrowings under the Transactional Facility was increased to
$25 million from $20 million. Letters of credit under the Transactional
Facility are generally issued for seventy-day periods and bear fees of 1 1/8%
per annum. Borrowings incur interest at the option of the borrower at (i) the
Base Rate or (ii) LIBOR plus 1 1/2%. At December 31, 1997, approximately $37.8
million in letters of credit and $18.0 million in borrowings were outstanding
under the Transactional Facility.
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. All
financings under the Transactional Facility, which expires in November 1998, are
at the discretion of the lenders.
At December 31, 1997, the Company had a working capital deficit of
approximately $6.0 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, 1996 and 1995, were $4.8 million and $4.7
million, respectively.
On March 21, 1998, Plains All American entered into a definitive agreement
to acquire all of the outstanding capital stock of the Celeron Companies from
Goodyear. Aggregate proceeds to Goodyear through closing are estimated at $420
million. The principal assets of the entities to be acquired include the All
American Pipeline System, a 1,233-mile crude oil pipeline extending from
California to Texas, and a 45-mile crude oil gathering system in the San Joaquin
Valley of California, as well as other assets related to such operations. The
purchase price is subject to certain adjustments through the closing date, and
the transaction is subject to regulatory review and approval by the United
States Department of Justice and the Federal Trade Commission under the Hart-
Scott-Rodino Anti-Trust Improvements Act of 1976, as amended, and by the Public
Utilities Commission of the State of California. The transaction is expected
to be completed in the third quarter of 1998 after regulatory approvals have
been secured.
A major source of financing for the transaction will be provided through a
new $325 million, limited recourse bank facility made available to Plains All
American by ING Barings and BankBoston, N.A. In addition to the bank facility,
the Company will make a capital contribution to Plains All American of up to
$130 million which will be used to fund the balance of the purchase price and
transaction costs and provide initial working capital. To finance its capital
contribution, the Company will borrow approximately $50 million under the
Revolving Credit Facility and has entered into financing commitments for a new
issue of privately placed, convertible preferred stock aggregating approximately
$80 million. Commitments for the preferred stock placement have been obtained
from a group of equity investors comprised primarily of existing shareholders.
The preferred stock has an aggregate stated value of $80 million and bears a
cumulative dividend of 9.5% per annum, payable semi-annually in either cash or
additional shares of preferred stock at the Company's option. Each share of
preferred stock is convertible into 27.78 shares of Common Stock (an effective
conversion price of $18.00 per share) and in certain circumstances may be
converted at the Company's option into Common Stock if the average trading price
for any thirty-day trading period is equal to or greater than $21.60 per share.
The preferred stock is redeemable at the option of the Company at 110% of stated
value after March 31, 1999, and at
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declining amounts thereafter. If not previously redeemed or converted, the
preferred stock is required to be redeemed in 2012.
The All American Pipeline is the single largest crude oil pipeline
connecting California to West Texas, where it connects with pipelines that
transport crude oil to Cushing, Oklahoma and the Gulf Coast. The Cushing
Interchange is the largest crude oil trading location in the United States and
the designated delivery point for the NYMEX crude oil futures contract. At
Cushing, the Company owns and operates the Cushing Terminal, the largest
terminal facility in Cushing not owned by a major oil company and the fourth
largest overall. The 45-mile gathering system is located in the San Joaquin
Valley, currently the most prolific crude oil producing region in the
continental United States. The areas serviced by the pipeline and gathering
system currently produce over 700,000 barrels of crude oil per day, representing
approximately 15% of total oil production in the continental United States. For
1997, the operations to be acquired generated approximately $65 million in
EBITDA.
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 aggregate capital expenditures of
approximately $103 million in 1998, including approximately $91 million on the
development and exploitation of its California, Sunniland Trend and Illinois
Basin properties, approximately $6 million on exploration activities primarily
in the Sunniland Trend and approximately $6 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 1998, 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 12,250 barrels of oil
per day at a NYMEX Crude Oil Price of approximately $19.80 per barrel. Thus,
based on the Company's average fourth quarter 1997 crude oil production rate,
these arrangements generally provide the Company with downside price protection
for approximately 60% of its production. In addition, the Company also has
fixed price arrangements on 6,000 barrels per day in 1999 at a NYMEX Crude Oil
Price of $18.55 per barrel, or approximately 30% of fourth quarter 1997 crude
oil production levels. The foregoing NYMEX Crude Oil Prices are before quality
and location differentials. 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".
Additionally 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. A large portion of the Company's reserve base (approximately 94% of
year-end 1997 reserve volumes) is comprised of long-life oil properties that are
sensitive to crude oil price volatility. The crude oil price received by the
Company at December 31, 1997, upon which proved reserve volumes, the Present
Value of Proved Reserves and the Standardized Measure as of such date were
based, was $18.34 per barrel. During the first quarter of 1998, the benchmark
NYMEX crude oil price fluctuated significantly, closing as high as $17.82 per
barrel and as low as $13.21 per barrel. At March 23, 1998, the benchmark NYMEX
crude oil price was approximately $16.50 per barrel. Under full cost accounting
rules as prescribed by the SEC, unamortized costs of proved oil and natural gas
properties are subject to a ceiling which limits such costs to the Present Value
of Proved Reserves reduced by future discounted income taxes (the "Standardized
Measure"). At December 31, 1997, the Standardized Measure of the Company's
proved reserves was greater than the book carrying cost of the Company's oil and
gas properties by approximately $85 million. Subject to ongoing exploitation
and production activities which may affect the estimated volumes and values of
the Company's
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oil and gas properties, the Company estimates that the Standardized Measure of
the Company's proved reserves will approximate the book carrying cost of such
properties at a NYMEX benchmark crude oil price between $15.00 and $16.00 per
barrel and the Company could be required to record a noncash writedown of such
capitalized costs.
Investing Activities
Net cash flows used in investing activities were $107.6 million, $52.5
million and $64.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Included in such amounts are payments, net of cash received from
property sales and reimbursements from partners, for acquisition, development
and exploration costs of $103.0 million, $49.9 million and $63.9 million for the
same periods, respectively. Such payments for 1997 and 1995 include $22.0
million and $45.0 million related to the acquisition of the Montebello Field and
the Illinois Basin Properties, respectively. The Company expended $4.7 million,
$2.6 million and $1.1 million in 1997, 1996 and 1995, respectively, for other
property additions, primarily for surface fee land acquired in connection with
the Montebello Field in 1997, midstream activities and computer equipment.
Financing Activities
Net cash provided by financing activities amounted to $78.5 million, $9.9
million and $52.3 million for 1997, 1996 and 1995, respectively. Aggregate
proceeds from long-term borrowings for these same years were $266.9 million,
$263.7 million and $83.6 million, respectively, while payments of long-term debt
were $207.0 million, $248.1 million and $32.7 million for the respective
periods. Approximately $25 million borrowed under the Revolving Credit Facility
to fund the acquisition of the Montebello Field and related surface fee land is
included in proceeds from long-term debt in 1997. Also included in financing
activities during 1997 are net proceeds of approximately $53 million from the
sale of the Series C & D 10.25% Notes and a corresponding payment on the
Revolving Credit Facility. Financing activities during 1996 include net
proceeds of approximately $144.6 million from the Series A & B 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 1997 include proceeds of $39 million from short-term
borrowings and $21 million of repayments related to crude oil inventory
transactions at the Cushing Terminal. The short-term borrowings were made under
the Transactional Facility and all inventory acquired has been hedged against
price risk. Financing activities include proceeds from the sale of capital
stock of $1.1 million, $1.8 million and $.9 million in 1997, 1996 and 1995,
respectively. Such proceeds were primarily from the exercise of employee stock
options.
Commitments
Although the Company obtained environmental studies on its properties in
California, the 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 $11.0 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 1997, 1996 and 1995 include $.6 million, $.8 million
and $1.0 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.
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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-25 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 1998 Annual Meeting of Stockholders (the "Proxy
Statement") to be filed within 120 days after December 31, 1997, 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.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(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.
(2) Exhibits
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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 January 4, 1996).
2(b) - Stock Purchase Agreement dated as of March 15, 1998, among Plains Resources Inc.,
Plains All American Inc. and Wingfoot Ventures Seven Inc.
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).
3(c) - Certificate of Designation, Preference and Rights of Series D Cumulative Convertible
Preferred Stock (incorporated by reference to Exhibit 3(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997).
4 - Indenture dated as of March 15, 1996, among the Company, the Subsidiary Guarantors
named therein and Texas Commerce Bank National Association, as Trustee for the
Company's 10 1/4% Senior Subordinated Notes due 2006, Series A and Series B
(incorporated by reference to Exhibit 4(b) to the Company's Form S-3 (Registration No.
333-1851)).
4(a) - Indenture dated as of July 21, 1997, among the Company, the Subsidiary Guarantors named
therein and Texas Commerce Bank National Association, as Trustee for the Company's
10 1/4% Senior Subordinated Notes due 2006, Series C and Series D (incorporated by
reference to Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997).
4(b) - 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).
4(d) - Warrant dated November 12, 1997, to Shell Land & Energy Company for the purchase of
150,000 shares of Common Stock (incorporated by reference to Exhibit 4(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30,
1997).
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 Form 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 Form S-8 Registration Statement (Reg. No. 33-48610)).
</TABLE>
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10(d)* - The Company's Amended and Restated 401(k) Plan (incorporated by reference to Exhibit
10(d) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996).
10(e)* - The Company's 1996 Stock Incentive Plan (incorporated by reference to Exhibit 4 to the
Company's Form S-8 Registration Statement (Reg. No. 333-06191)).
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 December 31, 1995).
10(g) - 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(h) - 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. (incorporated by
reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
10(i) - 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. (incorporated by reference to Exhibit 10(j) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).
10(j)* - Stock Option Agreement dated August 27, 1996 between the Company and Greg L. Armstrong
(incorporated by reference to Exhibit 10(l) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10(k)* - Stock Option Agreement dated August 27, 1996 between the Company and William C. Egg Jr.
(incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996).
10(l)* - First Amendment to the Company's 1992 Stock Incentive Plan (incorporated by reference
to Exhibit 10(n) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
10(m) - Second Amendment to Third Amended and Restated Credit Agreement dated as of March 7,
1997, among the Company and Internationale Nederlanden (U.S.) Capital Corporation,
et.al. (incorporated by reference to Exhibit 10(o) to the Company's Quarterly Report on
Form 10-Q for the quarterly period end March 31, 1997).
10(n) - Third Amendment to the Third Amended and Restated Credit Agreement dated as of July 18,
1997, among the Company and ING (U.S.) Capital Corporation, et.al. (incorporated by
reference to Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997).
10(o) - Fourth Amendment to the Third Amended and Restated Credit Agreement dated as of August
29, 1997, among the Company and ING (U.S.) Capital Corporation, f/k/a Internationale
Nederlanden (U.S. Capital Corporation, et.al. (incorporated by reference to Exhibit
10(p) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1997).
10(p) - Fifth Amendment to the Third Amended and Restated Credit Agreement dated as of November
3, 1997, among the Company and ING (U.S.) Capital Corporation, f/k/a Internationale
Nederlanden (U.S. Capital Corporation, et.al. (incorporated by reference to Exhibit
10(q) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1997).
10(q) - Fifth Amendment to the Uncommitted Secured Demand Transactional Line of Credit Facility
between Plains Marketing & Transportation Inc. and BankBoston, N.A. (f/k/a The First
National Bank of Boston) et.al., dated as of August 7, 1997, (incorporated by reference
to Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997).
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10(r) - Sixth Amendment to the Uncommitted Secured Demand Transactional Line of Credit Facility
between Plains Marketing & Transportation Inc. and BankBoston, N.A. (f/k/a The First
National Bank of Boston) et.al., dated as of August 29, 1997, (incorporated by
reference to Exhibit 10(t) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1997).
10(s)* - Second Amendment to the Company's 1992 Stock Incentive Plan (incorporated by reference
to Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1997).
10(t) - Seventh Amendment to the Uncommitted Secured Demand Transactional Line of Credit
Facility between Plains Marketing & Transportation Inc. and BankBoston, N.A. (f/k/a The
First National Bank of Boston) et.al., dated as of November 20, 1997.
10(u) - Eighth Amendment to the Uncommitted Secured Demand Transactional Line of Credit
Facility between Plains Marketing & Transportation Inc. and BankBoston, N.A. (f/k/a The
First National Bank of Boston) et.al., dated as of January 23, 1998.
10(v) - Sixth Amendment to the Third Amended and Restated Credit Agreement dated as of February
10, 1998, among the Company and ING (U.S.) Capital Corporation, f/k/a Internationale
Nederlanden (U.S.) Capital Corporation, et.al.
10(w) - Seventh Amendment to the Third Amended and Restated Credit Agreement dated as of March
20, 1998, among the Company and ING (U.S.) Capital Corporation, f/k/a Internationale
Nederlanden (U.S.) Capital Corporation), et.al.
21 - Subsidiaries of the Company.
23(a) - Consent of Price Waterhouse LLP.
27(a) - Financial Data Schedule for the year ended December 31, 1997.
27(b) - Financial Data Schedule for the nine months ended September 30, 1997, restated in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128").
27(c) - Financial Data Schedule for the six months ended June 30, 1997, restated in accordance with the provisions
of SFAS 128.
27(d) - Financial Data Schedule for the three months ended March 31, 1997, restated in accordance with the
provisions of SFAS 128.
27(e) - Financial Data Schedule for the year ended December 31, 1996, restated in accordance with the provisions
of SFAS 128.
27(f) - Financial Data Schedule for the nine months ended September 30, 1996, restated in accordance with the
provisions of SFAS 128.
27(g) - Financial Data Schedule for the six months ended June 30, 1996, restated in accordance with the provisions
of SFAS 128.
27(h) - Financial Data Schedule for the three months ended March 31, 1996, restated in accordance with the
provisions of SFAS 128.
27(i) - Financial Data Schedule for the year ended December 31, 1995, restated in accordance with the provisions
of SFAS 128.
</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 1997.
39
<PAGE>
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: March 26, 1998 By: /s/ Phillip D. Kramer
--------------------------------------------
Phillip D. Kramer, Senior 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: March 26, 1998 By: /s/ Greg L. Armstrong
--------------------------------------------
Greg L. Armstrong, President,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 26, 1998 By: /s/ Jerry L. Dees
--------------------------------------------
Jerry L. Dees, Director
Date: March 26, 1998 By: /s/ Tom H. Delimitros
--------------------------------------------
Tom H. Delimitros, Director
Date: March 26, 1998 By: /s/ Cynthia A. Feeback
--------------------------------------------
Cynthia A. Feeback, Controller and Principal
Accounting Officer (Principal Accounting
Officer)
Date: March 26, 1998 By: /s/ William M. Hitchcock
--------------------------------------------
William M. Hitchcock, Director
40
<PAGE>
Date: March 26, 1998 By: /s/ Phillip D. Kramer
--------------------------------------------
Phillip D. Kramer, Senior Vice President and
Chief Financial Officer (Principal Financial
Officer)
Date: March 26, 1998 By: /s/ Dan M. Krausse
--------------------------------------------
Dan M. Krausse, Chairman of the Board and
Director
Date: March 26, 1998 By: /s/ John H. Lollar
--------------------------------------------
John H. Lollar, Director
Date: March 26, 1998 By: /s/ Robert V. Sinnott
--------------------------------------------
Robert V. Sinnott, Director
Date: March 26, 1998 By: /s/ J. Taft Symonds
--------------------------------------------
J. Taft Symonds, Director
The Annual Report to Stockholders of the Company for the year ended
December 31, 1997, 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.
41
<PAGE>
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, 1997
and 1996................................................. F-3
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995......................... F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995................... F-5
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1997, 1996
and 1995................................................. F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE>
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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
/s/Price Waterhouse
Houston, Texas
February 19, 1998
F-2
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
----------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................................................. $ 3,714 $ 2,517
Accounts receivable....................................................................... 99,597 93,686
Inventory................................................................................. 22,802 4,563
Prepaids and other........................................................................ 667 1,092
--------- ---------
Total current assets...................................................................... 126,780 101,858
--------- ---------
PROPERTY AND EQUIPMENT
Oil and natural gas properties - full cost method:
Subject to amortization................................................................ 498,038 384,019
Not subject to amortization............................................................ 52,024 41,698
Midstream assets, primarily crude oil terminal and storage facility....................... 35,451 35,122
Other property and equipment.............................................................. 8,074 8,275
--------- ---------
593,587 469,114
Less allowance for depreciation, depletion and amortization............................... (180,279) (158,074)
--------- ---------
413,308 311,040
--------- ---------
OTHER ASSETS.............................................................................. 16,731 17,351
--------- ---------
$ 556,819 $ 430,249
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities............................................ $ 102,663 $ 93,242
Interest payable.......................................................................... 6,601 5,089
Royalties payable and drilling advances................................................... 5,016 7,859
Notes payable and other current obligations............................................... 18,511 511
--------- ---------
Total current liabilities................................................................. 132,791 106,701
BANK DEBT................................................................................. 80,000 72,700
SUBORDINATED DEBT......................................................................... 202,661 149,121
OTHER LONG-TERM DEBT...................................................................... 3,067 3,578
OTHER LONG-TERM LIABILITIES............................................................... 5,107 2,577
--------- ---------
423,626 334,677
--------- ---------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY
Series D Cumulative Convertible Preferred Stock, $1.00 par value,
46,600 shares authorized, issued and outstanding
at December 31, 1997, net of discount of $2,629,000.................................... 20,671 --
Common Stock, $.10 par value, 50,000,000 shares authorized; issued and
outstanding 16,703,074 shares at December 31, 1997, and 16,518,645
shares at December 31, 1996............................................................ 1,670 1,652
Additional paid-in capital................................................................ 122,887 120,051
Accumulated deficit....................................................................... (12,035) (26,131)
--------- ---------
133,193 95,572
--------- ---------
$ 556,819 $ 430,249
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Oil and natural gas sales................................................. $109,403 $ 97,601 $ 64,080
Marketing, transportation and storage..................................... 752,522 531,698 339,826
Interest and other income................................................. 319 309 319
-------- -------- --------
862,244 629,608 404,225
-------- -------- --------
EXPENSES
Production expenses....................................................... 45,486 38,735 30,256
Purchases, transportation and storage..................................... 740,042 522,167 333,460
General and administrative................................................ 8,340 7,729 7,215
Depreciation, depletion and amortization.................................. 23,778 21,937 17,036
Interest expense.......................................................... 22,012 17,286 13,606
Litigation settlement..................................................... -- 4,000 --
-------- -------- --------
839,658 611,854 401,573
-------- -------- --------
Income before income taxes and extraordinary item......................... 22,586 17,754 2,652
Income tax expense (benefit)
Current................................................................ 352 -- --
Deferred............................................................... 7,975 (3,898) --
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM.......................................... 14,259 21,652 2,652
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of tax benefit............... -- (5,104) --
-------- -------- --------
NET INCOME................................................................ $ 14,259 $ 16,548 $ 2,652
======== ======== ========
Basic earnings per share:
Income before extraordinary item....................................... $ 0.85 $ 1.32 $ 0.19
Extraordinary item..................................................... - (0.31) -
-------- -------- --------
Net income............................................................. $ 0.85 $ 1.01 $ 0.19
======== ======== ========
Diluted earnings per share:
Income before extraordinary item....................................... $ 0.77 $ 1.23 $ 0.16
Extraordinary item..................................................... - (0.29) -
-------- -------- --------
Net income............................................................. $ 0.77 $ 0.94 $ 0.16
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................................... $ 14,259 $ 16,548 $ 2,652
Items not affecting cash flows from operating activities:
Depreciation, depletion and amortization........................................ 23,778 21,937 17,036
Loss on early extinguishment of debt, net of tax................................ -- 5,104 --
Deferred income taxes........................................................... 7,975 (3,898) --
Other noncash items............................................................. 221 251 --
Change in assets and liabilities resulting from operating activities:
Accounts receivable............................................................. (9,518) (41,046) (18,598)
Inventory....................................................................... (18,239) 551 405
Prepaids and other.............................................................. 128 (64) 106
Accounts payable and other current liabilities.................................. 9,858 37,296 14,133
Interest payable................................................................ 1,494 977 347
Royalties payable............................................................... 351 1,352 903
--------- --------- --------
Net cash provided by operating activities.......................................... 30,307 39,008 16,984
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received for the sale of oil and gas properties............................... 2,667 3,066 7,355
Payment for acquisition, exploration and development costs......................... (105,646) (53,011) (71,250)
Payment for additions to other property and assets................................. (4,655) (2,551) (1,120)
Other.............................................................................. -- -- 617
--------- --------- --------
Net cash used in investing activities.............................................. (107,634) (52,496) (64,398)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt....................................................... 266,905 263,723 83,550
Proceeds from short-term debt...................................................... 39,000 -- --
Proceeds from sale of capital stock, options and warrants.......................... 1,104 1,785 869
Principal payments of long-term debt............................................... (207,011) (248,144) (32,717)
Principal payments of short-term debt.............................................. (21,000) -- --
Costs incurred to redeem long-term debt............................................ -- (6,468) --
Other.............................................................................. (474) (1,020) 550
--------- --------- --------
Net cash provided by financing activities.......................................... 78,524 9,876 52,252
--------- --------- --------
Net increase (decrease) in cash and cash equivalents............................... 1,197 (3,612) 4,838
Cash and cash equivalents, beginning of year....................................... 2,517 6,129 1,291
--------- --------- --------
Cash and cash equivalents, end of year............................................. $ 3,714 $ 2,517 $ 6,129
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES D $1.30
Cumulative CUMULATIVE
Convertible Convertible
Preferred Stock Preferred Stock Common Stock ADDITIONAL Accumu-
--------------- --------------- --------------- Paid-In lated
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT Capital Deficit
------ -------- ------ ------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994....................... -- $ -- 48 $ 481 11,594 $1,159 $ 89,274 $(44,452)
Preferred stock dividends....................... -- -- -- -- -- -- -- (879)
Redemption of $1.30 Cumulative
Convertible Preferred Stock.................. -- -- (48) (481) -- -- -- --
Conversion of Redeemable Preferred
Stock......................................... -- -- -- -- 3,628 363 21,406 --
Issuance of common stock in
connection with an acquisition............... -- -- -- -- 798 80 6,447 --
Capital stock issued upon exercise
of options and other......................... -- -- -- -- 159 16 963 --
Net income for the year......................... -- -- -- -- -- -- -- 2,652
---- ------- ----- ------ ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1995....................... -- -- -- -- 16,179 1,618 118,090 (42,679)
Capital stock issued upon exercise
of options and other......................... -- -- -- -- 340 34 1,961 --
Net income for the year......................... -- -- -- -- -- -- -- 16,548
---- ------- ----- ------ ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1996....................... -- -- -- -- 16,519 1,652 120,051 (26,131)
Capital stock issued upon exercise
of options and other......................... -- -- -- -- 184 18 1,936 --
Issuance of preferred stock and warrant
in connection with an acquisition............ 47 20,508 -- -- -- -- 900 --
Dividends on preferred stock.................... -- 163 -- -- -- -- -- (163)
Net income for the year......................... -- -- -- -- -- -- -- 14,259
---- ------- ----- ------ ------ ------ -------- --------
BALANCE AT DECEMBER 31, 1997....................... 47 $20,671 -- $ -- 16,703 $1,670 $122,887 $(12,035)
==== ======= ===== ====== ====== ====== ======== ========
</TABLE>
F-6
<PAGE>
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 California,
the Sunniland Trend of South Florida (the "Sunniland Trend") and the Illinois
Basin in southern Illinois. Its midstream 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, the Gulf
Coast area of Louisiana and California.
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. Estimates made by management include: oil and natural gas
reserves, depreciation, depletion and amortization, including future abandonment
costs, income taxes and related valuation allowance and pension liabilities.
Although management believes these estimates are reasonable, 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, exploitation 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, exploitation 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>
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, 1997 and 1996, in the amount of $4.7 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 Statement of Financial
Accounting Standards ("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 tax rates in effect for the year
in which the differences are expected to reverse.
MARKETING, TRANSPORTATION AND STORAGE
The Company's midstream activities are conducted through various wholly-
owned subsidiaries collectively referred to as ("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. Except for crude oil purchased from time to time
as inventory to service the needs of its terminalling and storage customers, 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 utilizes various derivative instruments to hedge its exposure
to price fluctuations on oil and natural gas transactions. The derivative
instruments used consist primarily of futures and option contracts traded on the
New York Mercantile Exchange ("NYMEX") and crude oil swap contracts entered into
with financial institutions. These instruments are utilized to hedge
transactions which are based on NYMEX oil and gas prices; therefore, a high
correlation exists between the hedged item and the hedge contract.
Recognized gains and losses on hedge contracts are reported as a component
of the related transaction. 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. Cash flows from hedging activities are
included in operating activities in the Consolidated Statements of Cash Flows.
Net deferred gains and losses on futures contracts, including closed futures
contracts, entered into to hedge anticipated crude oil purchases and sales are
included in Accounts Payable and Other in the Consolidated Balance Sheets.
Deferred gains or losses from inventory hedges are included as part of the
inventory cost and recognized when the related inventory is sold. Crude oil
swap contracts have no carrying value and therefore are not reflected in the
Consolidated Balance Sheets.
F-8
<PAGE>
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board ("FASB") 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:
DECEMBER 31,
------------------------------
1997 1996
------- -------
(IN THOUSANDS)
Crude oil............................... $18,986 $2,536
Materials and supplies.................. 3,816 2,027
------- ------
$22,802 $4,563
======= ======
At December 31, 1997, approximately 77% of the crude oil inventory was
hedged with NYMEX futures contracts or short-term physical delivery contracts.
The unhedged inventory is comprised of working inventory and linefill primarily
at the Cushing Terminal.
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revolving Credit Facility, bearing interest at weighted average interest
rates of 7.3% and 7.0%, at December 31, 1997 and 1996, respectively................ $ 80,000 $ 72,700
10.25% Senior Subordinated Notes, due 2006, net of unamortized premium of
$2.7 million and unamortized discount of $.9 million at December 31, 1997
and 1996, respectively............................................................. 202,661 149,121
Other long-term debt................................................................ 3,578 4,089
-------- --------
Total long-term debt................................................................ 286,239 225,910
Less current maturities............................................................. (511) (511)
-------- --------
$285,728 $225,399
======== ========
</TABLE>
REVOLVING CREDIT FACILITY
The Company has a $165 million revolving credit facility (the "Revolving
Credit Facility") with a group of six banks (the "Lenders"). The Revolving
Credit Facility is guaranteed by all of the Company's subsidiaries except PMTI
Inc. and Plains All American Inc. ("Plains All American") and is secured by the
upstream oil and gas properties of the Company and the guaranteeing subsidiaries
except Plains All American and the stock of all subsidiaries except Plains All
American. 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, 1997, is set at $165 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 3/8% per annum on the unused portion of the borrowing base.
The Revolving Credit Facility, as amended, matures on July 1, 1999, at which
time the remaining outstanding balance converts to a term loan which is
repayable in twenty equal quarterly installments commencing October 1, 1999,
with a final maturity of July 1, 2004. The Revolving Credit Facility bears
interest, at the Company's option of either LIBOR plus 1 3/8% or Base Rate (as
defined therein). At December 31, 1997, outstanding borrowings under the
Revolving Credit Facility were $80 million. In addition to the amount
outstanding at December 31, 1997, $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.
F-9
<PAGE>
10.25% SENIOR SUBORDINATED NOTES DUE 2006
On July 23, 1997, the Company sold $50 million of Senior Subordinated
Notes due 2006, Series C, bearing a stated coupon rate of 10.25% (the "Series C
10.25% Notes"). Such notes were issued pursuant to a Rule 144A private
placement at approximately 107.21% of par to yield a minimum yield to worst of
8.79%, or 9.03% yield to maturity. On October 30, 1997, the Company exchanged a
total of $49.95 million of the Series C 10.25% Notes for 10.25% Senior
Subordinated Notes due 2006, Series D, (the "Series D 10.25% Notes"). The
Series D 10.25% Notes are substantially identical (including principal amount,
interest rate, maturity and redemption rights) to the Series C 10.25% Notes for
which they were exchanged, except for certain transfer restrictions relating to
the Series C 10.25% notes. The stated coupon rate of interest and maturity date
of the Series C 10.25% Notes and the Series D 10.25% Notes (collectively, the
"Series C & D 10.25% Notes") are the same as those of the Company's Series A & B
10.25% Notes. Proceeds from the sale of the Series C & D 10.25% Notes, net of
offering costs, were approximately $53 million and were used to reduce the
balance outstanding on the Revolving Credit Facility.
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.
Proceeds from the sale of the Series A & B 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.
The Series A 10.25% Notes, the Series B 10.25% Notes, the Series C 10.25%
Notes and The Series D 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 Series A & B 10.25% Notes
and up to $15 million in principal amount of the Series C & D 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.
F-10
<PAGE>
OTHER LONG-TERM DEBT
Included in other long-term debt at December 31, 1997 and 1996 is $3.6
million and $4.1 million, respectively, related to the 1995 acquisition of a
production payment burdening certain of the Company's California properties.
Such other long-term debt has maturities of approximately $.5 million per year
in each of the years 1998 through 2004.
The aggregate amount of maturities of all long-term indebtedness for the
next five years is: 1998 - $.5 million, 1999 - $4.5 million, 2000 - $16.5
million, 2001 - $16.5 million and 2002 - $16.5 million.
NOTE 4 -- UNCOMMITTED SECURED DEMAND TRANSACTIONAL LINE OF CREDIT FACILITY
Plains Marketing has a $90 million Uncommitted Secured Demand
Transactional Line of Credit Facility (the "Transactional Facility") with five
banks. The purpose of the Transactional Facility is to provide standby letters
of credit to support the purchase 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.
Plains Marketing has established a $25 million sublimit (the "Sublimit")
within the Transactional Facility for 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. At
December 31, 1997, approximately $37.8 million in letters of credit and $18.0
million in borrowings were outstanding under the Transactional Facility.
Letters of credit under the Transactional Facility are generally issued
for up to seventy day periods and bear fees of 1 1/8% per annum. Borrowings
incur interest at the borrower's option of either (i) the Base Rate, as defined,
or (ii) LIBOR plus 1 1/2%. All financings under the Transactional Facility,
which expires in November 1998, are at the discretion of the lenders. Aggregate
cash borrowings are limited to $25 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, 1997, there were 16.7 million shares of common stock
("Common Stock") issued and outstanding and 46,600 shares of preferred stock
outstanding. (See Note 18)
STOCK WARRANTS AND OPTIONS
At December 31, 1997, the Company had warrants outstanding which entitle
the holders thereof to purchase an aggregate one million shares of Common Stock.
Per share exercise prices and expiration dates for the warrants are as follows:
750,000 shares at $6.00 expiring in 1999, 100,000 shares at $7.50 expiring in
2000 and 150,000 shares at $25.00 expiring in 2002.
The Company has various stock option plans for its employees and
directors (See Note 10).
SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK
In November 1997, the Company issued 46,600 shares of Series D Cumulative
Convertible Preferred Stock (the "Series D Preferred Stock") in connection with
the acquisition of the Arroyo Grande Field (See Note 8). The Series D Preferred
Stock has an aggregate stated value of $23.3 million and is redeemable at the
Company's option at 140% of stated value. If not previously redeemed or
converted, the Series D Preferred Stock will automatically convert into 932,000
shares of Common Stock in 2012. Each share of the Series D Preferred Stock has
a stated value
F-11
<PAGE>
of $500 and is convertible into Common Stock at a ratio of $25 of stated value
for each share of Common Stock to be issued. Commencing January 1, 2000, the
Series D Preferred Stock will bear an annual dividend of $30 per share. Prior to
such date, no dividends will accrue. The Series D Preferred Stock was initially
recorded at $20.5 million, a discount of $2.8 million from the stated value of
$23.3 million. This discount will be amortized to retained earnings during the
two year period dividends do not accrue.
$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
On January 2, 1995, the Company paid a dividend on its Series C
Cumulative Convertible Preferred Stock (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 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.
NOTE 6 -- EARNINGS PER SHARE
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128 ("SFAS 128"), Earnings Per Share ("EPS"). SFAS 128 replaces
the presentation of primary EPS with a presentation of basic EPS and requires a
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. Basic EPS excludes dilutive
securities and is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if dilutive
securities were converted into common stock and is computed similarly to fully
diluted EPS pursuant to previous accounting pronouncements. SFAS 128 is
effective for periods ending after December 15, 1997, and requires restatement
of all prior period EPS data presented.
The following is a reconciliation of the numerators and the denominators
of the basic and diluted EPS computations for income from continuing operations
for the years ended December 1997, 1996 and 1995, as required by SFAS 128. All
prior period EPS data has been restated in accordance with the provisions of
SFAS 128.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ----------------------------- ----------------------------
INCOME SHARES PER INCOME SHARES PER INCOME SHARES PER
(Numera- (Denomi- Share (Numera- (Denomi- Share (Numera- (Denomi- Share
tor) nator) Amount tor) nator) Amount tor) nator) Amount
-------- -------- -------- -------- --------- ------- --------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before extraordinary item...... $14,259 $21,652 $2,652
Less: preferred stock dividends....... (163) -- (42)
------- ------- ------
Income available to
common stockholders............... 14,096 16,603 $0.85 21,652 16,384 $1.32 2,610 13,859 $0.19
====== ====== ======
Effect of dilutive securities:
Employee stock options............ -- 1,085 -- 839 -- 396
Warrants.......................... -- 516 -- 421 -- 197
Series C Preferred Stock.......... -- -- -- -- -- 1,431
------- ------ ------- ------ ------ ------
Income available to common
stockholders assuming dilution.... $14,096 18,204 $0.77 $21,652 17,644 $1.23 $2,610 15,883 $0.16
======= ====== ====== ======= ====== ====== ====== ====== ======
</TABLE>
F-12
<PAGE>
Certain options and warrants to purchase shares of Common Stock were not
included in the computations of diluted EPS because the exercise prices were
greater than the average market price of the Common Stock during the periods of
the EPS calculations, resulting in antidilution. In addition, the Company's
Series D Preferred Stock, which was issued during 1997, is convertible into
932,000 shares of Common Stock but was not included in the computation of
diluted EPS because the effect was antidilutive. See Notes 5 and 10 for
additional information concerning outstanding options and warrants.
NOTE 7 -- INCOME TAXES
The Company's deferred income tax assets (liabilities) at December 31, 1997
and 1996 consist of the tax effect of income tax carryforwards and differences
related to the timing of recognition of certain acquisition, exploration,
exploitation and development costs for financial and tax reporting as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
U.S. Federal -------- ---------
- ------------ (IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Tax credit carryforwards....................................... $ 1,010 $ 934
Percentage depletion carryforward.............................. 2,450 2,450
Net operating loss ("NOL") carryforwards....................... 60,055 64,186
-------- --------
63,515 67,570
Deferred tax liabilities:
Acquisition, exploration and development costs................. (55,781) (51,431)
-------- --------
Net deferred tax asset......................................... 7,734 16,139
Valuation allowance............................................ (6,938) (8,376)
-------- --------
$ 796 $ 7,763
======== ========
States
- ------
Deferred tax liability......................................... $ (958) $ (462)
======== ========
</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. The remaining deferred tax asset was not recognized primarily due to
limitations imposed by the IRS regarding the utilization of NOL's 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 NOL's, 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, 1997, the Company had carryforwards of approximately
$171.6 million of regular tax NOL's, $7 million of statutory depletion, $.5
million of ITC and $.5 million of alternative minimum tax ("AMT") credit. Of
these amounts, utilization of approximately $12.2 million of the NOL
carryforwards and $.4 million of the ITC carryforwards are limited to certain
companies within the consolidated group. At December 31, 1997, the Company had
approximately $159.2 million of AMT NOL carryforwards available as a deduction
against future AMT income. The NOL carryforwards expire from 1998 through 2011.
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 Income:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. federal income tax provision at statutory rate............... $7,905 $ 6,214 $ 902
Reduction of valuation allowance against deferred tax asset....... -- (11,000) --
State income taxes................................................ 376 888 --
Utilization of tax attributes previously included
in allowance and other.......................................... 46 -- (902)
------ -------- -----
Income taxes on income before extraordinary item.................. 8,327 (3,898) --
Income tax benefit allocated to extraordinary item................ -- (3,403) --
------ -------- -----
$8,327 $ (7,301) $ --
====== ======== =====
</TABLE>
F-13
<PAGE>
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, 1997.
NOTE 8 -- ACQUISITIONS AND DISPOSITIONS
In March 1997, the Company completed the acquisition of Chevron USA's
("Chevron") interest in the Montebello Field for $25 million, effective February
1, 1997. The assets acquired consist of a 100% working interest and a 99.2% net
revenue interest in 55 producing oil wells and related facilities and also
include approximately 450 acres of surface fee land. At the acquisition date,
the Montebello Field, which is located approximately 15 miles from the Company's
existing California operations, was producing approximately 800 barrels of oil
and 800 Mcf of gas per day and added approximately 23 million barrels of oil
equivalent to the Company's proved reserves. The acquisition was funded with
proceeds from the Revolving Credit Facility.
On November 12, 1997, the Company acquired a 100% working interest and a
97% net revenue interest in the Arroyo Grande Field in San Luis Obispo County,
California, from subsidiaries of Shell Oil Company ("Shell"). The assets
acquired include surface and development rights to approximately 1,000 acres
included in the 1,500 acre unit. At the acquisition date, the Arroyo Grande
Field was producing approximately 1,600 barrels of 14 degree API gravity oil
per day from 70 wells and added approximately 20 million barrels of oil
equivalent to the Company's proved reserves.
The aggregate purchase price of $22.1 million consisted of rights to a
non-producing property interest conveyed to Shell, the issuance of 46,600 shares
of Series D Preferred Stock with an aggregate stated value of $23.3 million and
a 5 year warrant to purchase 150,000 shares of Common Stock at $25 per share.
No proved reserves had been assigned to the rights to the property interest
conveyed.
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. 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.
In December 1995, Stocker Resources Inc. ("Stocker"), a wholly-owned
subsidiary of the Company, acquired from Chevron a production payment burdening
certain of Stocker's California 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 California properties and approximately ten acres of
surface fee land 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 1997, 1996 and 1995, 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 $2.7 million, $3.1
million and $7.4 million, respectively.
F-14
<PAGE>
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 years ended December 31, 1997 and 1996, is
comprised of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1996
------ -------
<S> <C> <C>
(IN THOUSANDS)
Service cost - benefits earned during the period............... $ 82 $ 44
Interest on projected benefit obligation....................... 60 31
Amortization of prior service cost............................. 37 22
----- -----
Net pension expense............................................ $ 179 $ 97
===== =====
</TABLE>
The following schedule reconciles the status of the Plan with amounts
reported in the Company's balance sheet at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
------ ------
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of benefit obligations:
Vested benefits.............................................................. $ 857 $ 563
Nonvested benefits........................................................... 184 191
------ -----
Accumulated benefit obligation............................................... $1,041 $ 754
====== =====
Projected benefit obligation for service rendered to date.................... $1,041 $ 754
Plan assets at fair value.................................................... -- --
------ -----
Projected benefit obligation in excess of plan assets........................ 1,041 754
Unrecognized loss............................................................ (145) --
Prior service cost not yet recognized in net periodic pension expense........ (619) (657)
------ -----
Net pension liability........................................................ 277 97
Adjustment required to recognize minimum liability........................... 619 657
------ -----
Accrued pension cost liability recognized in the balance sheet............... $ 896 $ 754
====== =====
</TABLE>
The weighted-average discount rate used in determining the projected benefit
obligation was 7% and 8% for the years ended December 31, 1997 and 1996,
respectively.
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
F-15
<PAGE>
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,
1997, 1996, and 1995, and changes during the years ending on those dates are
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ----------------------- -----------------------
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..... 2,435 $ 8.56 1,728 $ 6.40 1,519 $6.40
Granted.............................. 384 $14.33 1,060 $11.34 365 $6.25
Exercised............................ (163) $ 6.80 (285) $ 6.26 (147) $5.92
Forfeited............................ (42) $ 9.82 (68) $ 6.63 (9) $6.68
------ ------ ------
Outstanding at end of year........... 2,614 $ 9.50 2,435 $ 8.56 1,728 $6.40
====== ====== ======
Options exercisable at year-end...... 1,494 $ 7.24 1,289 $ 6.78 1,233 $6.40
====== ====== ======
Weighted-average fair value of
options granted during the year.... $4.53 $3.19 $2.18
</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 EPS 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 for grants in 1997, 1996
and 1995: risk-free interest rates of 6.1% for 1997, 6.0% for 1996 and 7.5% for
1995; a volatility factor of the expected market price of the Company's common
stock of .42 for 1997 and .36 for 1996 and 1995; no expected dividends; and
weighted-average expected option lives of 2.6 years in 1997, 2.7 years in 1996
and 3.5 years in 1995.
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.
F-16
<PAGE>
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 EPS 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, the
effects of awards granted before December 31, 1994, are not considered in the
pro forma calculations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- ------------------------- -------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (in thousands)... $14,259 $13,665 $16,548 $16,161 $2,652 $2,497
Basic EPS................... $ 0.85 $ 0.81 $ 1.01 $ 0.99 $ 0.19 $ 0.18
Diluted EPS................. $ 0.77 $ 0.74 $ 0.94 $ 0.92 $ 0.16 $ 0.16
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
Average WEIGHTED-
NUMBER Remaining Average NUMBER WEIGHTED-
Outstanding Contractual Exercise Exercisable Average
RANGE OF EXERCISE PRICES at 12/31/97 Life PRICE at 12/31/97 Exercise Price
- ------------------------ ----------- ----------- --------- ------------ --------------
(SHARE AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 5.25 to $ 6.75......... 1,061 4.6 years $ 6.17 1,022 $ 6.17
$ 7.50 to $ 7.81......... 478 5.2 years $ 7.64 309 $ 7.61
$10.50 to $15.63......... 1,075 3.8 years $13.61 163 $13.26
----- -----
$ 5.25 to $15.63......... 2,614 4.4 years $ 9.50 1,494 $ 7.24
===== =====
</TABLE>
During 1997 and 1996, pursuant to Board of Directors' resolutions, the Company
contributed approximately 21,000 and 18,000 shares, respectively, of Common
Stock at weighted average prices of $15.22 and $11.35 per share, respectively,
on behalf of participants in the Company's 401(k) Savings Plan, representing a
matching contribution by the Company for 50% of an employee's contribution.
NOTE 11 -- COMMITMENTS, CONTINGENCIES AND INDUSTRY CONCENTRATION
COMMITMENTS AND CONTINGENCIES
Minimum commitments in connection with office space and office equipment
leased by the Company are: 1998 - $.8 million; 1999 through 2002 - $.7 million
annually; thereafter - $2.4 million. Rental payments made under the terms of
similar arrangements totaled approximately $1.1 million in 1997 and in 1996 and
$1.2 million in 1995.
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, 1997, Plains
Marketing had outstanding letters of credit of approximately $37.8 million.
Such letters of credit are secured by the crude oil inventory and accounts
receivable of Plains Marketing 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 225. 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
F-17
<PAGE>
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. As of December 31, 1997, Stocker has
not been required to make contributions to an escrow account.
Although the Company obtained environmental studies on its properties in
California, the Sunniland Trend and the 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 certain of its California
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 $11 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 1997, 1996 and 1995 include $.6 million, $.8 million
and $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 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 and the
marketing, terminalling and storage of crude oil. It is management's belief
that such commitments will be met without a material adverse effect on the
Company's financial position, results of operations or cash flows.
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. 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 California crude oil
and natural gas production and its Sunniland Trend and Illinois Basin oil
production is transported by pipelines, trucks and barges owned by third
parties. The inability or unwillingness of these parties 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 of operations or cash flows.
NOTE 12 -- LITIGATION
During 1996, the Company settled two lawsuits filed in 1992 and 1993, relating
to activities in 1991 and 1992, against certain of its officers and directors
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
F-18
<PAGE>
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.
On July 9, 1987, Exxon Corporation ("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 Florida, Inc. ("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 land 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
disputes over certain title issues. Motions have been filed requesting the Court
to rule on the disputes, but no hearing date has been set. The Company does not
believe that the disputes 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
Sales to Koch Oil Company ("Koch") and Sempra Energy Trading Corporation
(formerly AIG Trading Corporation) accounted for 27% and 11%, respectively, of
the Company's total revenue (exclusive of interest and other income) during
1997. Customers accounting for more than 10% of total revenue for 1996 and 1995
were as follows: 1996 -- Koch - 16% and Basis Petroleum, Inc. ("Basis",
formerly Phibro Energy USA, Inc.) - 11%; 1995 -- Phibro Inc. ("Phibro") - 16%
and Basis - 12%. No other single customer accounted for as much as 10% of total
sales during 1997, 1996 or 1995. Additionally during 1997, Unocal Energy
Trading, Inc., Marathon Oil Company and Exxon Company U.S.A. accounted for
approximately 52%, 23% and 10%, respectively, of the Company's oil and gas
sales.
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. Substantially all derivatives are either exchange traded or with
major financial institutions and the risk of loss is considered remote.
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, 1997, these
arrangements provided for a NYMEX Crude Oil Price for: (i) approximately 12,250
barrels per day from
F-19
<PAGE>
January 1, 1998, through December 31, 1998, at approximately $19.80 per barrel
and (ii) 2,000 barrels per day from January 1, 1999, through December 31, 1999,
at approximately $20.08 per barrel. Since December 31, 1997, the Company has
entered into additional arrangements for 1999, which when combined with
arrangements in effect at December 31, 1997, provide for a NYMEX Crude Oil Price
for approximately 6,000 barrels per day from January 1, 1999, through December
31, 1999, at $18.55 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 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.
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,
-----------------------------------------------------------
1997 1996
CARRYING FAIR CARRYING FAIR
Amount Value Amount Value
---------- -------- ---------- -------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
LONG TERM DEBT:
Bank debt......................................... $ 80,000 $ 80,000 $ 72,700 $ 72,700
Subordinated debt................................. 202,661 214,750 149,121 160,500
Other long-term debt.............................. 3,067 3,067 3,578 3,578
OFF BALANCE SHEET FINANCIAL INFORMATION:
Unrealized gain (loss) on crude oil swap
agreements...................................... -- 7,246 (1) -- (15,472)(1)
</TABLE>
- ---------------
(1) These amounts represent the calculated difference between the NYMEX Crude
Oil Price and the hedge arrangements for future production of the Company's
properties as of December 31, 1997 and 1996. Such hedges, and therefore the
unrealized gains and losses, have been included in 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.
F-20
<PAGE>
NOTE 15 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Selected cash payments and noncash activities were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest (net of amount capitalized).......... $ 20,486 $16,309 $13,259
======== ======= =======
Noncash investing and financing activities:
Series D Preferred Stock Dividends....................... $ 163 $ -- $ --
======== ======= =======
Conversion of Series C Preferred Stock................... $ -- $ -- $21,769
======== ======= =======
Tax benefit from exercise of employee stock options...... $ 513 $ -- $ --
======== ======= =======
Detail of properties acquired for other than cash:
Fair value of acquired assets............................ $ 22,140 $ -- $56,100
Debt issued and liabilities assumed...................... -- -- (4,600)
Property exchanged....................................... (1,619) -- --
Capital stock and warrants issued........................ (21,408) -- (6,527)
-------- -------- -------
Cash (received) paid..................................... $ (887) $ -- $44,973
======== ======== =======
</TABLE>
NOTE 16 -- OIL AND NATURAL GAS ACTIVITIES
COSTS INCURRED
The Company's oil and natural gas acquisition, exploration, exploitation
and development activities are 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,
-----------------------------------------
1997 1996 1995
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Property acquisition costs:
Unproved properties.................. $ 15,249 $ 728 $18,136
Proved properties.................... 28,182 3,087 41,194
Exploration costs....................... 1,730 2,433 2,001
Exploitation and development costs...... 82,217 45,007 22,681
-------- ------- -------
$127,378 $51,255 $84,012
======== ======= =======
</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,
---------------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Proved properties................ $ 498,038 $ 384,019
Accumulated DD&A................. (171,162) (150,300)
--------- ---------
$ 326,876 $ 233,719
========= =========
</TABLE>
The DD&A rate per equivalent unit of production was $2.83, $3.00 and $3.02
for the years ended December 31, 1997, 1996 and 1995, respectively.
F-21
<PAGE>
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,
------------------------
1997 1996
------- ------
(IN THOUSANDS)
<S> <C> <C>
Acquisition costs.................. $41,652 $31,940
Exploration costs.................. 2,573 3,210
Capitalized interest............... 7,799 6,548
------- -------
$52,024 $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 37%, 6% and 30% of
the balance in unproved properties at December 31, 1997, related to additions
made in 1997, 1996 and 1995, respectively.
During 1997, 1996 and 1995, the Company capitalized $3.3 million, $3.6
million and $3.1 million, respectively, of interest related to the 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, 1997. The
following reserve information is based upon reports of the independent petroleum
consulting firms of H.J. Gruy and Company and System Technology Associates Inc.
with respect to the Company's California 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 ("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.
F-22
<PAGE>
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,
1997.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995
---------------------- --------------------- -------------------
OIL GAS OIL GAS OIL GAS
(Bbl) (Mcf) (Bbl) (Mcf) (Bbl) (Mcf)
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
PROVED RESERVES
Beginning balance................... 115,996 37,273 94,408 43,110 61,459 51,009
Revisions of previous estimates..... (16,091) 3,805 19,424 6,641 5,423 2,792
Extensions, discoveries, improved
recovery and other additions..... 17,884 8,126 8,179 1,294 15,489 1,730
Sale of reserves in-place........... (26) (547) (5) (12,491) (1,227) (9,773)
Purchase of reserves in-place....... 40,764 14,566 45 862 17,640 130
Production.......................... (6,900) (2,873) (6,055) (2,143) (4,376) (2,778)
------- ------- ------- ------- ------- -------
Ending balance...................... 151,627 60,350 115,996 37,273 94,408 43,110
======= ====== ======= ======= ====== ======
PROVED DEVELOPED RESERVES
Beginning balance................... 86,515 25,629 67,266 29,397 48,978 30,869
======= ====== ======= ======= ====== ======
Ending balance...................... 99,193 38,233 86,515 25,629 67,266 29,397
======= ====== ======= ======= ====== ======
</TABLE>
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,
--------------------------------------------------
1997 1996 1995
-------------- --------------- ----------------
<S> <C> <C> <C>
(IN THOUSANDS)
Future cash inflows................... $ 2,237,876 $2,681,007 $1,513,145
Future development costs.............. (157,877) (111,785) (107,995)
Future production expense............. (1,019,254) (977,551) (692,008)
Future income tax expense............. (261,130) (437,654) (157,110)
----------- ---------- ----------
Future net cash flows................. 799,615 1,154,017 556,032
Discounted at 10% per year............ (387,792) (575,436) (251,191)
----------- ---------- ----------
Standardized measure of
discounted future net cash flows... $ 411,823 $ 578,581 $ 304,841
=========== ========== ==========
</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
received by the Company at December 31, 1997, is based on the NYMEX Crude Oil
Price of $18.34 per barrel with variations therefrom based on location and
grade of crude oil. 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. Arrangements in
effect at December 31, 1997, are reflected 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, 1997, were $13.91 per barrel of crude
oil, condensate and natural gas liquids and $2.13 per Mcf of natural gas.
F-23
<PAGE>
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 (the
"Present Value of Proved Reserves") to be $511.0 million, $764.8 million and
$366.8 million at December 31, 1997, 1996 and 1995, 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.
The principal sources of changes in the Standardized Measure of future net
cash flows for the three years ended December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Balance, beginning of year.............................................. $ 578,581 $ 304,841 $202,944
Sales, net of production expenses....................................... (63,917) (58,866) (33,824)
Net change in sales and transfer prices, net of production expenses..... (359,138) 275,200 26,968
Changes in estimated future development costs........................... 9,927 (5,188) (3,228)
Extensions, discoveries and improved recovery, net of costs............. 84,676 50,013 59,050
Previously estimated development costs incurred during the year......... 23,449 19,662 3,136
Purchase of reserves in-place........................................... 74,278 2,253 64,214
Sales of reserves in-place.............................................. (1,501) (3,357) (11,381)
Revision of quantity estimates.......................................... (57,597) 145,815 24,533
Accretion of discount................................................... 76,477 36,678 22,937
Net change in income taxes.............................................. 87,024 (124,254) (35,512)
Changes in estimated timing of production and other..................... (40,436) (64,216) (14,996)
--------- --------- --------
Balance, end of year.................................................... $ 411,823 $ 578,581 $304,841
========= ========= ========
</TABLE>
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. A large
portion of the Company's reserve base (approximately 94% of year-end 1997
reserve volumes) is comprised of long-life oil properties that are sensitive to
crude oil price volatility. The crude oil price received by the Company at
December 31, 1997, upon which proved reserve volumes, the Present Value of
Proved Reserves and the Standardized Measure as of such date were based, was
$18.34 per barrel. During the first quarter of 1998, the benchmark NYMEX crude
oil price fluctuated significantly, closing as high as $17.82 per barrel and as
low as $13.21 per barrel. At March 23, 1998, the benchmark NYMEX crude oil
price was approximately $16.50 per barrel. At December 31, 1997, the
Standardized Measure (See Note 1) of the Company's proved reserves was greater
than the book carrying cost of the Company's oil and gas properties by
approximately $85 million. Subject to ongoing exploitation and production
activities which may affect the estimated volumes and values of the Company's
oil and gas properties, the Company estimates that the Standardized Measure of
the Company's proved reserves will approximate the book carrying cost of such
properties at a NYMEX benchmark crude oil price between $15.00 and $16.00 per
barrel and the Company could be required to record a noncash writedown of such
capitalized costs.
F-24
<PAGE>
NOTE 17 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table shows summary financial data for 1997 and 1996.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- --------- -------------- ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1997
Revenues..................................... $207,132 $188,592 $220,660 $245,860
Operating profits............................ $ 18,609 $ 18,666 $ 18,567 $ 20,874
Net income................................... $ 3,891 $ 3,252 $ 2,759 $ 4,357
Basic EPS.................................... $ 0.24 $ 0.20 $ 0.17 $ 0.25
Diluted EPS.................................. $ 0.22 $ 0.18 $ 0.15 $ 0.23
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
Basic EPS
Before extraordinary item................. $ 0.57 $ 0.28 $ 0.21 $ 0.26
Extraordinary item........................ (0.53) 0.12 0.10 --
-------- -------- -------- --------
$ 0.04 $ 0.40 $ 0.31 $ 0.26
======== ======== ======== ========
Diluted EPS
Before extraordinary item................. $ 0.54 $ 0.26 $ 0.20 $ 0.24
Extraordinary item........................ (0.50) 0.11 0.08 --
-------- -------- -------- --------
$ 0.04 $ 0.37 $ 0.28 $ 0.24
======== ======== ======== ========
</TABLE>
NOTE 18 -- SUBSEQUENT EVENT -- ALL AMERICAN PIPELINE ACQUISITION (UNAUDITED)
On March 21, 1998, Plains All American, a wholly owned subsidiary of the
Company, entered into a definitive agreement to acquire all of the outstanding
capital stock of the All American Pipeline Company, Celeron Gathering
Corporation and Celeron Trading & Transportation Company (collectively the
"Celeron Companies") from The Goodyear Tire & Rubber Company ("Goodyear").
Aggregate proceeds to Goodyear through closing are estimated at $420 million.
The principal assets of the entities to be acquired include the All American
Pipeline System, a 1,233-mile crude oil pipeline extending from California to
Texas, and a 45-mile crude oil gathering system in the San Joaquin Valley of
California, as well as other assets related to such operations. The purchase
price is subject to certain adjustments through the closing date, and the
transaction is subject to regulatory review and approval. The transaction is
expected to be completed in the third quarter of 1998 after regulatory approvals
by the United States Department of Justice and the Federal Trade Commission
under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended, and
by the Public Utilities Commission of the State of California have been secured.
For 1997, the operations to be acquired generated approximately $65 million in
earnings before interest, taxes, depreciation and amortization.
A major portion of the financing for the transaction will be provided
through a new $325 million, limited recourse bank facility made available to
Plains All American by ING Barings and BankBoston N.A. In addition to the bank
facility, the Company will make a capital contribution to Plains All American of
up to $130 million which will be used to fund the balance of the purchase price
and transaction costs and provide initial working capital. To finance its
capital contribution, the Company will borrow approximately $50 million under
the Revolving Credit Facility and has entered into financing commitments for a
new issue of privately placed, convertible preferred stock aggregating
approximately $80 million. Commitments for the preferred stock placement have
been obtained from a group of equity investors comprised primarily of existing
shareholders. The preferred stock has an aggregate stated value of $80 million
and bears a cumulative dividend of 9.5% per annum, payable semi-annually in
either cash or additional shares of preferred stock at the Company's option.
Each share of preferred stock is convertible into 27.78 shares of Common Stock
(an effective conversion price of $18.00 per share) and in certain circumstances
may be converted at the Company's option into Common Stock if the average
trading price for any thirty-day trading period is equal to or greater than
$21.60 per share. The preferred stock is redeemable at the option of the Company
at 110% of stated value after March 31, 1999 and at declining amounts
thereafter. If not previously redeemed or converted, the preferred stock is
required to be redeemed in 2012.
F-25
<PAGE>
EXHIBIT 2(b)
[EXECUTION COPY]
================================================================================
================================================================================
STOCK PURCHASE AGREEMENT
AMONG
PLAINS RESOURCES INC.
AND
PLAINS ALL AMERICAN INC.
AND
WINGFOOT VENTURES SEVEN INC.
DATED AS OF MARCH 15, 1998
================================================================================
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
Parties and Recitals...................................................... 1
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Definitions................................................. 2
SECTION 1.2 Accounting Terms............................................ 16
SECTION 1.3 Rules of Construction....................................... 16
ARTICLE II
PURCHASE AND SALE OF SHARES
SECTION 2.1 Purchase and Sale of the Shares............................. 16
SECTION 2.2 Purchase Price.............................................. 16
SECTION 2.3 Closing Price Adjustments................................... 17
SECTION 2.4 Post-Closing Price Adjustments.............................. 18
SECTION 2.5 Time and Method of Payments................................. 20
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Seller.................... 20
(a) Organization and Qualification of the Celeron Companies 20
(b) Capitalization of the Celeron Companies................ 21
(c) Organization and Authority of Seller
No Governmental Approvals Required..................... 22
(d) Validity of Agreement.................................. 22
(e) Title to the Shares and the CGC Shares................. 23
(f) Subsidiaries........................................... 23
(g) Condition of Rights-of-Way; Leases..................... 23
(h) Title to Properties.................................... 24
(I) Indebtedness for Moneys Borrowed....................... 24
(j) Disclosure Schedule.................................... 25
i
<PAGE>
Page
----
(k) Contractual Obligations................................ 25
(l) Intellectual Property.................................. 26
(m) Absence of Undisclosed Liabilities..................... 26
(n) Corporate Documents.................................... 27
(o) Contract Consents...................................... 27
(p) Banking Arrangements................................... 27
(q) Litigation............................................. 27
(r) Compliance with Laws and Regulations................... 27
(s) No Condemnation........................................ 28
(t) Employee Benefit Plans; ERISA.......................... 28
(u) Environmental Matters.................................. 28
(v) Contracts; No Material Defaults........................ 29
(w) Receivables............................................ 29
(x) Brokers................................................ 29
(y) Officers and Directors................................. 29
(z) Certain Regulations.................................... 29
(aa) Absence of Unusual Liabilities or Expenses............. 30
(bb) Linefill and Inventory Barrels......................... 30
SECTION 3.2 Representations and Warranties of Purchaser and Plains...... 30
(a) Organization and Qualification of Purchaser............ 30
(b) Corporate Authority.................................... 30
(c) No Violation; Consents and Approvals................... 30
(d) Valid and Binding Obligations.......................... 31
(e) Organization and Qualification for Plains.............. 31
(f) Corporate Authority.................................... 32
(g) No Violation; Consents and Approvals................... 32
(h) Valid and Binding Obligations.......................... 32
(i) Purchase for Investment................................ 33
(j) Brokers................................................ 33
(k) No Adverse Information................................. 33
(l) Certain Regulations.................................... 33
(m) Other Matters.......................................... 34
SECTION 3.3 Special Representations of Purchaser........................ 34
(a) Access to Information; Acknowledgement of Disclaimers.. 34
(b) Celeron Assets etc., As-Is, With All Faults............ 34
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Page
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ARTICLE IV
CERTAIN OBLIGATIONS OF PARTIES PRIOR TO CLOSING
SECTION 4.1 Consents.................................................... 35
SECTION 4.2 Conduct of Celeron Operations............................... 35
SECTION 4.3 Maintain Assets............................................. 37
SECTION 4.4 HSR Act and Other Governmental Filings...................... 37
SECTION 4.5 Employee Relations Matters.................................. 37
SECTION 4.6 Right to Investigate........................................ 38
SECTION 4.7 Satisfaction of Conditions.................................. 38
SECTION 4.8 Consultation with Purchaser................................. 39
SECTION 4.9 Related Agreements.......................................... 39
ARTICLE V
ADDITIONAL COVENANTS AND RELATED AGREEMENTS
SECTION 5.1 Tax Matters; Section 338(h)(10) Election.................... 39
SECTION 5.2 Publicity................................................... 39
SECTION 5.3 Confidentiality............................................. 40
SECTION 5.4 Business Records............................................ 40
SECTION 5.5 Accounts Receivable......................................... 41
SECTION 5.6 Corporate Names and Trademarks.............................. 41
SECTION 5.7 Release of Environmental Claims............................. 41
SECTION 5.8 Celeron Indebtedness........................................ 41
SECTION 5.9 Assumption of Guaranty Agreement and Letters of Credit...... 42
SECTION 5.10 Termination of Certain Agreements........................... 42
SECTION 5.11 Transferred Assets and Liabilities.......................... 42
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
SECTION 6.1 Conditions Precedent to Obligations of
Purchaser.................................................... 42
(a) Representations and Warranties Correct.................. 42
(b) Covenants Performed..................................... 43
(c) No Material Changes..................................... 43
(d) Opinion of Counsel...................................... 43
(e) Absence of Litigation................................... 43
(f) Officers' Certificate................................... 43
(g) Resignations............................................ 43
(h) Governmental Approvals.................................. 43
(i) Contract Consents....................................... 44
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Page
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SECTION 6.2 Conditions Precedent to Obligations of
Seller....................................................... 44
(a) Representations and Warranties Correct................... 44
(b) Covenants Performed...................................... 44
(c) Opinion of Counsel....................................... 44
(d) Absence of Litigation.................................... 44
(e) Officers' Certificate.................................... 45
(f) Governmental Approvals................................... 45
(g) Consents................................................. 45
(h) Certain Adverse Events................................... 45
ARTICLE VII
THE CLOSING
SECTION 7.1 Time and Place of Closing.................................... 45
SECTION 7.2 Seller's Deliveries at Closing............................... 46
SECTION 7.3 Purchaser's Deliveries at Closing............................ 46
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Survival of Representations and Warranties................... 47
SECTION 8.2 Indemnification.............................................. 47
(a) Certain Definitions...................................... 47
(b) General Indemnity by Purchaser and Plains................ 48
(c) General Indemnity by Seller.............................. 49
(d) Duration of Indemnification Obligations.................. 50
(e) Limitation of Claims..................................... 50
(f) Payment.................................................. 51
(g) Notice; Access and Cooperation........................... 51
(h) No Insurance............................................. 52
(i) Single Claims............................................ 52
(j) Insured Losses; Subrogation.............................. 52
(k) No Transfer-Resales...................................... 53
(l) No Gross-Up.............................................. 53
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Page
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SECTION 8.3 Indemnification for Environmental Matters.................... 53
(a) Pre-Closing Environmental Review and Disclosures......... 53
(b) Unknown Environmental Liabilities........................ 54
(c) Pre-effective Time Off-Site Disposal..................... 56
(d) Post-effective Time Off-Site Disposal.................... 56
(e) Participation In Negotiations............................ 57
(f) Incorporations By Reference.............................. 57
SECTION 8.4 Indemnification for Taxes.................................... 57
ARTICLE IX
MODIFICATION AND TERMINATION
SECTION 9.1 Amendment.................................................... 58
SECTION 9.2 Termination.................................................. 58
SECTION 9.3 Effect of Termination........................................ 58
SECTION 9.4 Non Performance.............................................. 58
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Notices..................................................... 60
SECTION 10.2 Incorporation by Reference of Attachments................... 60
SECTION 10.3 Entire Agreement............................................ 61
SECTION 10.4 Interpretation.............................................. 61
SECTION 10.5 Waiver...................................................... 61
SECTION 10.6 Successors; No Assignment................................... 61
SECTION 10.7 Further Assurances.......................................... 62
SECTION 10.8 No Rights in Third Parties.................................. 62
SECTION 10.9 No Partnership.............................................. 62
SECTION 10.10 Costs and Expenses.......................................... 62
SECTION 10.11 Severability................................................ 62
SECTION 10.12 Table of Contents and Headings.............................. 62
SECTION 10.13 Counterparts................................................ 62
SECTION 10.14 Governing Law............................................... 62
SECTION 10.15 Jurisdiction................................................ 63
Testimonium and Signatures................................................ 63
v
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ANNEXES
A Addresses for Notices
B List of Environmental Laws
APPENDICES
A Inventory Protocol
B Celeron Accounting Practices
C List of Acquired Assets
D List of Assumed Liabilities
E Goodyear Guaranty Agreements and Letters of Credit
F List of Persons Employed by Celeron Companies at March 15, 1998
G List of Transferred Assets
H List of Transferred Liabilities
I List of Acquired Contracts
J List of Acquired Leases
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EXHIBITS
Exhibit Title - Description
- ------- -------------------
A Description of All American System and AAPL Equipment
B Statement of Net Assets Sold of Celeron Companies
C [Intentionally Omitted]
D Description of SJV System and SJV Equipment
E List of Celeron Real Property
F Right-of-Way Agreements
Part I - AAPL Right-of-Way Agreements
Part II - CGC Right-of-Way Agreements
Part III - Undeveloped Right-of-Way Agreement
G List of Capital Projects of Celeron Companies
H List of Celeron Leased Property-Contracts Relating to Celeron Leased
Property
I Form of Employee Agreement
J Allocation of Purchase Price
K Form of Opinion of Counsel to Seller
L Form of Opinion of Counsel to Purchaser and Plains
M Form of Officers' Certificate (Seller)
N Form of Officers' Certificates (Purchaser and Plains)
O Form of Guaranty Assumption Agreement
P Form of Tax Agreement
Q Form of Indemnification Adoption Agreement
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SCHEDULES
Page
Schedule No. Reference Title - Description
- ------------- --------- -------------------
2.4 18 Exceptions to Accounting Practices
3.1
Part C 22 List of Governmental Approvals Required of Seller
Part D 22 Violations and Conflicts
Part F 23 Equity Investments of Celeron Companies
Part G 23 Right-of-Way Exceptions
Part H 24 Exceptions to Title
Part I 24 List of Indebtedness for Money Borrowed of Celeron
Companies
Part J 25 Disclosure Schedule
Part K 25 Certain Contractual Obligations
Part L 26 Intellectual Property
Part M 26 Certain Liabilities
Part O 27 Contract Consents
Part P 27 List of Banking Arrangements
Part Q 27 List of Litigation, Decrees, Orders and Judgments
Part R 27 List of Compliance Exceptions
Part S 28 Condemnation Proceedings
Part U 28 List of Environmental Proceedings and Disclosures
Part V 29 List of Defaults Under Material Contracts
Part W 29 List of Certain Accounts Receivable
Part Y 29, 6 List of Officers and Directors of Celeron Companies
and Designated Celeron Officers
3.2
Part C 31, 32 List of Governmental Approvals Required by Purchaser
Part D 31 Contracts Imposing Liens on Assets of Purchaser
Part H 33 Contracts Imposing Liens on Assets of Plains
Part M 34 Capital Structure of Purchaser
4.8 39 Approved Activities
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is entered into as of the 15th day
of March, 1998, by and among PLAINS ALL AMERICAN INC., a Delaware
corporation (the "Purchaser"), PLAINS RESOURCES INC., a Delaware
corporation ("Plains"), and WINGFOOT VENTURES SEVEN INC., a Delaware
corporation (the "Seller").
WITNESSETH:
WHEREAS, Seller owns all of the issued and outstanding shares of the
capital stock of ALL AMERICAN PIPELINE COMPANY, a Texas corporation ("AAPL"),
and AAPL owns and operates a crude oil pipeline and related assets; and
WHEREAS, AAPL owns all of the issued and outstanding shares of the
capital stock of CELERON GATHERING CORPORATION, a Delaware corporation ("CGC"),
and CGC owns and operates a crude oil gathering system; and
WHEREAS, Seller owns all of the issued and outstanding shares of CELERON
TRADING & TRANSPORTATION COMPANY, a Delaware corporation ("CT&T"); and
WHEREAS, Purchaser is a wholly-owned subsidiary of Plains; and
WHEREAS, the Board of Directors of Plains has determined that the
transactions contemplated by this Agreement are in the best interests of Plains
and, in order to induce Seller to enter into this Agreement, Plains is willing
to perform, or cause to be performed, certain duties, covenants and agreements
of Purchaser pursuant to this Agreement and to be directly responsible for, and
to assure and guarantee, the performance by Purchaser of its other covenants,
agreements and obligations in accordance with the provisions of this Agreement;
and
WHEREAS, on and subject to the terms and conditions set forth in this
Agreement, Purchaser desires to purchase from Seller, and Seller desires to sell
to Purchaser, all of the issued and outstanding shares of the capital stock of
AAPL and CT&T (collectively, the "Shares");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants and provisions hereinafter set forth, the parties hereto
hereby agree as follows:
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ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 DEFINITIONS. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated (such meanings to be, when appropriate, equally applicable to both the
singular and plural forms of the terms defined):
"AAPL" means All American Pipeline Company, a Texas corporation.
"AAPL Equipment" means all of the mainline pipe, pumps, heaters,
turbines, motors, piping, connection equipment, gauges, controls, utility
connections, tankage and related equipment and other tangible personal
property owned by AAPL and comprising a part of, and used in the operation
of, the All American System. The principal items of AAPL Equipment are
listed at Exhibit A to this Agreement.
"AAPL Right-of-Way Agreement" means any one of, and "AAPL Right-of-Way
Agreements" means all of, the documents listed at Part I of Exhibit F to
this Agreement.
"AAPL Rights-of-Way" means all of the rights-of-way, easements, licenses
and similar interests and rights in respect of real property acquired by
AAPL on which the All American System is installed and which were obtained
pursuant to, and are the subjects of, the AAPL Right-of-Way Agreements;
"AAPL Shares" means all of the issued and outstanding shares of the
capital stock of AAPL, consisting of 1,100 shares of common stock, $1.00
par value, of AAPL.
"Accounts Payable" means, at the time as of which a determination
thereof is being or to be made, all of the payables of the Celeron
Companies (excluding Intercompany Accounts), and any and all other amounts
(excluding Intercompany Accounts) payable by the Celeron Companies which
may be appropriately accounted for as payables in accordance with the
Celeron Accounting Practices, all valued in accordance with the Celeron
Accounting Practices.
"Accounts Receivable" means, at the time as of which a determination
thereof is being or to be made, all of the receivables of the Celeron
Companies (excluding Intercompany Accounts), and any and all other amounts
(excluding Intercompany Accounts) due to the Celeron Companies which may be
appropriately accounted for as accounts receivable in accordance with the
Celeron Accounting Practices, all valued in accordance with the Celeron
Accounting Practices.
"Acquired Assets" means and includes all of the properties (whether real
or personal, tangible or intangible), rights, claims, accounts, accruals
and other assets acquired by AAPL from Cel Corp pursuant to that certain
Bill of Sale, dated as of
2
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December 31, 1997, duly executed by Cel Corp and AAPL. The principal items
acquired by AAPL pursuant to said Bill of Sale are listed at Appendix C to
this Agreement.
"Acquired Contracts" means and includes each of the agreements assigned
from Cel Corp to AAPL, as listed at Appendix I to this Agreement.
"Acquired Leases" means and includes each of the leases and licenses
assigned from Cel Corp to AAPL effective on or subsequent to December 31,
1997, as listed at Appendix J to this Agreement.
"Affiliate" means, when used with reference to any Person, any other
Person which directly or indirectly controls, is controlled by or is under
common control with, such Person; and, for the purposes of this definition,
the concept of "control" when used with reference to any Person shall
signify the power to direct the management of such Person, whether through
the ownership or control of voting securities or equity, by contract or
otherwise. Unless expressly provided to the contrary in this Agreement,
when used with reference to Seller, Affiliate includes Goodyear. Unless
expressly provided to the contrary in this Agreement, when used with
respect to Purchaser, Affiliate includes Plains.
"All American System" means the crude oil pipeline system owned and
operated by AAPL, consisting of a mainline segment extending from Gaviota,
California to McCamey, Texas, a segment extending from Las Flores,
California to Gaviota, California, and all related terminal and oil storage
and other facilities owned by AAPL, as generally described at Exhibit A to
this Agreement.
"Assumed Liabilities" means and includes all of the liabilities,
losses, costs, expenses, claims, accruals and charges assumed by AAPL from
Cel Corp pursuant to the provisions of that certain Assumption Agreement,
dated as of December 31, 1997, duly executed by AAPL and Cel Corp. The
items assumed by AAPL pursuant to said Assumption Agreement are listed at
Appendix D to this Agreement.
"Base Price" has the meaning assigned to that term in Section 2.2 of
this Agreement.
"business day" means any day on which commercial banks are not required
or authorized by law to close in the City of New York, State of New York.
"CGC" means Celeron Gathering Corporation, a Delaware corporation.
"CGC Right-of-Way Agreement" means any one of, and "CGC Right-of-Way
Agreements" means all of, the documents listed at Part II of Exhibit F to
this Agreement.
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"CGC Rights-of-Way" means all of the rights-of-way, easements, licenses
and similar interests and rights in respect of real property acquired by
CGS on which the SJV System is installed and which were obtained pursuant
to, and are the subjects of, the CGC Right-of-Way Agreements.
"CGC Shares" means all of the issued and outstanding shares of the
capital stock of CGC, consisting of 1,000 shares of common stock, $1.00 par
value, of CGC.
"CT&T" means Celeron Trading & Transportation Company, a Delaware
corporation.
"CT&T Shares" means all of the issued and outstanding shares of the
capital stock of CT&T, consisting of one share of the common stock, $100
par value, of CT&T.
"Cal PUC" means the Public Utilities Commission of the State of
California.
"Capital Contribution" means each and any, and "Capital Contributions"
means and includes all, payments made by Seller to AAPL or CT&T during the
Transition Period as a contribution to the capital of AAPL or CT&T, as the
case may be, whether by payment of cash or property, by the exchange or
surrender of claims or by providing services, or any other form of
contribution to the equity of, or equity investment in, AAPL or CT&T.
"Capital Distribution" means each and any of, and "Capital
Distributions" means and includes all, (a) non-cash dividends declared by
the Board of Directors of AAPL or CT&T and paid by AAPL or CT&T on the
Shares to the Seller, (b) distributions on the Shares declared by the Board
of Directors of AAPL or CT&T and paid (whether in cash or property) to
Seller as a return of capital, as a reduction of paid-in surplus, capital
surplus or stated capital, or as any other distribution on the Shares, but
excluding any and all Dividends.
"Capital Projects" means the projects of the Celeron Companies described
or referred to in Schedule G to this Agreement.
"Cel Corp" means Celeron Corporation, a Delaware corporation.
"Celeron Accounting Practices" means the accounting conventions,
principles, practices and policies of the Celeron Companies described or
referred to in Appendix B to this Agreement.
"Celeron Assets" means, as of the date at which a determination thereof
is being made, the All American System (including the AAPL Equipment), the
SJV System (including the SJV Equipment), the Celeron Real Property, the
Linefill and the Acquired Assets, and excluding Transferred Assets and the
Celeron Leased Property, the Celeron Rights-of-Way and the Current Assets.
4
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"Celeron Company" means each or any one of, and "Celeron Companies"
means all of, AAPL, CGC and CT&T.
"Celeron Leased Property" means all of the real and personal properties
leased or licensed (including software and firmware) by the Celeron
Companies, other than Pipeline Rights-of-Way, used in the operation of the
All American System and the SJV System, which properties are listed at
Exhibit H to this Agreement.
"Celeron Real Property" means all of the real properties, including the
land, land improvements and buildings located thereon, owned in fee simple
by the Celeron Companies, which properties are listed at Exhibit E to this
Agreement.
"Celeron Rights-of-Way" means all of the AAPL Rights-of-Way, CGC Rights-
of-Way and Undeveloped Rights-of-Way.
"Closing" has the meaning assigned to that term in Section 7.1 of this
Agreement.
"Closing Date" has the meaning assigned to that term in Section 7.1 of
this Agreement.
"Closing Price" has the meaning assigned to that term in Section 2.3 of
this Agreement.
"Closing Date Adjustments Certificate" means that certain certificate to
be prepared by Seller and delivered to Purchaser in accordance with Section
2.3 of this Agreement.
"Closing Date Statement of Net Assets Sold" has the meaning assigned to
that term in Section 2.4(b) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
on the date hereof including the published rulings duly issued and
regulations duly promulgated thereunder.
"Contract" means any lease, contract, agreement, commitment or similar
instrument and all amendments thereto (other than Right-of-Way Agreements)
to which any Celeron Company is a party or by which any Celeron Company is
bound (including Acquired Contracts).
"Current Assets" means, with respect to the time at or as of which any
determination thereof is being or to be made, all Inventory, Accounts
Receivables and other assets appropriately classified as current assets in
accordance with GAAP and consistent with the Celeron Accounting Practices.
5
<PAGE>
"Dividend" means each and any, and "Dividends"" means and includes all,
cash dividends on the Shares declared by the Board of Directors of AAPL or
CT&T and paid to Seller by AAPL or CT&T, as the case may be, whether such
dividends were declared in respect of retained earnings, paid-in surplus,
capital surplus or as reduction of stated capital.
"Designated Celeron Officer" means any one of, and "Designated Celeron
Officers" means all of, the persons identified at Part Y of Schedule 3.1 to
this Agreement.
"ENSR" means ENSR Consulting and Engineering, Camarillo, California.
"EPA" means the United States Environmental Protection Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and in effect on the date hereof, including rulings duly issued and
regulations duly promulgated thereunder.
"Effective Time" means 12:01 AM, San Francisco time, on the Closing
Date.
"Employee Agreement" means that certain Employee Agreement, in
substantially the form, appropriately completed, of Exhibit I to this
Agreement, among Purchaser, Plains, Seller, AAPL, CT&T, CGC and Cel Corp.
"Environmental Assessment Report" means that certain Limited Phase I
Environmental Study Report issued by ENSR, dated January 1997, Document No.
3144-046-310.
"Environmental Law" means each or any of the, and "Environmental Laws"
means any and all, Federal, state or local laws, rules, regulations,
ordinances, codes, policies or rules of common law now or hereinafter in
effect relating to the contamination, remediation or protection of the
environment, including those set forth at Annex B to this Agreement.
"Estimated Closing Date Statement" has the meaning assigned to that term
in Section 2.3 of this Agreement.
"Expenditures for Capital Projects" means the aggregate amount expended
by the Celeron Companies (whether capitalized or expensed by the Celeron
Companies) on Capital Projects during the period beginning January 1, 1998
and ending at the close of business on the day next preceding the Closing
Date, as determined in good faith by Seller.
"Exxon Event" means any material damage to the Heritage, Hondo and
Harmony platforms, to the connecting pipeline and facility infrastructure
in the Santa Ynez Unit, or to the onshore processing facilities through
which crude oil production from said platforms
6
<PAGE>
is processed; or any material adverse development to the reservoir(s) from
which said platforms are producing which is reasonably likely to cause a
long-term loss of production or processing capacity.
"FASB" means the Financial Accounting Standards Board.
"FERC" means the Federal Energy Regulatory Commission of the United
States of America or its predecessors having jurisdiction over the All
American System.
"GAAP" means, when used in respect of any Person, such accounting
practices of such Person as, in the opinion of the independent accountants
regularly retained by such Person, are not inconsistent with United States
accounting principles promulgated by FASB applicable to such Person.
"Goodyear" means The Goodyear Tire & Rubber Company, an Ohio
corporation.
"Governmental Approval" means any right, privilege, franchise,
authorization, approval, license, permit or certificate issued by, any
consent or exemption of, or any filing or registration with, any
Governmental Body.
"Governmental Body" means (i) the United States of America, any State
thereof, or any political subdivision of the United States of America or
any State thereof, or any department, agency, commission, board, bureau,
agency or instrumentality of the United States of America, any State
thereof, or any political subdivision of any of them, (ii) any other
authority or agency exercising any form of governmental regulatory
authority under applicable law, (iii) any quasi-governmental body, agency
or authority, and (iv) any corporation established by or at the direction
of any of the foregoing and authorized by statute to exercise governmental
regulatory authority.
"Guaranty Agreements" means the guarantees issued by Goodyear, and the
letters of credit opened by Goodyear, in respect of obligations of the
Celeron Companies pursuant to instruments listed at Appendix E to this
Agreement.
"Guaranty Assumption Agreement" means that certain Guaranty Assumption
Agreement among Purchaser, Seller, the Celeron Companies and Goodyear, in
substantially the form, appropriately completed, of Exhibit O to this
Agreement.
"HSR Act" means the Hart-Scott-Rodino Anti-Trust Improvements Act of
1976, as amended, including rules duly issued and regulations duly
promulgated thereunder.
"Hazardous Materials" means any materials or substances defined as or
included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "toxic substances", "toxic pollutants" or words of
similar import under any Environmental Law.
7
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"Indemnification Adoption Agreement" means that certain Indemnification
Adoption Agreement among Purchaser, Plains, the Celeron Companies and
Seller in substantially the form, appropriately completed, of Exhibit Q to
this Agreement.
"Intercompany Account" means, as at the time as of which a determination
thereof is being made, any and all amounts (1) owing to the Celeron
Companies by Goodyear, Seller, or any other Subsidiary of Goodyear, (2)
owed by any of the Celeron Companies to Goodyear, Seller, Cel Corp or any
other Subsidiary of Goodyear, as the case may be, or (3) owing by or owed
to any of the Celeron Companies to or by any other Celeron Company.
"Inventory" means, as at the date on which a determination thereof is
being made, any and all of the following items owned by the Celeron
Companies, each of which is properly valued and accounted for consistent
with the Celeron Accounting Practices and the Inventory Protocol and with
the principles, procedures and assumptions used in the preparation of the
Statement of Net Assets Sold: (1) crude oil, processed oil, gas or other
hydrocarbons and associated products in pipelines and in storage tanks, and
(2) stores, supplies, spare parts, unaffixed equipment and similar
materials.
"Inventory Protocol" means the procedures for quantifying and valuing
the oil inventory on the Closing Date as set forth at Appendix A to this
Agreement.
"Lease" means any lease, lease agreement or other instrument (including
the Acquired Leases) providing for the lease of real property or tangible
or intangible personal property, other than Celeron Rights-of-Way and the
Right-of-Way Agreements, to which any Celeron Company is a party as the
lessee, lessor, sublessee or sublessor thereunder.
"Liability" means each of, and "Liabilities" means and includes all of,
the losses, costs, expenses, claims, accruals, charges or other obligations
or liabilities of the Celeron Companies which arise, are incurred, or are
accrued, reserved or recorded at any time during the period in respect of
which any determination thereof is being made or to be made, or which exist
at any time as of which any determination thereof is being or to be made,
whether or not recorded on the books and records of the Celeron Companies,
excluding any liability for Taxes.
"Lien" means any lien, mortgage, security interest, pledge, deed of
trust or other charge or encumbrance upon or with respect to any real or
personal, tangible or intangible property.
"Liquidation Value" means, with respect to any Rejected Asset, the lower
of (i) the price paid and/or costs incurred to acquire such Rejected Asset,
(ii) the fair market value of such Rejected Asset, or (iii) the greater of
(x) the price at which such asset was sold in an arms length transaction
with an unrelated third party or (z) the price offered by Seller to
purchase such Rejected Asset.
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"Linefill" means, at the time as of which a determination thereof is
being or to be made, all crude oil owned by the Celeron Companies which is
used by the Celeron Companies as linefill in the All American System or in
the SJV System or is in another pipeline system as linefill pursuant to the
tariff or other requirements of such other pipeline system, quantified and
valued consistent with the Celeron Accounting Practices.
"Losses" has the meaning assigned to that term in Section 8.2(a) of this
Agreement.
"Migration" means, and to "migrate" refers to, leaking, leaching,
emitting, escaping, seeping or migrating water, air or soil containing
legally regulated amounts (based on established standards) of Hazardous
Materials from Celeron Leased Property, Celeron Real Property, or out of
the All American System or the SJV System, to the premises of any other
Person, excluding emissions and discharges authorized under a Government
Approval.
"Ordinary Course Liability" means each and any one of, and "Ordinary
Course Liabilities" means and includes all of, the liabilities, losses,
costs, expenses, claims, accruals or charges which arise, are incurred or
are recorded at any time during the period in respect of which any
determination thereof is being or to be made, or which exist at any time as
of which any determination thereof is being or to be made, of the Celeron
Companies (whether or not recorded on the Statement of Net Assets Sold or
the Closing Date Statement of Net Asset Sold) that (i) are incurred by or
assessed against the Celeron Companies or any of them in connection with
the ownership, operation, maintenance or use of the Celeron Assets, the
Celeron Leased Property, the Celeron Rights-of-Way and the Current Assets,
or in connection with purchasing, selling, exchanging, trading, blending,
storing, disposing of or otherwise dealing in crude oil or petroleum
products or other hydrocarbons and (ii) are not inconsistent with past
operating or financial practices of the Celeron Companies, including,
without limiting the generality of the foregoing, any Liability (1)
incurred, paid, accrued or recorded in connection with the purchase, sale,
exchange, storage, transportation or use of crude oil; (2) for expenses
incurred, paid, accrued or recorded in the operation of the All American
System or the SJV System; (3) for expenses or capital expenditures
incurred, paid, accrued or recorded by any Celeron Company to maintain,
update or repair, or to improve the capacity, quality or efficiency of, the
All American System or the SJV System or the other Celeron Assets; (4) for
costs, losses or expenses incurred in the repair of the Celeron Assets,
including repairs required due to ordinary wear and tear, equipment
breakdown or failure, defective equipment, materials or installation,
accident, rainstorm, windstorm, fire, flood, natural disaster, willful
destruction by any Person (other than Seller or any Affiliate of Seller),
or act of God; (5) for or in respect of Taxes; (6) for or in respect of
employee compensation and benefit costs; (7) for or in respect of workman's
compensation claims; (8) for expenses incurred, paid, accrued or recorded
by any Celeron Company in respect of Celeron Rights-of-Way; (9) in respect
of claims asserted by any Person in respect of the Celeron Assets or the
use or operation thereof (other than for material breach of contract or
intentional wrongful acts by the Celeron Companies); (10) for rentals or
other payments in
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respect of any Celeron Lease or other Contract if the Celeron Company party
thereto is not in material default thereunder; (11) arising out of the
adjustments of any accrual or reserve recorded on the books and records of
the Celeron Companies and reflected in the Statement of Net Assets Sold, so
long as such adjustments are made to reflect newly available data and the
original accrual or reserve was made in good faith; (12) recorded on the
Statement of Net Assets Sold; (13) in respect of the acquisition of new
supplies of crude oil or the making of new connections for providing crude
oil transportation services; (14) in respect of any Environmental Law; (15)
in respect of any expense incurred or to be incurred by the Celeron
Companies for the services of employees of Cel Corp and/or the Celeron
Companies or in respect of any matter covered by the Employee Agreement;
(16) any adjustment to the per barrel value of the Linefill or the Oil
Inventory on the books and records of the Celeron Companies; (17) for
Permitted Debt; (18) for or in respect of Permitted Payments and accruals
for Permitted Transactions; (19) for claims asserted by Persons (other than
parties to this Agreement) for wrongful conduct, other than breach of
contract, so long as such conduct was not found to be intentional or
grossly negligent; (20) arising out of a default by a counterparty to any
Celeron Company under any contract, agreement or arrangement, or any
default by any account debtor in the payment of any Account Receivable;
(21) in respect of the Capital Projects, including Expenditures for Capital
Projects; (22) arising out of any transaction which is effected with the
approval of Purchaser; (23) for expenses or losses incurred, or capital
expenditures incurred or committed to, by any Celeron Company in connection
with the acquisition of new crude oil trading and transportation business;
and (24) in respect of leases for automobiles in accordance with past
practices, or the lease or rental of real or personal property in
connection with the operation of the Celeron Assets or the trading of crude
oil or other hydrocarbons.
"Permitted Debt" means and includes all indebtedness of the Celeron
Companies or any of them incurred on or after March 15, 1998 and prior to
the Effective Time up to an aggregate amount equal to the sum of (i)
$25,104,000.00, plus (ii) the aggregate amount of Expenditures for Capital
Projects, plus (iii) the aggregate amount of Permitted Payments paid, and
the aggregate amount of all accruals for or in respect of Permitted
Transactions incurred, during the Transition Period, plus (iv) the
aggregate amount of payments in respect of Taxes, other than Federal or
state income tax installment payments, made during the Transition Period;
plus (v) the amount, if any, by which costs and expenses, determined using
the Celeron Accounting Practices, exceeds Revenues during the Transition
Period; it being understood that Permitted Debt in respect of any set of
facts or circumstances shall not permit an increase of indebtedness
pursuant to more than one of the foregoing clauses.
"Permitted Encumbrances" means and includes any and all (1) sale
contracts covering oil, gas or associated liquid or gaseous hydrocarbons
and similar contracts or obligations entered into by the Celeron Companies
in connection with their operations; (2) liens for Taxes or assessments
that are not yet due, that are due but not yet delinquent or that are being
contested in good faith by Seller, Goodyear or any of the Celeron
Companies; (3) the rights, if any, to consent by, required notices to,
filings with, or other
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actions by any Governmental Body in connection with the operation or use of
the Celeron Assets or the Celeron Rights-of-Way; (4) surface rights,
including easements, rights-of-way, servitudes, permits, surface leases and
other similar rights in respect of surface operations, pipelines, grazing,
logging, canals, ditches, reservoirs or the like, conditions, covenants,
reservations of rights or other restrictions, and easements of streets,
alleys, highways, pipelines, telephone lines, power lines, railways and
other easements and rights-of-way of or in favor of any Person, on, over or
in any Celeron Real Property, Celeron Leased Property or Celeron Right-of-
Way which are recorded in appropriate public records or do not (when
considered individually as to any Celeron Real Property, Celeron Leased
Property or Celeron Right-of-Way) materially and unreasonably interfere
with the use of the property subject thereto as presently used by the
Celeron Companies; (5) materialmen's, mechanics', repairmen's, employees',
contractors', operators' or other similar liens or charges arising in the
ordinary course of business incidental to construction, maintenance or
operation of the Celeron Assets or the Celeron Rights-of-Way; (6) the terms
and conditions of all leases, agreements, orders, instruments and documents
listed in any Annex, Appendix, Exhibit or Schedule attached to this
Agreement; (7) rights reserved to or vested by law or regulation in any
Governmental Body, or rights arising by contract with any Governmental
Body, to control or regulate any Celeron Asset or any Celeron Right-of-Way
or any interest therein in any manner, and all obligations arising under
applicable laws, rules and orders of Governmental Bodies; (8) rights
reserved to the grantors of the Celeron Rights-of-Way, and the obligations
and undertakings of the Celeron Companies, and the restrictions,
conditions, restrictive covenants and limitations, in respect of the
Celeron Rights-of-Way, pursuant to the terms, conditions and provisions of
the Rights-of-Way Agreements; and (9) in respect of the Celeron Real
Property and the Celeron Rights-of-Way, imperfections of title that are of
record or, when taken individually as to any of the Celeron Real Property
or the Celeron Rights-of-Way, do not materially and unreasonably interfere
with use thereof as presently being used by the Celeron Companies.
"Permitted Liens" means and includes any and all (1) cash deposits
required under contracts, cash deposits required under leases permitted
under this Agreement, deposits of cash or securities to secure statutory
obligations, surety and appeal bonds, progress or partial payments made to
AAPL, CGC or CT&T and any other lien of a similar nature; (2) liens or
encumbrances deemed to exist by reason of covenants or undertakings under
any Contract, Lease, Right-of-Way Agreement or other agreement or
instrument; (3) liens arising out of the making of pledges or deposits
under workmen's compensation laws or similar legislation; (4) mechanic's,
workmen's, vendor's, materialmen's, construction, landlord's and other
similar liens arising in the ordinary course of business, or incident to
the construction, improvement or maintenance of any Celeron Asset or
Celeron Right-of-Way in respect of obligations which are not due (or, if
due, are not materially past due); (5) rights reserved to or vested in any
Governmental Body by the terms of any right, power, franchise, grant,
license or permit, or by any provision of law, to revoke or terminate any
such right, power, franchise, grant, license or permit or to condemn or
acquire by eminent domain or similar process; (6) rights reserved to or
vested by law in any Governmental Body to in any manner control or regulate
in any manner any of the
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Celeron Companies, or any of the Celeron Assets, the Celeron Rights-of-Way,
or any of the other assets or properties of the Celeron Companies or the
use thereof or the rights and interests of the Celeron Companies therein,
in any manner under any and all laws, regulations, rules, decrees and
orders; (7) obligations or duties affecting any of the Celeron Companies or
any of the Celeron Assets or Celeron Rights-of-Way imposed by any
Governmental Body pursuant to any law, regulation, rule, decree or order;
(8) rights of any other Person having an interest in any Celeron Asset or
Celeron Right-of-Way or of any Person having an interest in any property
leased or held under other license or right by the Celeron Companies
arising under applicable law; (9) the rights of any Governmental Body or
owner or interest holder in respect of the land through which the All
American System and the SJV System traverse, whether arising by law or
pursuant to the Rights-of-Way Agreements; and (10) liens for Taxes,
assessments, charges or levies of any Governmental Body which are not yet
due, are not yet delinquent or are being contested in good faith by Seller,
Goodyear or any of the Celeron Companies.
"Permitted Payment" means any payment, and "Permitted Payments" means
and include all payments, made or obligations incurred by the Celeron
Companies during the Transition Period in respect of Permitted
Transactions.
"Permitted Transactions" means and includes: (1) the "Franchise Fee"
regularly paid by Cel Corp in respect of the Celeron Companies to Goodyear
for certain tax, treasury and other services (approximately $100,000 per
month during 1998) for the period January 1, 1998 through March 31, 1998;
(2) reimbursement, whether pursuant to the Services Agreements or
otherwise, of all costs incurred, including the $741,431.20 of unreimbursed
costs incurred during 1997 (as reported on the Statement of Net Assets
Sold), by Cel Corp (for, among other things, the compensation of, and
payroll taxes in respect of, its employees, rents and management and
administrative services); (3) allocated self-insurance costs assigned to
the Celeron Companies by Goodyear; (4) payments to Goodyear in respect of
workman's compensation claims and the administration and payment thereof;
(5) Celeron 401(k) Savings Plan contributions paid or payable to Goodyear
in reimbursement of Goodyear's advance payment of such amounts to the plan
trustee on behalf of the Celeron Companies or Cel Corp; (6) allocated costs
paid or payable to Goodyear for auditing services, including independent
accountants fees and expenses; (7) charges paid or payable to Goodyear for
data and communications services; and (8) other transactions to which any
Celeron Company is a party and Seller or Cel Corp, Goodyear or any other
Affiliate of Seller is a counterparty for the providing of goods or
services to any Celeron Company, which are substantially similar to goods
or services provided to the Celeron Companies prior to 1998.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, Governmental Body or other legal entity of any kind.
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"Phase II Study" means that certain Report of Limited Follow-up
Assessment of All American Pipe Line, a limited Phase II environmental
study report issued by ENSR, dated February 24, 1998, Document No.
3144-067-900.
"Pipeline Right-of-Way" means each or any of, and "Pipeline Rights-of-
Way" means all of, the AAPL Rights-of-Way and the CGC Rights-of-Way.
"Pipeline Right-of-Way Agreement" means each or any one of, and
"Pipeline Right-of-Way Agreements" means all of, the AAPL Right-of-Way
Agreements and the CGC Right-of-Way Agreements.
"Prior Debt" means the indebtedness of AAPL to Wingfoot Ventures Eight
Inc and Wingfoot Ventures Nine Inc in the aggregate principal amount of
$698,775,694.96 at December 31, 1997 (approximately $693,275,147.45 at
February 28, 1998), plus the intercompany account balances in respect of
the Celeron Companies, as the debtors, with Seller and its Affiliates, as
the creditors, in the aggregate principal amount of $128,998,833.80 at
December 31, 1997 (approximately $134,630,512.93 at February 28, 1998).
Prior Debt does not include the account payable of the Celeron Companies to
Cel Corp in the amount of $741,431.20.
"Purchase Price" means the Base Price, as defined in Section 2.2 of this
Agreement, as adjusted in accordance with, and determined and calculated
pursuant to the provisions of Sections 2.2, 2.3 and 2.4 of this Agreement.
"Recorded Value" means, with respect to any asset or property of any
Celeron Company or with respect to any services provided to any Celeron
Company, the lower of the acquisition cost, or the fair market value, of
such asset or property, as recorded in the financial records of such
Celeron Company, or the cost of such services incurred by, or accrued on
the records of, such Celeron Company.
"Records" means and includes all files, instruments, books and records
of the Celeron Companies, including, without limiting the generality of the
foregoing, any and all: (1) abstracts, title opinions, title and other
insurance policies, compensation agreements, throughput agreements,
mortgages, chattel mortgages, financing statements, rental records, records
relating to United States Federal, State of California, State of Texas,
State of Arizona, State of New Mexico and local taxes, maps and surveys,
oil purchase agreements, gas purchase agreements, oil sale contracts, gas
sale contracts, inventory ledgers, surface leases, rights-of-way and right-
of-way agreements, real property leases, equipment leases, personal
property leases, contracts for the batching, blending, treatment,
processing or transportation of oil, and all other contracts or agreements
relating to the Celeron Assets; (2) records and files relating to permits,
licenses, franchises, servitudes, easements and rights-of-way of every kind
relating to the Celeron Companies; (3) records and files relating to the
Celeron Employees, including job descriptions, employment qualifications
and similar data; (4) accounting books and ledgers, financial statements
and similar data of the Celeron Companies; (5) Right-of-Way
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Agreements and Contract files, property records, operation files,
maintenance files, FERC filings and records, landowner files, governmental
files, reports to regulatory agencies, maps, geologic samples and other
similar items; (6) environmental site assessments, environmental compliance
audits, spill records, emission records, health or ecological studies and
special investigations relating to the Celeron Assets which were prepared
by, on behalf of, or at the request of any of the Celeron Companies; and
(7) correspondence, instructions, plans, studies, reports, drawings,
receipts, vouchers, data stored in computers (or on computer disc or tape),
and other memoranda of every description owned by AAPL, CGC or CT&T.
"Rejected Asset" means any, and "Rejected Assets" means all, assets
acquired by any of the Celeron Companies other than in the ordinary course
of business and which resulted in the Celeron Companies incurring a
Liability which is not an Ordinary Course Liability.
"Related Agreements" means and includes the (1) the Employee Agreement,
(2) the Tax Agreement, (3) the Guaranty Assumption Agreement, and (4) the
Indemnification Adoption Agreement.
"Revenues" has the meaning assigned to that term in the Celeron
Accounting Practices.
"Right-of-Way Agreement" means each or any of, and "Right-of-Way
Agreements" mean and include all of, the AAPL Right-of- Way Agreements, the
CGC Right-of-Way Agreements and the Undeveloped Right-of-Way Agreements.
"SJV Equipment" means all of the line pipe, pumps, heaters, turbines,
motors, piping, connection equipment, gauges, controls, utility connection,
tankage and related equipment and other tangible personal property owned by
CGC and comprising a part of, and used in the operation of, the SJV System.
The principal items of SJV Equipment are listed at Exhibit D to this
Agreement.
"SJV System" means the proprietary crude oil gathering pipeline system
located on the west side of San Joaquin Valley, California, in the area of
the South Belridge and Midway-Sunset oil fields and related terminal, oil
storage and other facilities owned by CGC, as generally described at
Exhibit D to this Agreement.
"Service Agreements" means and includes each of the following: (1) that
certain Service Agreement, dated January 1, 1994, between CT&T and Cel
Corp; (2) that certain Service Agreement, dated May 1, 1987, between CGC
and Cel Corp; and (3) that certain Service Agreement, dated January 1,
1994, between AAPL and Cel Corp.
"Settlement Date" has the meaning assigned to that term in Section 2.4
of this Agreement.
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"Shares" means, collectively, all of the AAPL Shares and the CT&T Share.
"Statement of Net Assets Sold" means that certain audited consolidated
statement of assets and liabilities of the Celeron Companies as at December
31, 1997, together with the notes thereto, attached as Exhibit B to this
Agreement.
"Subsidiary" and "Subsidiaries" mean, respectively, with respect to any
Person, (i) a corporation of which the outstanding shares of capital stock
entitled to cast a majority vote under ordinary circumstances (other than
stock having such power only by reason of the happening of a contingency
which has not occurred) is at the time owned or controlled directly or
indirectly by such Person or another Subsidiary of such Person, and (ii)
all such corporations.
"Tax Agreement" means that certain Tax Agreement, in substantially the
form, appropriately completed, of Exhibit P to this Agreement to be entered
into at the Closing among Purchaser, Plains, Seller, Goodyear and each of
the Celeron Companies.
"Taxes" means all taxes, levies, imposts, fees, duties and other like
charges or assessments of any nature whatsoever imposed upon a Person by a
Governmental Body, including, without limiting the generality of the
foregoing, all income, sales, use, ad valorem, stamp, transfer, payroll,
franchise, social security, occupation, excise, severance, and intangible
taxes and fees of any nature upon the properties and assets, whether
tangible or intangible, of such Person or upon the income, receipts,
payrolls, transactions, net worth, capital, investment or franchise of such
Person (including all sales, use, withholding and other taxes which such
Person is required by law to collect) with any and all additions thereto
and penalties and interest payable with respect thereto or to any
assessment or collection thereof.
"Transferred Assets" means and includes all of the monies, properties
(whether real or personal, tangible or intangible), rights, claims,
accounts, accruals, and other assets and entitlements (1) transferred in
any manner or for any reason from the Celeron Companies to Seller, Cel
Corp, Goodyear, or any other Affiliate of Seller prior to December 31,
1997; and (2) transferred from AAPL, CT&T and CGC to Cel Corp pursuant to
that certain Bill of Sale dated as of December 31, 1997. The items
transferred to Cel Corp pursuant to said Bill of Sale by AAPL are listed at
Part I of Appendix G to this Agreement, by CT&T are listed at Part II of
Appendix G to this Agreement and by CGC are listed at Part III of Appendix
G to this Agreement.
"Transferred Liabilities" means and includes all of the liabilities,
losses, costs, expenses, claims, accruals and charges assumed by Cel Corp
from the Celeron Companies pursuant to the provisions of that certain
Assumption Agreement, dated as of December 31, 1997, duly executed by Cel
Corp, AAPL, CT&T and CGC. The items assumed by Cel Corp pursuant to said
Assumption Agreement are listed at Parts I (from AAPL), II (from CT&T) and
III (from CGC) of Appendix H to this Agreement.
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"Transition Period" means the period beginning on (and including)
January 1, 1998 and ending immediately prior to the Effective Time.
"Transition Period Amount" means the dollar amount equal to the product
of: (i) $388 million, multiplied by (ii) .0634, multiplied by (iii) a
fraction the numerator of which shall be the number of days in the period
beginning on (and including) June 16, 1998 and ending on (and including)
the Closing Date and the denominator of which shall be 365; provided,
however, that if the Closing Date occurs on or before June 16, 1998 the
Transition Period Amount shall be zero.
"Undeveloped Rights-of-Way" means all of the rights-of-way presently
held by AAPL in respect of real property which the All American System does
not traverse or on which its related assets are not located.
"Undeveloped Right-of-Way Agreement" means each or any one of, and
"Undeveloped Right-of-Way Agreements" means all of, the documents listed at
Part III of Exhibit F to this Agreement.
"Wholly-Owned Subsidiary" means, in respect of any Person, any
Subsidiary in respect of which all shares (other than directors' qualifying
shares required by law) of the capital stock of each class outstanding at
the time as of which any determination is being made are owned,
beneficially and of record, by such Person, by one or more other Wholly-
Owned Subsidiaries of such Person, or any combination thereof.
SECTION 1.2 ACCOUNTING TERMS. All accounting terms used herein or in any
appendix, exhibit or schedule hereto not expressly defined in this Agreement or
in such Appendix, Exhibit or Schedule hereto (or in any Annex, Appendix,
Exhibit or Schedule thereto), shall have the respective meanings given to them
in accordance with Celeron Accounting Practices.
SECTION 1.3 RULES OF CONSTRUCTION. Unless the context otherwise requires,
as used in this agreement (or in any Annex, Appendix, Exhibit or Schedule
hereto): (a) a term has the meaning ascribed to it; (b) "or" is not exclusive;
(c) "including" means "including, without limitation"; and (d) words in the
masculine include the feminine.
ARTICLE II
PURCHASE AND SALE OF SHARES
SECTION 2.1 PURCHASE AND SALE OF THE SHARES. On and subject to the terms
and conditions set forth in this Agreement, at the Closing, Seller shall sell,
convey, transfer, assign and deliver, the Shares to Purchaser, and Purchaser
shall purchase the Shares, for the Purchase Price and other considerations
specified in this Article II.
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SECTION 2.2 PURCHASE PRICE. For and in consideration of the transfer of
the Shares as contemplated hereby, Purchaser shall pay (or cause to be paid) to
Seller THREE HUNDRED NINETY-SIX MILLION EIGHTY-SEVEN THOUSAND UNITED STATES
DOLLARS ($396,087,000) (the "Base Price") in cash on the Closing Date, or such
greater or lesser amount as shall be determined and calculated in accordance
with Sections 2.3 and 2.4 of this Agreement (the "Purchase Price").
SECTION 2.3 CLOSING PRICE ADJUSTMENTS. (a) At least three business days
prior to the Closing Date, Seller shall prepare and deliver to Purchaser an
estimated consolidated statement of net assets sold and transactions effected
during the Transition Period (together with related notes) for the Celeron
Companies as at the Closing Date (the "Estimated Statement of Net Assets
Sold"), which shall be prepared using estimated amounts established reasonably
and in good faith on a basis consistent with the Celeron Accounting Practices
and with the principles, procedures and assumptions used in the preparation of
the Statement of Net Assets Sold.
(b) The Base Price shall be adjusted as provided in subsection (c) of
this Section 2.3 and the amount resulting after giving effect to such
adjustments to the Base Price shall be paid to Seller at the Closing, such
amount being herein referred to as the "Closing Price". At least three business
days prior to the Closing Date, Seller shall deliver to Purchaser a "Closing
Date Adjustments Certificate" setting forth in reasonable detail Seller's
calculation of the Closing Price.
(c) The Closing Price shall be equal to the algebraic sum of:
(i) the Base Price; plus
(ii) a positive number equal to the Transition Period Amount;
plus
(iii) a positive number equal to the amount, if any, by which
$25,104,000 exceeds the aggregate amount of all Dividends on,
and all Capital Distributions made in cash in respect of, the
Shares declared and paid to Seller during the Transition Period;
plus
(iv) a negative number equal to the amount, if any, by which the
aggregate amount of all Dividends on, and all Capital
Distributions made in cash in respect of, the Shares declared
and paid to Seller during the Transition Period exceeds
$25,104,000; plus
(v) a positive number equal to the aggregate amount, if any, of
all cash transferred during the Transition Period (whether as an
advance or a loan, as repayment of an advance or loan, as a
Capital Contribution, to fund Expenditures for Capital Projects,
or for any other reason or in another manner) to the Celeron
Companies by Seller, Cel Corp, Goodyear or any other Affiliate
of Seller (other than the Celeron Companies);
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(vi) a negative number equal to the aggregate amount, if any, of
all cash transferred during the Transition Period (whether as an
advance or a loan, as repayment of a loan or advance, or for any
other reason or in any other manner) to, and of the Recorded
Value of all properties, assets and services transferred or
provided to, Seller, Cel Corp, Goodyear or any other Affiliate
of Seller (other than any of the Celeron Companies), excluding
from such amount (a) the aggregate amount of all Permitted
Payments, (b) the aggregate amount of all Dividends on, and
Capital Distributions made in cash in respect of, the Shares
declared and paid to Seller during the Transition Period, (c)
the aggregate of all amounts paid to Seller, Cel Corp, Goodyear
or to any other Affiliate of Seller during the Transition Period
which were specifically authorized in writing by Purchaser or
Plains prior to the payment thereof; plus
(vii) a negative number equal to the aggregate amount, if any,
of all Liabilities that existed (not theretofore having been
paid or otherwise eliminated) at December 31, 1997 and were not
recorded on the Statement of Net Assets Sold, to the extent that
such Liabilities were required to be recorded thereon by GAAP
and the Celeron Accounting Practices (it being understood that
the reasonable determination of the Celeron Companies regarding
the recording or reserving for contingent and unliquidated
liabilities shall be binding, absent manifest error), but only
such Liabilities in excess of $500,000; plus
(viii) a negative number equal to the aggregate amount, if any,
of all Liabilities incurred during the Transition Period, other
than all Ordinary Course Liabilities, Permitted Debt, Permitted
Payments and accruals for, or payables in respect of, Permitted
Transactions, incurred during the Transition Period, but only to
the extent such Liabilities exceed $1,000,000 in the aggregate;
plus
(ix) a positive number equal to the aggregate Liquidation Value,
if any, of all Rejected Assets, if any.
SECTION 2.4 POST-CLOSING PRICE ADJUSTMENTS. (a) As promptly as possible,
but in any event within forty-five (45) days after the Closing Date, Seller
shall prepare and deliver to Purchaser an unaudited consolidated statement of
net assets sold and transactions effected during the Transition Period,
together with appropriate notes and supporting schedules, for the Celeron
Companies as at the Closing Date (the "Preliminary Closing Statement"). Subject
to any exceptions stated in Schedule 2.4 to this Agreement, the Preliminary
Closing Statement shall be prepared using data obtained from the regularly
maintained books and records of the Celeron Companies and on a basis consistent
with the Celeron Accounting Practices and the principles, procedures and
assumptions used in the preparation of the Statement of Net Assets Sold.
(b) The Preliminary Closing Statement shall become final and binding
upon Purchaser and Seller on the tenth (10th) business day following the
delivery thereof to Purchaser, unless
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prior to such tenth (10th) business day Purchaser shall deliver to Seller a
written notice of their disagreement with the contents of the Preliminary
Closing Statement, together with the proposed changes thereto and the reason or
reasons for such changes. If no objection to the Preliminary Closing Statement
is made by Purchaser in accordance with the preceding sentence, then the
Preliminary Closing Statement shall become the Closing Date Statement of Net
Assets Sold. If Purchaser issues such notice of disagreement and Purchaser and
Seller thereafter, within thirty (30) business days after the issuance of such
notice by Purchaser, resolve all items in dispute in respect of the Preliminary
Closing Statement, then a Closing Date Statement of Net Assets Sold reflecting
such agreement shall be prepared and signed by Purchaser and Seller. If
Purchaser and Seller are unable to resolve their disagreements relating to the
Preliminary Closing Statement within said thirty (30) business day period, then
Purchaser and Seller shall cause the disputed items in the Preliminary Closing
Statement to be audited by Price Waterhouse LLP (which audit shall be conducted
using, to the extent applicable, the Celeron Accounting Practices and other
accounting policies and special calculation conventions established in
conformance with the provisions of this Agreement). The fees and expenses of
Price Waterhouse LLP shall be borne equally by Seller and Purchaser. The
consolidated statement of net assets sold of the Celeron Companies as at the
Closing Date, as audited by Price Waterhouse LLP, shall be the Closing Date
Statement of Net Assets Sold.
(c) Within ten (10) business days after Purchaser and Seller have each
received or agreed to the Closing Date Statement of Net Assets Sold (the tenth
business day being referred to herein as the "Settlement Date"), the Purchase
Price shall be further adjusted to an amount which shall be the algebraic sum
of:
(i) the Closing Price; plus
(ii) a positive number equal to the aggregate amount, if any, by
which the amounts determined pursuant to clauses (iii), (v) and (ix)
of Section 2.3 of this Agreement were understated on the Closing Date
Adjustments Certificate; plus
(iii) a negative number equal to the aggregate amount, if any, by
which the amounts determined pursuant to clauses (iii), (v) and (ix)
of Section 2.3 of this Agreement were overstated on the Closing Date
Adjustments Certificate; plus
(iv) a negative number equal to the aggregate amount, if any, by
which the amounts determined pursuant to clauses (iv), (vi) and (viii)
of Section 2.3 of this Agreement were understated on the Closing Date
Adjustments Certificate; plus
(v) a positive number equal to the aggregate amount, if any, by which
the amounts determined pursuant to clauses (iv), (vi) and (viii) of
Section 2.3 of this Agreement were overstated on the Closing Date
Adjustments Certificate.
If the algebraic sum of clauses (i) through (v), inclusive, of this
Section 2.4(c) exceeds the Closing Price, the amount of such excess (herein the
"Added Settlement Price") shall be paid to Seller in cash on or prior to the
Settlement Date. If the Closing Price exceeds the algebraic
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sums of clauses (i) through (v), inclusive, of this Section 2.4(c), the amount
of such excess (herein the "Settlement Reduction Amount") shall be paid to
Purchaser as provided at Section 2.5 of this Agreement on or prior to the
Settlement Date.
SECTION 2.5 TIME AND METHOD OF PAYMENTS. At the Closing, Purchaser shall
pay to Seller the Closing Price (the "Closing Payment") in immediately
available funds by the wire transfer thereof to such bank account in New York
City as Seller shall designate to Purchaser in writing at least three business
days prior to the Closing Date. On or prior to the Settlement Date, Purchaser
shall pay to Seller the amount of the Added Settlement Price, if any, by wire
transfer to the bank account designated by Seller at least three business days
prior to the Settlement Date. Similarly, on or prior to the Settlement Date,
Seller shall pay to Purchaser the amount of the Settlement Reduction Amount, if
any, by wire transfer to the bank account designated by Purchaser at least
three business days prior to the Settlement Date. Any amount not paid when due
pursuant to this Article II shall bear interest from the date due (the Closing
Date in the case of the Closing Price or the Settlement Date in the case of any
Added Settlement Price or Settlement Reduction Amount due pursuant to Section
2.4 of this Agreement) to the date of the payment thereof at the prime rate as
announced by The Chase Manhattan Bank, New York, as such rate is in effect from
time to time during such period, calculated based on the actual number of days
elapsed based on a year of 365 days.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Purchaser and Plains that:
(a) Organization and Qualification of the Celeron Companies (i) AAPL is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas and has full corporate power and authority to carry
on its business as it is now being conducted, to own or hold under lease the
properties and assets which it owns or holds under lease and to perform all its
obligations under the agreements and instruments to which it is a party or by
which it is bound. AAPL is duly qualified or licensed and in good standing as a
foreign corporation in the State of California, the State of Arizona and the
State of New Mexico. There is no other jurisdiction in which the nature of its
business or operations requires such qualification or licensing where the
failure to be so qualified or licensed would materially and adversely affect
the business, operations, properties or assets or the financial condition of
the Celeron Companies taken as a whole. The copies of the Articles of
Incorporation and By-laws of AAPL, as amended to date, which have been
delivered to Purchaser are complete and correct.
(ii) CGC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to carry on its business as it is now being conducted, to own or
hold under lease the properties and assets which it owns
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or holds under lease and to perform all its obligations under the agreements
and instruments to which it is a party or by which it is bound. CGC is duly
qualified or licensed and in good standing as a foreign corporation in the
State of California. There is no other jurisdiction in which the nature of its
business or operations requires such qualification or licensing where the
failure to be so qualified or licensed would materially and adversely affect
the business, operations, properties or assets or the financial condition of
the Celeron Companies taken as a whole. The copies of the Certificate of
Incorporation and By-laws of CGC, as amended to date, which have been delivered
to Purchaser are complete and correct.
(iii) CT&T is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate power
and authority to carry on its business as it is now being conducted, to own or
hold under lease the properties and assets which it owns or holds under lease
and to perform all its obligations under the agreements and instruments to
which it is a party or by which it is bound. CT&T is duly qualified or licensed
and in good standing as a foreign corporation in the State of California, the
State of Arizona, the State of Texas and the State of New Mexico. There is no
other jurisdiction in which the nature of its business or operations requires
such qualification or licensing where the failure to be so qualified or
licensed would materially and adversely affect the business, operations,
properties or assets or the financial condition of the Celeron Companies taken
as a whole. The copies of the Certificate of Incorporation and By-laws of CT&T,
as amended to date, which have been delivered to Purchaser are complete and
correct.
(b) Capitalization of the Celeron Companies. (i) The authorized capital
stock of AAPL consists of 10,000 shares of common stock, having a par value of
$1.00 per share ("AAPL Common Stock"), of which 1,100 shares of AAPL Common
Stock are issued and outstanding (the "AAPL Shares"). All of the AAPL Shares
are validly issued, fully paid and nonassessable. AAPL holds no shares of its
capital stock as treasury shares. There are no existing outstanding
subscriptions, options, warrants, rights, puts, calls or commitments or other
agreements of any character relating to unissued shares of AAPL Common Stock,
no outstanding securities or other instruments convertible into or exchangeable
for shares of capital stock of AAPL and no commitments to issue such securities
or instruments. Other than the AAPL Shares, there are no equity securities of
AAPL outstanding.
(ii) The authorized capital stock of CGC consists of 1,000 shares of
common stock, having a par value of $1.00 per share ("CGC Common Stock"), of
which 1,000 shares of CGC Common Stock are issued and outstanding (the "CGC
Shares"). All of the CGC Shares are validly issued, fully paid and
nonassessable. CGC holds no shares of its capital stock as treasury shares.
There are no existing outstanding subscriptions, options, warrants, rights,
puts, calls or commitments or other agreements of any character relating to
unissued shares of CGC Common Stock, no outstanding securities or other
instruments convertible into or exchangeable for shares of capital stock of CGC
and no commitments to issue such securities or instruments. Other than the CGC
Shares, there are no equity securities of CGC outstanding.
(iii) The authorized capital stock of CT&T consists of 1,000 shares of
common stock, having a par value of $1.00 per share ("CT&T Common Stock"), of
which one (1) share of
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CT&T Common Stock is issued and outstanding (the "CT&T Share"). The CT&T Share
is validly issued, fully paid and nonassessable. CT&T holds no shares of its
capital stock as treasury shares. There are no existing outstanding
subscriptions, options, warrants, rights, puts, calls or commitments or other
agreements of any character relating to unissued shares of CT&T Common Stock,
no outstanding securities or other instruments convertible into or exchangeable
for shares of capital stock of CT&T Common Stock, and no commitments to issue
such securities or instruments. Other than the CT&T Share, there are no equity
securities of CT&T outstanding.
(c) Organization and Authority of Seller; No Governmental Approvals
Required. (i) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has full corporate
power and authority to carry on its business as it is now being conducted and
to own or hold under lease the properties and assets which it owns or holds
under lease. Seller has the corporate power and authority to enter into this
Agreement and the Related Agreements and to carry out its obligations hereunder
and thereunder. The execution and delivery of this Agreement and the Related
Agreements by Seller, and the consummation of the transactions contemplated
herein and therein by Seller, have been duly authorized by all necessary
corporate action on the part of the Board of Directors of Seller and by the
sole shareholder of Seller and no further corporate action on the part of
Seller or the sole shareholder of Seller in respect of the approval of this
Agreement, the Related Agreements, or the transactions contemplated hereby is
required.
(ii) Except as set forth in Part C of Schedule 3.1 to this Agreement, to
the knowledge of Seller no authorization, consent or approval of, or filing
with, any Governmental Body is required on the part of Seller or any of the
Celeron Companies, in order to lawfully execute this Agreement or effect the
consummation of the purchase and sale contemplated by this Agreement or for any
other transaction contemplated hereby, except that such purchase and sale
transaction requires appropriate filings, and the termination of the waiting
period, under the HSR Act and the approval of the Public Utilities Commission
of the State of California.
(iii) Seller is a Wholly-Owned Subsidiary of Goodyear. No shareholder or
other corporate proceeding on the part of Goodyear is necessary to authorize
this Agreement and the Related Agreements and the purchase and sale
contemplated thereby.
(d) Validity of Agreement. This Agreement constitutes, and each Related
Agreement and each of the other agreements, documents and instruments to be
executed and delivered by Seller pursuant to this Agreement when executed and
delivered by Seller will constitute, the legal, valid and binding obligation of
Seller enforceable in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by the discretion of any court before which any enforcement
proceeding may be brought to deny or limit any remedy (including any claim for
specific performance or indemnification) sought, and subject to general
principles of equity (regardless of whether considered in a proceeding at law
or in equity) and the discretion of the court. Except as may be set forth in
Part D of Schedule 3.1 to this Agreement, the execution and delivery of this
Agreement or any other document to be executed,
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delivered and performed in connection herewith, the undertaking of any actions
on the part of Seller required to consummate the transactions contemplated by
this Agreement, and the consummation of the transactions contemplated by this
Agreement, will not: (i) violate or conflict with any provision of the
Certificate of Incorporation or By-Laws of Seller, or of the governing
instruments of the Celeron Companies, as each is amended and in effect on the
date of this Agreement and on the Closing Date; (ii) to the knowledge of Seller
or any Designated Celeron Officer, violate or conflict with any material
provision of any law, rule or regulation to which Seller or any Celeron Company
is subject; (iii) violate, or conflict with, any material order, permit,
certificate, writ, judgment, injunction, decree, determination, award or other
decision of any court, Governmental Body or arbitrator binding upon Seller or
any Celeron Company or any of their respective properties and other assets;
(iv) result in or constitute a breach of or a default under (or with notice or
lapse of time or both result in a breach of or constitute a default under), or
otherwise give any Person the right to terminate, any mortgage, indenture, loan
or credit agreement or any other agreement or instrument evidencing
indebtedness for money borrowed to which Seller, any Affiliate of Seller or any
Celeron Company is a party or by which Seller or any Celeron Company, or any of
their respective properties, is bound or affected, (v) to the knowledge of
Seller or any Designated Celeron Officer, result in or constitute a material
breach of, or a material default under (or with notice or the lapse of time or
both would result in a breach of or constitute a default under) any Contract,
Lease, Pipeline Right-of-Way Agreement or license to which Seller or any
Celeron Company is a party or by which any of them or any of their respective
properties is bound or affected; or (vi) result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature upon or with respect to any of the
properties owned by the Celeron Companies, other than Permitted Liens or
Permitted Encumbrances, arising through Seller or any Celeron Company.
(e) Title to the Shares and the CGC Shares. Seller is the owner,
beneficially and of record, of all the Shares, free and clear of all Liens
other than Permitted Liens and Permitted Encumbrances. AAPL is the owner,
beneficially and of record, of all of the CGC Shares, free and clear of all
Liens other than Permitted Liens and Permitted Encumbrances. The Shares and the
CGC Shares constitute all of the issued and outstanding capital stock of the
Celeron Companies. At the Closing, Purchaser will receive good and merchantable
title to the Shares, free and clear of all Liens, other than any Liens arising
through, or by reason or as a result of actions taken by or on behalf of,
Purchaser, Plains or any other Affiliate of Purchaser.
(f) Subsidiaries. Except for CGC, AAPL does not own or control, or have
any obligation to acquire, any equity interest in any corporation or
partnership. Neither CGC nor CT&T own or control, or have any obligation to
acquire, any equity interest in any corporation or partnership. Except as and
to the extent disclosed in Part F of Schedule 3.1 to this Agreement, the
Celeron Companies do not own or control, or have any obligation to acquire, any
equity interest in any other business entity.
(g) Condition of Rights-of-Way; Leases. Except as set forth at Part G of
Schedule 3.1 to this Agreement: (1) The documents listed at (i) Part I of
Exhibit F to this Agreement are all of the AAPL Right-of-Way Agreements for the
AAPL Rights-of-Way, and (ii) Part II of Exhibit F
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to this Agreement are all of the CGC Right-of-Way Agreements for the CGC
Rights-of-Way; (2) each Pipeline Right-of-Way Agreement is valid and in effect
in accordance with its terms (except certain temporary permits which have
expired in accordance with the terms thereof), (3) to the knowledge of Seller
or any Designated Celeron Officer (i) neither AAPL nor CGC is in violation of
any material term of any Pipeline Rights-of-Way Agreement, (ii) the All
American System and the SJV System are installed only on the Pipeline
Rights-of-Way, and (iii) the Pipeline Right-of-Way Agreements, each of which
purports to be from the owner or owners of the land covered thereby and
purports to grant (or have the effect of granting) to the applicable Celeron
Company the right, easement, lease, permit or license to construct, operate and
maintain the All American System or the SJV System, as the case may be, under
or across such land, which, when appropriate, have been recorded, it being
understood that Pipeline Rights-of-Way granted by Governmental Bodies have not
been recorded; (4) there are no spatial gaps in the rights-of-way for the All
American System or the SJV System as presently configured that could reasonably
be expected to have a material adverse effect on the financial condition, or on
business or operations as presently conducted, of the Celeron Companies, taken
as a whole; (5) the Celeron Companies have not received from the owner of any
land covered by a Pipeline Right-of-Way Agreement a written demand that the
portion of the All American System or the SJV System, as the case may be,
located on such owner's land be removed or relocated, or that all or any
portion of such Right-of-Way Agreement be terminated, which demand has not been
resolved and is currently and actively pending; and (6) each material Lease is
valid and in effect in accordance with its terms and no Celeron Company is in
default under any material term of any Lease.
(h) Title to Properties. Except as set forth at Part H of Schedule 3.1
to this Agreement, each of the Celeron Companies has title to its properties as
follows:
(1) Good and marketable title to all of the Celeron Real
Property, free of any Liens other than Permitted Liens and Permitted
Encumbrances.
(2) Good and merchantable title to the AAPL Equipment, the SJV
Equipment, Linefill and any other tangible personal property owned by the
Celeron Companies (other than Rights-of-Way and the Celeron Leased
Property), free of any Liens other than Permitted Liens and Permitted
Encumbrances.
(3) Good title to all of the Current Assets, tangible or
intangible, reflected in the Statement of Net Assets Sold as owned
property, or purported to have been acquired after the date thereof and
reflected as owned property in the Closing Date Statement of Net Assets
Sold, free of any Liens other than Permitted Liens and Permitted
Encumbrances.
(i) Indebtedness for Moneys Borrowed. Except as set forth at Part I of
Schedule 3.1 to this Agreement: (1) at the date hereof there are no promissory
notes, mortgages, indentures or other agreements or instruments for or relating
to any indebtedness for moneys borrowed (including purchase money obligations
or capital lease obligations), whether incurred, assumed or guaranteed, by
AAPL, CGC or CT&T, or to which any of their respective properties or
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assets will be subject other than the Prior Debt; and (2) immediately prior to
the Closing there will be no promissory notes, mortgages, indentures or other
agreements or instruments for or relating to any indebtedness for moneys
borrowed (including purchase money obligations or capital lease obligations),
whether incurred, assumed or guaranteed, by AAPL, CGC or CT&T, or to which any
of their respective properties or assets will be subject, other than Permitted
Debt.
(j) Disclosure Schedule. Part J of Schedule 3.1 to this Agreement completely
and accurately:
(1) Lists at Subpart 1 all Contracts and all amendments thereto (except
those listed in any other Schedule, or in any Appendix or Exhibit, to this
Agreement) to which any of the Celeron Companies is a party affecting the
assets, operations or financial condition of the Celeron Companies, other
than (i) Right-of-Way Agreements; (ii) any Contract relating to the
purchase, sale, storage, exchange or transportation of crude oil, natural
gas or other hydrocarbons which will expire, is scheduled to expire, or is
to be completely performed by the Celeron Companies, on or prior to June
30, 1998; or (iii) any Contract which by its terms is not expected to
require, or may be terminated at any time without requiring, the Celeron
Companies to pay more than $250,000 during the remaining term thereof.
(2) Lists at Subpart 2 all Leases, other than Leases where both the
lessee and the lessor are Celeron Companies.
(3) Lists at Subpart 3 all material franchises, licenses, permits,
certificates or other authorizations issued by any Governmental Body and
other material Governmental Approvals which have been obtained by the
Celeron Companies and are currently in effect.
(4) Lists at Subpart 4 all tariff filings by AAPL which are currently
in effect.
(5) Lists of Subpart 5 of all New York Mercantile Exchange or over-the-
counter future contracts.
(6) Lists of Subpart 6 all waste disposal sites which have been utilized
by any of the Celeron Companies.
(k) Contractual Obligations. Except as disclosed at Part K of Schedule 3.1
to this Agreement none of the Celeron Companies is a party to any written or, to
the knowledge of Seller or any Designated Celeron Officer, oral:
(1) consulting agreement or contract for the employment (other than as
may arise by operation of law) of any individual;
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(2) contract with any labor union;
(3) contract or other obligation (other than those listed at Part J of
Schedule 3.1 to this Agreement) for the future sale, purchase, storage or
transportation of crude oil providing for performance thereunder by any
party thereto which expires or terminates after June 30, 1998;
(4) guarantee of the debt or contractual obligation of any other Person;
or
(5) contract for the purchase of goods or services from, or to provide
goods or services to, any Person which expires or terminates after June 30,
1998.
(l) Intellectual Property. Part L of Schedule 3.1 to this Agreement
accurately and correctly lists all United States and foreign (i) patents,
patent rights and patent applications owned, controlled or, licensed by any of
the Celeron Companies, (ii) trademarks, trade names, service marks, copyrights
and applications and registrations therefor owned, controlled or licensed by
any of the Celeron Companies and (iii) agreements granting any rights or
interests under any patents, trademarks, trade names, service marks,
copyrights, trade secrets, know-how, inventions or other similar intangible
property either by or to any of the Celeron Companies. Except as set forth in
Part L to Schedule 3.1 to this Agreement, to the knowledge of Seller or any
Designated Celeron Officer, the Celeron Companies have all right, title and
interest to such property shown on said Part L to Schedule 3.1 free of any
liens and have the right to use such property without any known conflict with
the rights of others and no other Person (other than Goodyear and its
Subsidiaries) has the right to use any of such property; and no such property
of any of the Celeron Companies, if any, has been declared invalid or is the
subject of a pending action for cancellation or declaration of invalidity.
Except as set forth in Part L of Schedule 3.1 to this Agreement; to the
knowledge of Seller or any Designated Celeron Officer: (a) none of the Celeron
Companies has received any notice to the effect that it is in violation or
infringement of any such property of any other Person; and (b) neither Seller
nor any of the Celeron Companies have received any notice of the violation or
infringement by any Person of the rights of any of the Celeron Companies in and
to such property. The Celeron Companies have no interest in or right to use any
trademarks, trade names, service marks or copyrights which use or include the
word "Goodyear", the "Winged Foot design", the word "Wingfoot" or any
combination of any of them, which are not and shall not be deemed to be assets
of the Celeron Companies, notwithstanding any provision of this Agreement, any
other agreement (whether written or oral, express or implied) or the law.
(m) Absence of Undisclosed Liabilities. Except for liabilities (i)
disclosed or referred to in Part M of Schedule 3.1 to this Agreement or
otherwise disclosed, described or referred to in the Statement of Net Assets
Sold or in this Agreement or any Annex, Appendix, Exhibit or Schedule to this
Agreement, or (ii) reflected or reserved for or against in the Closing Date
Statement of Net Assets Sold, the Celeron Companies do not have liabilities of
a nature that would be required to be recorded on, or disclosed in a note to, a
consolidated balance sheet of the Celeron Companies prepared in accordance with
GAAP, and consistent with the Celeron
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Accounting Practices, that would be material to the financial condition of the
Celeron Companies taken as a whole.
(n) Corporate Documents. The minute books of each of the Celeron
Companies contain true and correct copies of all the proceedings, consents,
actions and minutes of each meeting of the shareholders and of the Boards of
Directors and each committee thereof of each of the Celeron Companies. The
stock transfer books of the Celeron Companies are true and complete and reflect
all transfers of shares of the capital stock of the Celeron Companies.
(o) Contract Consents. Except for Governmental Approvals and except as
listed at Part O of Schedule 3.1 to this Agreement, to the knowledge of Seller
or any Designated Celeron Officer, no consent, approval or authorization of, or
notification to, any Person is required in order to prevent the termination or
cancellation of, any material change in the terms of, or the default or
acceleration of any material Contract, material Lease or any Pipeline Right-of-
Way, or the imposition of a new Lien (other than a Permitted Lien) or
encumbrance (other than a Permitted Encumbrance) on any Pipeline Right-of-Way
or Celeron Asset, as a result of execution and delivery of this Agreement, and
the consummation of the transactions contemplated herein, by Seller.
(p) Banking Arrangements. Part P of Schedule 3.1 to this Agreement lists
(i) the name of each bank and other financial institution and each commodities
broker with which any of the Celeron Companies has an account of any type or a
safe deposit box and the numbers of such accounts and safe deposit boxes and
(ii) the names of all persons having authorization to draw thereon or having
access thereto.
(q) Litigation. Except as set forth in Part Q of Schedule 3.1 to this
Agreement, there are no claims, actions, suits or other legal proceedings
(including administrative proceedings) pending or, to the knowledge of Seller
or any Designated Celeron Officer, threatened against any of the Celeron
Companies. All injunctions, decrees, orders and final judgments of any court
or material decrees or orders of any Governmental Body currently in effect to
which any of the Celeron Companies are subject are listed at Part Q of Schedule
3.1 to this Agreement.
(r) Compliance with Laws and Regulations. Except as set forth in Part R
of Schedule 3.1 to this Agreement and except with respect to any Environmental
Law:
(1) None of the Celeron Companies has received notice of any
violation of, and to the knowledge of Seller or any Designated Celeron
Officer none of the Celeron Companies is in violation of, any material
provision of any law, regulation, rule, ordinance, order or decree
relating to it, the All American System or the SJV System which
remains uncured or has not been withdrawn, canceled or dismissed,
except for violations which are not reasonably likely to have a
material adverse affect on the financial condition, business or
operations of the Celeron Companies taken as a whole.
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(2) To the knowledge of Seller or any Designated Celeron Officer,
each of the Celeron Companies has all franchises, licenses, permits,
certificates and other governmental approvals necessary to enable it
to carry on its business as presently conducted; except that no
representation or warranty is made with respect to tariffs of the All
American System on file with the FERC or the Cal PUC or with respect
to compliance by the Celeron Companies with the laws administered, and
the rules and regulations promulgated, by the FERC or the Cal PUC.
(3) To the knowledge of any Designated Celeron Officer, all tariffs
filed (and not withdrawn, amended or superceded by subsequent or
supplemental filing) by AAPL with the FERC or the Cal PUC in respect
of the All American System are believed not to be in conflict with the
rules and regulations of the FERC or the Cal PUC, as the case may be.
(s) No Condemnation. Except as set forth at Part S of Schedule 3.1, no
Celeron Real Property is the subject of any condemnation or eminent domain
proceeding by any Governmental Body nor, to the knowledge of Seller or any
Designated Celeron Officer, has any such condemnation or taking by eminent
domain been proposed.
(t) Employee Benefit Plans; ERISA. The representations and warranties of
Seller set forth in the Employee Agreement are, or at the Closing will be, true
and correct and are incorporated herein by reference.
(u) Environmental Matters. Except as listed at Part U of Schedule 3.1 to
this Agreement or listed, described or otherwise disclosed in the Environmental
Assessment Report or the Phase II Study, to the knowledge of Seller or any
Designated Celeron Officer: (1) none of the Celeron Companies is the current
subject of any enforcement proceeding under any Federal, State of California,
State of Arizona, State of New Mexico, State of Texas or local Environmental
Law; (2) the Celeron Companies have made all required disclosures under
applicable Environmental Laws; (3) except for releases and discharges
authorized under a Government Approval, no disposal, release, spill or leakage
of Hazardous Materials, petroleum or other solid or liquid wastes to the soil
or surface or ground water has occurred on any Celeron Real Property during the
period owned by any of the Celeron Companies, or on any Pipeline Right-of-Way
or Celeron Leased Property during the period any of the Celeron Companies has
held such Pipeline Right-of-Way or been in possession of such Celeron Leased
Property, which has not been reported (if such report is required by applicable
law) and remediated as required by applicable Environmental Laws in effect at
the date of this Agreement; and (4) except for releases and discharges
authorized under a Government Approval, no release, spill, leakage or migration
of Hazardous Materials, petroleum or other solid or liquid wastes has occurred
as a result of the operations of the Celeron Companies onto, under or upon the
property of any Person (other than property owned, leased or used by the
Celeron Companies, including the Celeron Rights-of-Way) which has not been
reported, if reporting of such event is required by applicable law, and
remediated as required by applicable Environmental Laws in effect at the date
of this Agreement. Seller and each of the Celeron Companies have made available
to Purchaser and Plains all documents, files and records in their possession,
or in the possession of
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any environmental consultant retained by the Celeron Companies, Seller or
Goodyear, relating to the environmental condition of the All American System
and the SJV System, including bills of lading or other instruments relating to
the disposal of waste materials generated at any of the properties owned or
operated by the Celeron Companies. As used in this Section 3.1(u), the phrase
"to the knowledge of Seller or any Designated Celeron Officer" shall mean to
the actual knowledge of Bruce K Murchison, Michael J Latiolais, Jordan Janak,
or Kevin Strege.
(v) Contracts; No Material Defaults. Except as set forth at Part V of
Schedule 3.1 to this Agreement, no event or condition has occurred, or to the
knowledge of Seller or any Designated Celeron Officer is alleged to have
occurred, which constitutes a material breach or default by a Celeron Company
under any Contract, except for breaches and defaults which in the aggregate
will not materially and adversely affect the financial condition, business or
operations of the Celeron Companies taken as a whole. To the knowledge of
Seller or any Designated Celeron Officer, no notice has been received by any
Celeron Company claiming any material breach or default by any of the Celeron
Companies under any material Contract. To the knowledge of Seller or any
Designated Celeron Officer (having made no inquiry regarding the status of any
Contract), no event or condition has occurred which constitutes a material
breach or default under any Contract on the part of any counterparty thereto.
(w) Receivables. Except as set forth at Part W of Schedule 3.1 to this
Agreement, all accounts receivable included on the Statement of Net Assets Sold
are, and all accounts receivable on the Closing Date Statement of Net Assets
Sold will qualify at such time as, Accounts Receivable and will be, valid
obligations of the account obligors thereunder, will have arisen out of
transactions entered into in the ordinary course of business and each is or
will be included in the Statement of Net Assets Sold and the Closing Date
Statement of Net Assets Sold, as the case may be, at its par or face amount (on
a net basis in accordance with GAAP, with the gross face amount stated at Note
3 thereto). The Accounts Receivable included in the Closing Date Statement of
Net Assets Sold will not be past due by more than 60 days at the Closing Date.
(x) Brokers. No broker, agent, finder or investment banker is entitled
to receive from Purchaser, or from the Celeron Companies, any brokerage or
finder's fee or other commission in respect of any of the transactions
contemplated by this Agreement based on any agreement, arrangement or
understanding made by or on behalf of Seller or Goodyear.
(y) Officers and Directors. Part Y of Schedule 3.1 to this Agreement
lists the officers and directors of each of the Celeron Companies and each
unrevoked power of attorney, if any, granted by them pursuant to which any
other individual has equivalent authority.
(z) Certain Regulations. Seller is not a non-resident alien or foreign
corporation (as those terms are defined in the Code). Neither Seller nor any
Celeron Company is a "public-utility company" or a "holding company", or a
"Subsidiary Company" of a "holding company", or an "affiliate" of a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or is otherwise subject to regulation under or the restrictions of
such act. Neither Seller nor any Celeron Company is an "investment company"
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or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or is otherwise subject to
regulation under or the restrictions of such act.
(aa) Absence of Unusual Liabilities or Expenses. During the period
beginning January 1, 1998 and ending on the date of this Agreement, the
Celeron Companies have not incurred any Liabilities (other than Ordinary
Course Liabilities and Liabilities arising out of Permitted Debt, Permitted
Payments, Permitted Transactions, Dividends or Capital Distributions) in
excess of $500,000 in the aggregate.
(bb) Linefill and Inventory Barrels. At December 31, 1997, Linefill
consisted of at least 4,709,821 barrels of crude oil having various properties
and Inventory consisted of at least 183,780 barrels of crude oil having various
properties.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PLAINS. Each of
Purchaser and Plains represents and warrants to Seller that:
(a) Organization and Qualification of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and authority to
carry on its business as it is now being conducted, to own or hold under lease
the properties and assets which it owns or holds under lease and to perform all
its obligations under the agreements and instruments to which it is a party or
by which it is bound. Purchaser is duly qualified or licensed and in good
standing as a foreign corporation in each jurisdiction in which it owns or
leases any facility or properties or in which the nature of its business or
operations requires such qualification or licensing where the failure to be so
qualified or licensed would have a material adverse affect on the business,
operations, properties or assets or the financial condition of Purchaser.
[Prior to the Closing, Purchaser will qualify as a foreign corporation, and
maintain good standing as a foreign corporation, in the State of Texas.] The
copies of the Certificate of Incorporation and By-Laws of Purchaser delivered
to Seller are true, complete and correct.
(b) Corporate Authority. Purchaser has all requisite corporate power and
authority to enter into and perform its obligations under this Agreement and
the Related Agreements and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Related
Agreements by Purchaser, and the performance of the transactions contemplated
herein and therein on the part of Purchaser, have been duly authorized by all
necessary corporate actions on the part of Purchaser and each shareholder of
Purchaser and no further corporate action on the part of Purchaser or any
shareholder of Purchaser in respect of the approval of this Agreement, the
Related Agreements or the transactions contemplated hereby is required.
(c) No Violation; Consents and Approvals. Neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby nor compliance by Purchaser with any of the provisions
hereof will: (i) conflict with or result in a breach of any provision of the
Certificate of Incorporation or By-Laws of the Purchaser or the Certificate or
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Articles of Incorporation of any shareholder of Purchaser; or (ii) violate or
conflict with the provisions of any statute, law, rule, regulation, permit,
order or certificate or of any writ, judgment, stipulation, injunction, decree,
determination, award or other decision of any court, government, governmental
agency or arbitrator binding upon Purchaser or any of its properties and assets
or any Affiliate or any of its properties and assets. Except as set forth at
Part C of Schedule 3.2 to this Agreement, no consent by, approval of or filing
with any Governmental Body is required in connection with the execution and
delivery by Purchaser of the Agreement or the consummation by Purchaser of the
transactions contemplated herein.
(d) Valid and Binding Obligations. This Agreement constitutes, and each
Related Agreement and each of the other agreements, documents and instruments
to be executed by Purchaser and delivered to Seller or Goodyear, or both of
them, pursuant to this Agreement, when so executed and delivered will
constitute, the legal, valid and binding obligations of Purchaser, enforceable
against Purchaser in accordance with their respective terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by the discretion of any court before which any enforcement
proceeding may be brought to deny or limit any remedy (including any claim for
specific performance or indemnification) sought, and subject to general
principles of equity (regardless of whether considered in a proceeding at law
or in equity) and subject to the discretion of the court. The execution and
delivery of this Agreement, the Related Agreements and any other document to be
executed, delivered and performed in connection herewith, the undertaking of
any actions on the part of Purchaser required to consummate the transactions
contemplated by this Agreement will not: (i) violate or conflict with any
provision of the constituent instruments of the Purchaser, as each is amended
and in effect on the due date of this Agreement and on the Closing Date; (ii)
violate or conflict with any provision of any law, rule or regulation to which
Purchaser is subject; (iii) violate or conflict with any order, permit,
certificate, writ, judgment, injunction, decree, determination, award or other
decision of any court or Governmental Body, domestic or foreign, or arbitrator
binding upon Purchaser, its Affiliates or their respective properties and
assets; (iv) result in or constitute a breach of, or a default (or with notice
or lapse of time or both result in a breach of or constitute a default) under,
or otherwise give any person the right to terminate (x) any mortgage,
indenture, loan or credit agreement or any other agreement or instrument
evidencing indebtedness for money borrowed to which Purchaser of any of its
Affiliates is a party or by which Purchaser or any of its Affiliates, or any of
their respective properties, is bound or affected, or (y) any material lease,
license, contract or other agreement or instrument to which Purchaser or any of
its Affiliates is a party or by which any of them or any of their respective
properties is bound of affected; or (v) except as set forth at Part D of
Schedule 3.2 to this Agreement, result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature upon or with respect to any of the
properties now or hereafter owned by Purchaser, any of its Affiliates or any of
the Celeron Companies.
(e) Organization and Qualification of Plains. Plains is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to carry on its
business as it is now being conducted, to own or hold under lease the
properties and assets which it owns or holds under lease and to perform all
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its obligations under the agreements and instruments to which it is a party or
by which it is bound. Plains is duly qualified or licensed and in good standing
as a foreign corporation in Texas and in each other jurisdiction in which it
owns or leases any facility or properties or in which the nature of its
business or operations requires such qualification or licensing where the
failure to be so qualified or licensed would have a material adverse affect on
the business, operations, properties or assets or the financial condition of
Plains. The copies of the Certificate of Incorporation and By-Laws of Plains
delivered to Seller are true, complete and correct.
(f) Corporate Authority. Plains has all requisite corporate power and
authority to enter into and perform its obligations under this Agreement and
the Related Agreements and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Related
Agreements by Plains, and the performance of the transactions contemplated
herein and therein on the part of Plains, have been duly authorized by all
necessary corporate actions on the part of Plains and no further corporate
action on the part of Plains or any shareholder or the shareholders of Plains
in respect of the approval of this Agreement, the Related Agreements or the
transactions contemplated hereby is required.
(g) No Violation; Consents and Approvals. Neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby nor compliance by Plains with any of the provisions hereof
will: (i) conflict with or result in a breach of any provision of the
Certificate of Incorporation or By-Laws of the Plains; or (ii) violate or
conflict with the provisions of any statute, law, rule, regulation, permit,
order or certificate or of any writ, judgment, stipulation, injunction, decree,
determination, award or other decision of any court, government, governmental
agency or arbitrator binding upon Plains or any of its properties and assets or
any Affiliate or any of its properties and assets. Except as set forth at Part
C of Schedule 3.2 to this Agreement, no consent by, approval of or filing with
any Governmental Body is required in connection with the execution and delivery
by Plains of the Agreement or the consummation by Plains of the transactions
contemplated herein.
(h) Valid and Binding Obligations. This Agreement constitutes, and each
Related Agreement and each of the other agreements, documents and instruments
to be executed by Plains and delivered to Seller or Goodyear, or both of them,
pursuant to this Agreement, when so executed and delivered will constitute, the
legal, valid and binding obligations of Plains, enforceable against Plains in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by the discretion of any
court before which any enforcement proceeding may be brought to deny or limit
any remedy (including any claim for specific performance or indemnification)
sought, and subject to general principles of equity (regardless of whether
considered in a proceeding at law or in equity) and subject to the discretion
of the court. The execution and delivery of this Agreement, the Related
Agreements and any other document to be executed, delivered and performed in
connection herewith, the undertaking of any actions on the part of Plains
required to consummate the transactions contemplated by this Agreement will
not: (i) violate or conflict with any provision of the constituent instruments
of the Plains, as each is amended and in effect on the due date of this
Agreement and on the Closing Date; (ii) violate or conflict with any provision
of any law, rule
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or regulation to which Plains is subject; (iii) violate or conflict with any
order, permit, certificate, writ, judgment, injunction, decree, determination,
award or other decision of any court or Governmental Body, domestic or foreign,
or arbitrator binding upon Plains, its Affiliates or their respective
properties and assets; (iv) result in or constitute a breach of, or a default
(or with notice or lapse of time or both result in a breach of or constitute a
default) under, or otherwise give any person the right to terminate (x) any
mortgage, indenture, loan or credit agreement or any other agreement or
instrument evidencing indebtedness for money borrowed to which Plains of any of
its Affiliates is a party or by which Plains or any of its Affiliates, or any
of their respective properties, is bound or affected, or (y) any material
lease, license, contract or other agreement or instrument to which Plains or
any of its Affiliates is a party or by which any of them or any of their
respective properties is bound of affected; or (v) except as set forth at Part
H of Schedule 3.2 to this Agreement, result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature upon or with respect to any of the
properties now or hereafter owned by Plains, any of its Affiliates or any of
the Celeron Companies.
(i) Purchase for Investment. Purchaser is acquiring the Shares solely
for its own account as an investment and not with a view to any distribution or
resale thereof within the meaning of such terms under the Securities Act of
1933, as amended. Neither Purchaser nor Plains, nor any of their respect
Affiliates, will effect any disposition of the Shares in violation of United
States Federal or any state securities or similar laws or in a manner which
could subject Seller or any of its Affiliates (including Goodyear) or any of
their respective directors, officers, employees or agents to any liability or
sanction under any law.
(j) Brokers. No broker, agent, finder or investment banker is entitled
to receive from Seller or any Affiliate of Seller, or from any Celeron Company,
any brokerage or finder's fee or other commission in respect of any of the
transactions contemplated by this Agreement based on any agreement, arrangement
or understanding made by or on behalf of Purchaser and/or Plains.
(k) No Adverse Information. At the date of this Agreement neither
Purchaser nor Plains has, and except as may be specified by Purchaser or Plains
in a written notice delivered to Seller prior to the Closing, neither Purchaser
nor Plains will, at the Effective Time, have, no knowledge of any material
breach by Seller of its covenants, agreements or representations and warranties
contained in this Agreement or any Related Agreement. As used in this Section
3.2(g), Purchaser and/or Plains shall be deemed to have knowledge of a material
breach if Greg L. Armstrong, Harry N. Pefanis or Troy Valenzuela have knowledge
of facts or circumstances that would constitute the basis for such material
breach.
(l) Certain Regulations. Neither Purchaser nor Plains, nor any of their
respective Subsidiaries or Affiliates, is a non-resident alien or foreign
corporation (as those terms are defined in the Code). Neither Purchaser nor
Plains, nor any of their respective Subsidiaries or Affiliates is a "public-
utility company" or a "holding company", or a "Subsidiary Company" of a
"holding company", or an "affiliate" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended, or is otherwise
subject to regulation under or the restrictions of such act. Neither Purchaser
nor Plains, nor any of their respective
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Subsidiaries or Affiliates is an "investment company" or a company "controlled"
by an "investment company" within the meaning of the Investment Company Act of
1940, as amended, or is otherwise subject to regulation under or the
restrictions of such act.
(m) Other Matters. The capital structure of Purchaser is as set forth at
Part M of Schedule 3.2 to this Agreement, the Purchaser has all financial
resources necessary to perform its obligations under, and to complete the
transactions contemplated by, this Agreement; except as set forth at Part M of
Schedule 3.2 to this Agreement, the Purchaser has no obligations, commitments
or liabilities, other than pursuant to this Agreement.
SECTION 3.3 SPECIAL REPRESENTATIONS OF PURCHASER AND PLAINS.
(a) Access to Information; Acknowledgement of Disclaimers. Each of
Purchaser and Plains acknowledges that, prior to the execution of this
Agreement, it has been afforded the opportunity to inspect the businesses and
assets of the Celeron Companies and has been afforded access to all information
relating to the Celeron Companies and their businesses and assets in the
possession of the Celeron Companies or Seller. Each of Purchaser and Plains
further acknowledges that, except as expressly provided in Article III, Seller
and Goodyear and their respective officers, directors, employees,
representatives and agents have made no (and Seller, Goodyear and their
respective officers, directors, employes, representatives and agents hereby
disclaim any) representation or warranties as to the accuracy or completeness
of such information, as to rights and titles of the Celeron Companies to, or
the condition of, any of the Celeron Assets, any of the Celeron Rights-of-Way,
any Celeron Leased Property, or any of their other properties, assets, rights
or interests, or as to any other information, data or other materials (written
or oral) furnished to Purchaser or Plains or any of their respective
Affiliates, or any of their respective employees, representatives or agents, by
or on behalf of Seller or Goodyear.
(b) Celeron Assets etc. As-Is, With All Faults. Seller will sell the
Shares on the basis that the Celeron Assets, the Celeron Rights-of-Way, the
Linefill, the Celeron Leased Property and the Current Assets are as-is, where-is
and with all faults. Except as expressly set forth in Section 3.1 of this
Agreement: (i) neither Seller nor any Affiliate of Seller has made or makes any
representation or express or implied warranties of any nature whatsoever with
respect to the Celeron Assets or the Current Assets, the Celeron Rights-of-Way,
the other assets or any other properties, rights, interests (including the
Celeron Leased Property), liabilities or obligations of the Celeron Companies;
and (ii) neither Seller nor any Affiliate of Seller has made or makes any
warranty or representations, express or implied, as to the accuracy or
completeness of any data, information or materials heretofore or hereafter
furnished to Purchaser and/or Plains in connection with the purchase of the
Shares and that any reliance thereon shall be at the sole risk of Purchaser and
Plains. Each of Purchaser and Plains expressly waives the benefits and
provisions of any applicable commercial or consumer protective statutes as and
to the extent that such provisions relate to the Shares or to the portions of
the Celeron Assets, Celeron Rights-of-Way or other properties and assets (and,
if applicable, Liabilities and obligations) of the Celeron Companies located
within each jurisdiction.
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ARTICLE IV
CERTAIN OBLIGATIONS OF PARTIES PRIOR TO CLOSING
SECTION 4.1 CONSENTS. Purchaser, Plains and Seller will each use
reasonable efforts in good faith to obtain, prior to the Closing Date, any
consent or approval of any Person required for the consummation of the
transactions contemplated by this Agreement; provided, however, that neither
Purchaser nor Plains, on the one hand, nor Seller, on the other hand, shall be
required or have any obligation to (i) pay or otherwise provide any
consideration, or to incur any cost or expense (other than costs incident to
the making of necessary requests and responding to requests and inquiries, such
as postage, telephone, preparation of documents and the like) or any
contractual obligation, to obtain any such consent or approval, or (ii) make
any concession or agreement that could reasonably be expected to materially and
adversely affect the financial condition, business or operations of Plains,
Seller or any of the Celeron Companies.
SECTION 4.2 CONDUCT OF CELERON OPERATIONS. Except as otherwise
contemplated in this Agreement, Seller will not, prior to the Closing, permit,
without the written consent of Purchaser, any Celeron Company to:
(a) increase the rate or form of compensation payable to any employee or
increase any employee benefits, except increases in compensation and
benefit changes made in the ordinary course of business or in accordance
with established policies or past practice;
(b) dispose of (without replacing) any Celeron Asset (other than Inventory
or Linefill disposed of in the ordinary course of business for which fair
value is received);
(c) amend its Articles or Certificate of Incorporation or By-laws other
than in connection with the declaration and payments of Dividends or
Capital Distributions;
(d) create, incur, assume, guarantee or otherwise become liable or
obligated with respect to any indebtedness for monies borrowed, other than
Permitted Debt, or obligations for the deferred purchase price of property
(other than (i) obligations to pay for property purchased on open account
under the vendor's then generally offered terms of sale and (ii) purchases
of goods and services under existing contracts) owed to any Person (other
than to Goodyear or any of its Subsidiaries), or make any loan or advance
to, or any investment in, any Person;
(e) file any motions, orders, briefs, settlement agreements or other
papers in any proceeding before any court or any Governmental Body or any
arbitrators, except with respect to pending proceedings where positions
advanced are substantially consistent with previous positions or where the
failure to so file might, in the opinion of counsel to the Celeron
Companies, Seller or Goodyear, prejudice a favorable outcome in any such
proceeding;
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(f) issue any securities relating to its capital stock; grant, or enter
into any agreement to grant, any options, convertibility rights, other
rights, warrants, calls or agreements relating to its capital stock;
(g) maintain its books of account other than in the usual, regular and
ordinary manner in accordance with the Celeron Accounting Practices
consistent with the principles, procedures and assumptions used in the
preparation of the Statement of Net Assets Sold or make any change in the
Celeron Accounting Practices or in any of its other accounting methods or
practices;
(h) enter into any consulting agreement with any Person which cannot be
terminated within 90 days by the Celeron Company that is a party thereto
without further payment of any kind, including any severance or termination
payment (other than as may arise by operation of law) or which provides for
compensation to such Person in excess of $100,000 during such 90 day
period;
(i) enter into any contract or other obligation (i) for the purchase and
sale of crude oil for any period ending after July 31, 1998, or (ii) for
the purchase of goods or services from any Person which expires or
terminates after June 30, 1998 requiring the expenditure of more than
$500,000;
(j) surrender without adequate consideration any Celeron Asset to any
Person other than the payment of a Dividend or in connection with the
making of a Capital Distribution permitted by Subsection (l) of this
Section 4.2;
(k) make, or commit to make, capital expenditures exceeding an aggregate
of $500,000, other than for (i) Expenditures for Capital Projects, (ii)
expenditures necessary to comply with the requirements of any applicable
law or the rules, regulations or orders of any Governmental Body (and of
which expenditures, to the extent such expenditures exceed $100,000 in the
aggregate, Purchaser and Plains will be apprised, but without any
requirement to obtain the approval of Purchaser or Plains or to so apprise
Purchaser or Plains prior to making such expenditures), or (iii)
expenditures for emergency repairs (and of which expenditures, to the
extent such expenditures exceed $100,000 in the aggregate, Purchaser and
Plains will be apprised, but without any requirement to obtain the approval
of Purchaser or Plains or to apprise Purchaser or Plains of such emergency
repair prior to making such expenditures);
(l) issue, sell, purchase or redeem any shares of its capital stock;
subdivide or in any way reclassify its capital stock; pay Dividends or make
any Capital Distributions in excess of an aggregate of $25,104,000;
(m) other than the issuance or guarantee of Permitted Debt, issue or
become obligated with respect to any notes, debentures, bonds or other debt
securities by any Celeron Company or as the guarantor of the debt or
contractual obligation of any other Person
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(other than another Celeron Company); or
(n) incur, pay, discharge, settle or otherwise satisfy any claims,
liabilities or expenses which exceed $500,000 in the aggregate other than
Ordinary Course Liabilities.
(o) make any binding contractual commitment to take any action prohibited
by this Section 4.2.
Any breach of Subsections (a) through (m), inclusive, or Subsection (o) of this
Section 4.2 shall constitute a breach of the covenant set forth therein
notwithstanding that the Liability resulting from such breach is an Ordinary
Course Liability.
SECTION 4.3 MAINTAIN ASSETS. Prior to the Closing Date, Seller shall
cause the Celeron Companies to operate the All American System and the SJV
System and maintain the Celeron Assets and the Pipeline Rights-of-Way in
accordance with past practices and to use reasonable efforts to preserve the
goodwill of its suppliers, employees and customers.
SECTION 4.4 HSR ACT AND OTHER GOVERNMENTAL FILINGS.
(a) Seller and Purchaser will each promptly file, or cause to be filed,
a Notification and Report under the HSR Act relating to the purchase and sale
of the Celeron Companies contemplated by this Agreement with the United States
Department of Justice and the Federal Trade Commission and promptly respond to
governmental requests or inquiries.
(b) Seller will promptly make, or cause to be made, any filings required
to be made by Seller or the Celeron Companies in connection with the purchase
and sale of the Celeron Companies contemplated by this Agreement under any
other applicable law or regulation, and will promptly respond to any
governmental requests or inquiries relating to such filings to the extent it is
required to do so.
(c) Purchaser and Plains will each promptly make any filings required to
be made by Purchaser and/or Plains in order to complete the purchase and sale
of the Celeron Companies contemplated by this Agreement under any other
applicable law or regulation, and will promptly respond to any governmental
requests or inquiries relating to such filings to the extent it is required to
do so.
SECTION 4.5 EMPLOYEE RELATIONS MATTERS. At the date hereof and at all
times prior to the Closing Date, each Person employed by the Celeron Companies
is and will be an "employee" of Cel Corp. Pursuant to the Service Agreements,
Cel Corp provides various services to the Celeron Companies, including
employment services. The Persons employed by the Celeron Companies in their
operations (each an employee of Cel Corp) at March 15, 1998 are listed at
Appendix F to this Agreement. At the Effective Time, each of the Persons listed
at Appendix F will cease to be an "employee" of Cel Corp and will become an
"employee" of one of the Celeron Companies. The covenants, agreements,
representations and warranties of
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Seller, Purchaser, Plains, Cel Corp and the Celeron Companies relating to
benefit plans, ERISA compliance and other employee relations matters are set
forth in the Employee Agreement.
SECTION 4.6 RIGHT TO INVESTIGATE. After the date hereof, Seller shall
afford to representatives of Purchaser and Plains, and representatives of ING
(U.S.) Capital Corporation reasonable access, during normal working hours, to
the Celeron Assets, the Pipeline Rights-of-Way, the offices and other locations
of the Celeron Companies, the Records and any other books and records of the
Celeron Companies (which Purchaser may copy at its own expense), and shall be
entitled during regular business hours and on a reasonable basis to communicate
with the employees of the Celeron Companies and with the appropriate
representatives of Price Waterhouse LLP, the independent accountants for Seller
and each of the Celeron Companies, and the appropriate representatives of ENSR,
to the extent such access is available to Seller (or to Goodyear) and relates
to the Celeron Companies or the Celeron Assets or the Pipeline Rights-of-Way,
in order that Purchaser and/or Plains may have an opportunity to make such
investigations as it may reasonably desire of the assets, liabilities,
businesses, operations and affairs of the Celeron Companies. In the event of
termination of this Agreement prior to the consummation of the purchase and
sale of the Shares as contemplated hereby, Purchaser and Plains shall deliver
to Seller all documents, work papers and other materials obtained by Purchaser
or Plains, or on behalf of Purchaser or Plains, from the Celeron Companies,
Seller or any Affiliate of Seller and from Price Waterhouse LLP, ENSR, or any
consultant or legal, financial or other advisor to or for Seller, Goodyear, any
Celeron Company or any other Affiliate of Seller, together with any and all
copies thereof so obtained or made on behalf of Purchaser and/or Plains,
whether so obtained or made before or after the execution of this Agreement,
and shall not disclose to any third party or itself use, directly or
indirectly, or through any Affiliate, any information so obtained or otherwise
obtained in connection herewith, and, except or as required by a court order or
by law, shall keep all such information confidential, except for such
information lawfully obtained from others and except to the extent that such
information is then in the public domain (provided that neither Purchaser nor
Plains was responsible for such information entering the public domain without
the consent of Seller or Goodyear) or becomes publicly known without a breach
of confidentiality.
SECTION 4.7 SATISFACTION OF CONDITIONS. (a) Seller shall use reasonable
efforts in good faith to cause all conditions precedent to Purchaser's
obligations hereunder to be satisfied on or before the Closing Date; provided,
however, that Seller shall not be required to (i) take any action to satisfy,
or otherwise with respect to, the conditions precedent set forth at Section
6.1(c) or Section 6.1(e) of this Agreement, (ii) to take any action to satisfy,
or otherwise with respect to, the conditions precedent set forth at Section
6.1(h) or Section 6.1(i) of this Agreement, except to the extent provided at
Sections 4.1 and 4.4 of this Agreement, or (iii) to take any action that is not
required to be taken by this Agreement.
(b) Each of Purchaser and Plains shall use reasonable efforts in good
faith to cause all conditions precedent to the obligations of Seller hereunder
to be satisfied on or before the Closing Date.
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(c) From the date of this Agreement to the Closing Date, Seller will
promptly notify Purchaser and Plains of the occurrence of any event or the
existence of any fact or circumstance of which it has actual knowledge that
could reasonably be expected to cause any of the conditions in Section 6.1 of
this Agreement not to be satisfied by September 30, 1998.
(d) From the date of the Agreement to the Closing Date, Purchaser and
Plains will each promptly notify Seller of the occurrence of any event or the
existence of any fact or circumstance of which either of them has actual
knowledge that could reasonably be expected to cause any of the conditions in
Section 6.2 of the Agreement not to be satisfied by September 30, 1998.
SECTION 4.8 CONSULTATION WITH PURCHASER. From the date of this Agreement
through the Closing Date, Seller shall cause each of the Celeron Companies to
consult with Purchaser prior to entering into, amending or terminating any
material Contract, Lease or other agreement having effect more than one year
after the Closing Date, or amending or terminating any material provision of
any tariff filed with the FERC or the Cal PUC, and to obtain Purchaser's
consent to take such action, which consent shall not be unreasonably withheld;
provided, however, that the matters described in Schedule 4.8 have been
approved by Purchaser. Any breach of this Section 4.8 shall constitute a breach
of the covenants set forth in this Section 4.8 notwithstanding that the
Liability resulting from such breach is an Ordinary Course Liability.
SECTION 4.9 RELATED AGREEMENTS. At or prior to the Closing, Purchaser
and Seller will enter into, and, if applicable, cause their respective
Subsidiaries and Affiliates to enter into, each of the Related Agreements.
Plains agrees that it will enter into and be a party to the Tax Agreement, the
Employee Agreement and the Indemnification Adoption Agreement.
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
SECTION 5.1 TAX MATTERS; SECTION 338(h)(10) ELECTION. The obligations of
Seller and Purchaser and Plains with respect to certain Tax matters are set
forth in the Tax Agreement, the form of which is set forth at Exhibit P to this
Agreement. As provided for in the form of Tax Agreement, Seller and Purchaser
and Plains shall make, or cause to be made by their respective Affiliated
Groups, a joint election under Sections 338(h)(10) of the Code and a similar
election under all applicable state income tax laws for each of the Celeron
Companies with respect to the sale of the Shares by Seller to Purchaser, and
the purchase of the Shares by Purchaser from Seller, as contemplated herein
(collectively herein, the "Section 338(h)(10) Elections"). The Purchase Price
shall be allocated among the assets of the Celeron Companies as provided at
Exhibit J.
SECTION 5.2 PUBLICITY. For a period of one year after the date of this
Agreement, Seller and Purchaser and Plains shall consult and coordinate, and
shall cause their respective
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Affiliates to consult and coordinate, with each other with respect to any press
release or other publicity or announcement concerning this Agreement or any of
the transactions contemplated hereunder or under the Related Agreements by
Seller or Purchaser and Plains or any of their respective Affiliates, except
that such consultation and coordination shall not be required with respect to
such announcements or filings as may be required by applicable law or the
applicable rules or regulations of any Governmental Body or securities
exchange.
SECTION 5.3 CONFIDENTIALITY. Unless prior to the Closing this Agreement
is terminated in accordance with Section 9.2 of this Agreement, Seller shall,
for a period of one year after the Closing, keep confidential and not disclose
to any Person (other than its employees, attorneys, accountants and advisers)
or use (except (i) in connection with preparing Tax returns, (ii) conducting
proceedings relating to Taxes, (iii) as may be necessary or required in
connection with any outstanding agreement or commitment, (iv) in the conduct of
legal proceeding, and (v) as otherwise required by applicable law) any non-
public information relating to the Celeron Companies. Prior to the Closing, the
provisions of that certain letter Confidentiality Agreement dated June 19, 1997
between Purchaser and Goodyear shall remain in full force and effect. Prior to
the Closing, and for a period of one year after the Closing (or, if this
Agreement is terminated prior to the Closing, for a period of five years after
the termination of this Agreement), neither Purchaser nor any of its
Affiliates, nor any of their respective directors, officers, employees, agents
or advisors, shall disclose or provide any information concerning this
Agreement or any provision hereof or any aspect of the transactions
contemplated hereby to any Person other than their respective officers,
employees and representatives and any other Person to whom disclosure is
required by law, without the prior written consent of Seller. Purchaser and
Plains agree that, if this Agreement is terminated prior to the Closing for any
reason whatsoever, Purchaser and Plains shall promptly deliver to Seller all
information and data furnished or made available to Purchaser and Plains, their
respective Affiliates and their respective officers, employees, representatives
and agents in connection with Purchaser's investigation of the Celeron
Companies and Purchaser agrees not to retain any copies thereof in such event.
This Section 5.3 shall not be violated by any disclosure by Plains or Purchaser
pursuant to court order or as otherwise required by any applicable law or the
applicable law or the applicable rules or regulations of any Governmental Body
or securities exchange.
SECTION 5.4 BUSINESS RECORDS. On the Closing Date, the Celeron Companies
shall retain possession of all of the Records and any other of their business
records, and after the Closing Date Seller shall deliver or cause to be
delivered to Purchaser (or its designee) all Records of the Celeron Companies
in the possession of Seller or its Affiliates; provided, however, that Seller
and its Affiliates may retain possession of all files, records or
correspondence with respect to Taxes or other obligations which Seller or any
of its Affiliates may have continuing obligations or which are required by
Seller or any of its Affiliates in connection with the filing of Tax returns,
it being understood that all of the foregoing materials, regardless of whether
transferred to Purchaser or retained by Seller, shall be retained by the party
having possession of same for not less than five years from the date hereof and
during that time shall be made available to the other party hereto for
inspection or copying as reasonably requested during normal working hours. At
the end of such five year period, such Records or
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other documents may be disposed of by the party having possession thereof if
such party first offers to surrender possession thereof to the other party at
the expense of such other party.
SECTION 5.5 ACCOUNTS RECEIVABLE. On the Settlement Date, Purchaser will
cause the Celeron Companies to assign to Seller (or such other Person as Seller
may designate to Purchaser in writing) the outstanding balance of any accounts
receivable included in the Closing Date Statement that remain unpaid at the
Settlement Date (the "Transferred Receivables") and Seller shall pay to
Purchaser the aggregate amount of such unpaid balance at the amount at which
they were included in the gross amount (determined without offsets or netting)
of Accounts Receivable reported in Closing Date Statement. Purchaser or Plains
will immediately remit in cash to Seller all amounts received by the Celeron
Companies or Purchaser or Plains (whether in cash, crude oil or other property)
from and after the Settlement Date in respect of the Transferred Receivables.
SECTION 5.6 CORPORATE NAMES AND TRADEMARKS. Notwithstanding any
inference of ownership rights of the Celeron Companies or any prior course of
conduct, in no event shall Purchaser, or any Affiliate or Subsidiary of
Purchaser (including the Celeron Companies after the Closing) or any other
Person acquire or have any right to use any other right, title or interest in
or to the corporate name of Seller, Goodyear or any of Goodyear's other
Subsidiaries or Affiliates in any jurisdiction, or acquire any right or
interest in or to any trademark, trade name, service mark or copyright, or any
application or registration therefor owned, licensed or used by the Celeron
Companies which includes in any form the word "Goodyear" or the "Winged Foot
Design", the word "Wingfoot" or any combination of any of them, or any other
identification that suggests, simulates or is confusing by similarity to the
corporate name of Seller, Goodyear or any other Goodyear Subsidiary or other
Affiliate, the "Winged Foot Design", the word "Wingfoot" or any combination of
any of them.
SECTION 5.7 RELEASE OF ENVIRONMENTAL CLAIMS. Purchaser and Plains
severally hereby release and forever discharge Seller and its Affiliates
(including Goodyear) from all claims for Loss which Plains, Purchaser or any of
their respective Subsidiaries and other Affiliates (including the Celeron
Companies), or any successors or assigns of Plains, Purchaser or any of their
respective Affiliates may have or assert against Seller or any of its
Affiliates (including Goodyear) under any Environmental Law or pursuant to this
Agreement, resulting from any act or omission of the Celeron Companies or in
respect of any Celeron Asset, any Celeron Right-of-Way, any Celeron Leased
Property, any Linefill, any Current Asset or any other property owned or used
by any Celeron Company, or in respect of any substance transported from any
Celeron Asset, any Celeron Right-of-Way, any Celeron Leased Property or other
property owned or controlled by the Celeron Companies or discharged, emitted or
emanating therefrom, except as and to the extent expressly provided to the
contrary in Section 8.3 of this Agreement.
SECTION 5.8 CELERON INDEBTEDNESS. At or prior to the Closing, Seller
shall cause all Prior Debt to be repaid, with the effect that immediately prior
to the Effective Time the aggregate indebtedness of the Celeron Companies for
money borrowed shall not exceed the maximum aggregate principal amount of
Permitted Debt, plus accrued interest thereon.
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SECTION 5.9 ASSUMPTION OF GUARANTY AGREEMENTS AND LETTERS OF CREDIT.
Appendix E to this Agreement lists guaranty agreements executed and delivered
by Goodyear to counterparties to crude oil purchase and sale contracts with
CT&T and CGC and certain letters of credit issued by banks at the request of
Goodyear in respect of certain transactions engaged by the Celeron Companies.
Purchaser and Plains understand and agree that at or prior to the Effective
Time Goodyear will terminate (to the extent permitted by the terms thereof)
such Guaranty Agreements. Purchaser agrees to assume all obligations of
Goodyear under said Guaranty Agreements and in respect of such letters of
credit (except with respect to obligations of the Celeron Companies which were
due and payable prior to the Effective Time and were not included as accounts
payable or other current liabilities on the Closing Date Statement) pursuant to
the terms of the Guaranty Assumption Agreement.
SECTION 5.10 TERMINATION OF CERTAIN AGREEMENTS. Purchaser and Plains
understand and agree that Seller shall cause Cel Corp and the Celeron Companies
to terminate the Service Agreements, which terminations shall be effective
immediately prior to the Effective Time; provided, however, that such
terminations shall not affect the obligation of the Celeron Companies with
respect to the payment of amounts earned by Cel Corp for services rendered prior
to the Closing but not paid. In addition, Plains, Purchaser and Seller hereby
agree that any other agreement (excluding this Agreement and the Related
Agreements) or understanding, whether written or oral, between Cel Corp, on the
one hand, and any one or more of the Celeron Companies, on the other hand, shall
automatically terminate at the Effective Time, except to the extent that payment
has not been made to Cel Corp for services rendered prior to the Closing.
SECTION 5.11 TRANSFERRED ASSETS AND LIABILITIES. Purchaser and Plains
each acknowledge that neither Purchaser nor Plains, nor any of their respective
Affiliates, nor any of the Celeron Companies has any interest in any Transferred
Assets. Seller acknowledges that neither Plains nor Purchaser, nor any of their
respective Affiliates, nor any of the Celeron Companies shall have any liability
or obligation in respect of the Transferred Liabilities.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
SECTION 6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The
obligations of Purchaser under this Agreement are subject to, and shall be
conditioned upon, the satisfaction (or waiver in writing by Purchaser) at or
prior to the Closing, of each of the following conditions:
(a) Representations and Warranties Correct. Each representation and
warranty of Seller made in this Agreement, in any Annex, Appendix, Exhibit or
Schedule to this Agreement, or in any Related Agreement or instrument delivered
by Seller pursuant to the terms and
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conditions of this Agreement shall be true and correct in all material respects
on and as of the Closing Date with the same force and effect as though made on
and as of the Closing Date.
(b) Covenants Performed. Seller shall have performed, satisfied and
complied with all covenants, agreements and conditions required to be performed
or complied with by it on or before the Closing Date pursuant to this Agreement
or any Related Agreement, document or instrument delivered by Seller in
connection with this Agreement.
(c) No Material Changes. During the period beginning on the date of this
Agreement and ending at the Effective Time: (i) there shall have occurred no
material losses or damages to the Celeron Assets, whether or not insured, which
would materially and adversely affect the operations of the All American System
and the SJV System, taken as a whole; (ii) no Exxon Event shall have occurred;
(iii) there shall have occurred no strike, work stoppage or labor dispute which
could materially and adversely affect the financial condition, businesses or
operations of the Celeron Companies, taken as a whole; (iv) except as listed at
Schedule 3.1, no Lien, other than a Permitted Lien, or encumbrance, other than
a Permitted Encumbrance, shall have been incurred in respect of or imposed on
any Celeron Asset; or (v) there shall not have been sold or otherwise
transferred any real or tangible personal property (other than Rejected Assets)
owned by the Celeron Companies, other than in the ordinary course of business.
(d) Opinion of Counsel. Purchaser shall have received an opinion from
counsel to the Seller, dated the Closing Date, in substantially the form of
Exhibit K to this Agreement.
(e) Absence of Litigation. No action, suit, investigation or other
proceeding or claim before any court or any government or governmental body,
authority or instrumentality shall have been instituted or threatened on or
before the Closing Date either (i) to restrain, prohibit or invalidate any
transaction contemplated by this Agreement, (ii) to impose any restrictions,
limitations, conditions or other burdens with respect to the transaction
contemplated by this Agreement on Purchaser or any of the Celeron Companies, or
(iii) to obtain damages or other relief from Purchaser or any of its Affiliates
in connection with the transactions contemplated by this Agreement.
(f) Officers' Certificate. Seller shall have delivered to Purchaser a
certificate, dated the Closing Date, signed by the President or any Vice
President of Seller and by the President and the Vice President, Treasurer and
Comptroller of AAPL, in substantially the form of Exhibit M to this Agreement.
(g) Resignations. Seller shall have delivered to Purchaser, except as
otherwise requested by Purchaser, the written resignations of all directors and
officers of each of the Celeron Companies effective as of the Closing Date.
(h) Governmental Approvals. All Governmental Approvals and other
requirements of Governmental Bodies which, in the opinion of counsel for
Purchaser, are necessary in order to consummate the transactions contemplated
hereby shall have been made, obtained or satisfied on terms reasonably
satisfactory to Purchaser. No action shall have been instituted or threatened
by
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any Governmental Body to prevent the consummation of the transactions herein
contemplated. The waiting period under the HSR Act (including any extension
there) shall have expired or been terminated and any and all necessary
approvals of the FERC and the Cal PUC shall have been received.
(i) Contract Consents. All consents, approvals and authorizations from
any Person required as a result of the execution and delivery of this Agreement
or any Related Agreement, or the consummation of the transactions contemplated
herein or therein, shall have been obtained on terms reasonably (and consistent
with Section 4.1 of this Agreement) acceptable to Purchaser, other than
consents, approvals and authorizations that, if not obtained, would not have a
material and adverse affect on the financial condition, business or operations
of the Celeron Companies taken as a whole.
The foregoing conditions of this Section 6.1 are for the sole benefit of
Purchaser and may be asserted by Purchaser or may be waived by Purchaser in
whole or in part in the sole discretion of Purchaser.
SECTION 6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The
obligation of Seller under this Agreement are subject to, and shall be
conditioned upon, the satisfaction (or the waiver in writing by Seller) at or
prior to the Closing, of each of the following conditions:
(a) Representations and Warranties Correct. Each representation and
warranty of Purchaser and/or Plains made in this Agreement, in any Annex,
Appendix, Exhibit or Schedule to this Agreement, or in any Related Agreement or
related document or instrument delivered by Purchaser and/or by Plains pursuant
to this Agreement shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date.
(b) Covenants Performed. Purchaser and Plains shall have performed and
satisfied, or caused to be performed and satisfied, all covenants and
conditions required to be performed and satisfied on or prior to the Closing
Date pursuant to this Agreement and any Related Agreement, document or
instrument executed and delivered in connection with this Agreement.
(c) Opinion of Counsel. Seller shall have received the opinion of
counsel to the Purchaser and Plains, dated the Closing Date, in substantially
the form of Exhibit L to this Agreement.
(d) Absence of Litigation. No action, suit, investigation or other
proceeding or claim before any court or Governmental Body shall have been
instituted or threatened on or before the Closing Date either (i) to restrain,
prohibit or invalidate any of the transactions contemplated by this Agreement,
(ii) to impose any restrictions, limitations, conditions or other burdens with
respect to any of the transactions contemplated by this Agreement on Seller or
any Affiliate of Seller, (iii) to obtain damages or other relief from or in
respect of Seller or any Affiliate of Seller in connection with the
transactions contemplated by this Agreement.
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(e) Officers' Certificate. Each of Purchaser and Plains shall have
delivered to Seller a certificate, each dated the Closing Date and signed by
their respective Chief Executive Officer and by the Chief Financial Officer,
and by all other necessary signatories, substantially in the forms,
appropriately completed, of Part I (Purchaser) and Part II (Plains) of Exhibit
N to this Agreement.
(f) Governmental Approvals. All Governmental Approvals and other
requirements of Governmental Bodies which, in the opinion of counsel for
Seller, are necessary in order to consummate the transactions contemplated
hereby shall have been made, obtained or satisfied on terms reasonably
satisfactory to Seller. No action shall have been instituted or threatened by
any Governmental Body to prevent the consummation of the transactions herein
contemplated. The waiting period under the HSR Act (including any extension
thereof) shall have expired or been terminated and any and all necessary
approvals of the FERC and the Cal PUC shall have been received.
(g) Consents. All consents, approvals and authorizations required from
any Person as a result of the execution and delivery of this Agreement or any
Related Agreement, or the consummation of the transactions contemplated herein
or therein, shall have been obtained on terms reasonably (and consistent with
Section 4.1 of this Agreement) acceptable to Seller, other than consents,
approvals and authorizations that, if not obtained, would not have a material
and adverse affect on the financial condition, business or operations of the
Celeron Companies taken as a whole. Purchaser and Plains agree and understand
that the failure to obtain any and all such consents, approvals and
authorizations because they are not material to the financial condition,
business or operations of the Celeron Companies shall not form the basis of any
Loss for Purchaser, Plains or the Celeron Companies.
(h) Certain Adverse Events. There shall have occurred no event described
at Subsection (c)(i) or (c)(ii) of Section 6.1 of this Agreement.
The foregoing conditions of this Section 6.2 are for the sole benefit of
Seller and may be asserted by Seller or may be waived by Seller in whole or in
part in the sole discretion of Seller.
ARTICLE VII
THE CLOSING
SECTION 7.1 TIME AND PLACE OF CLOSING. The transfer of the Shares by
Seller to Purchaser (the "Closing") shall take place at 1144 East Market
Street, Akron, Ohio 44316-0001, on April 30, 1998, or, if all of the conditions
set forth at Sections 6.1 and 6.2 have not been satisfied or waived on or prior
to April 30, 1998, on the fifth business day after such conditions have been
satisfied or waived, but in no event later than September 30, 1998. The date on
which the Closing occurs is referred to in this Agreement as the "Closing
Date". The Closing Date may be changed only by the mutual agreement of
Purchaser and Seller.
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SECTION 7.2 SELLER'S DELIVERIES AT CLOSING. At the Closing, Seller shall
deliver or cause to be delivered to Purchaser against delivery of the items
specified in Section 7.3:
(a) Certificates representing the Shares registered in the name of
Seller, duly endorsed by Seller for transfer, and the certificate
representing the CGC Shares (except that the CGC Shares shall not be
endorsed for transfer, but shall remain issued in the name of AAPL);
(b) The stock book or ledger, minute books and corporate seal of each of
the Celeron Companies;
(c) The opinion, dated the Closing Date, of counsel to Seller, as
provided in Section 6.1;
(d) The certificate, dated the Closing Date, of an officer of Seller, as
provided in Section 6.1;
(e) The written resignations (effective as of the Effective Time) of all
the directors and officers of each of the Celeron Companies;
(f) At least four copies of each of the Related Agreements duly executed
by Seller and, if applicable, the Celeron Companies party thereto; and
(g) Certified copies of resolutions of the Board of Directors of Seller
authorizing the execution, delivery and performance of this Agreement and
the Related Agreements.
SECTION 7.3 PURCHASER'S DELIVERIES AT CLOSING. At the Closing, Purchaser
shall deliver to Seller the following against delivery of the items specified
in Section 7.2:
(a) An amount equal to the Closing Price, in immediately available
funds, paid by wire transfer to the bank (located in New York City) account
designated in writing by Seller;
(b) The opinion, dated the Closing Date, of counsel to Purchaser and
Plains, as provided in Section 6.2;
(c) Certificate, dated the Closing Date, executed by an officer of
Purchaser, as provided in Section 6.2;
(d) At least four copies of each of the Related Agreements duly executed
by Purchaser and each Affiliate of Purchaser (including Plains) party
thereto;
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(e) Certified copies of resolutions duly adopted by the Board of
Directors and the shareholders of Purchaser authorizing the execution,
delivery and performance of this Agreement and the Related Agreements; and
(f) Certified copies of resolutions duly adopted by the Board of
Directors of Plains authorizing the execution, delivery and performance of
this Agreement and the Related Agreements.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless otherwise
specifically set forth in this Agreement or in any of the Annexes, Appendices,
Exhibits and Schedules to this Agreement, all representations and warranties
contained in this Agreement or in any Annexes, Appendices, Exhibits or
Schedules hereto shall survive the Closing Date and continue in full force and
effect, subject to the applicable limitations contained in Section 8.2, 8.3 and
8.4 of this Agreement. Unless otherwise specifically set forth herein or in any
of the Annexes, Appendices, Exhibits and Schedules hereto, or in any Related
Agreement, in the case of any breach of any representation, warranty, or
covenant, or any breach of any covenant to be performed after the Closing Date,
the exclusive remedy therefor shall be indemnification pursuant to this Article
VIII of this Agreement.
SECTION 8.2 INDEMNIFICATION. (a) Certain Definitions. (i) Losses. As
used in this Section 8.2, "Losses" shall mean all claims, expenses,
obligations, damages, costs, payments, liabilities, fines and penalties,
including, without limitation, costs and expenses of litigation (including
costs of investigation) and reasonable attorneys' fees, other than losses which
were the subject matter of any Liability at the Closing and which was taken
into consideration in determining the Purchase Price. Losses shall not include:
(i) the loss of profits or anticipated profits; (ii) any cost or expense paid
or incurred by Purchaser or Plains, or any of their respective Affiliates, on
the one hand, or Seller or any Affiliate (including Goodyear) of Seller, on the
other hand, at or prior to the Effective Time or in connection with the
preparation, negotiation, execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby; (iii) indirect,
incidental, consequential or punitive damages suffered or incurred by any of
the Celeron Companies or by Purchaser, Plains, Seller, or any of their
respective Affiliates, as the case may be; or (iv) the costs of defending or
payment of damages or settlement of any actions brought by a shareholder,
debtholder or other interest holder of Purchaser, Plains, or any of their
respective successors or assigns or Affiliates, against Purchaser, Plains or
any of their respective Affiliates or a shareholder, debtholder or other
interest holder of Seller or any Affiliate of Seller against Seller or any
Affiliate of Seller. Loss shall not include any claims, expenses, obligations,
damages, costs, payments, liabilities, fines and penalties, including, without
limitation, costs and expenses of litigation (including costs of investigation)
and reasonable attorneys' fees incurred by Purchaser or Plains in order to
comply with laws which are enacted, or rules or regulations of any Governmental
Body which are
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promulgated, subsequent to the date of this Agreement or, if enacted or
promulgated on or prior to the date of this Agreement, are not effective as to,
or do not impose any effective requirements on the Celeron Companies, the
Celeron Assets, the Celeron Rights-or-Way, the Celeron Lease Property, the
Linefill, the Current Assets or any other property, right or interest of the
Celeron Companies on or prior to the date of this Agreement. Loss shall not
include any Liability which was the basis for any adjustment to the Purchase
Price pursuant to Section 2.3 or Section 2.4 of this Agreement.
(ii) Other Matters. For purposes of this Article VIII: (1) A claim
pursuant to this Article VIII by the Purchaser against the Seller or by the
Seller against the Purchaser and/or Plains, as the case may be, is herein
referred to as an "Indemnification Claim"; (2) the party (the Seller
Indemnified Party or the Purchaser Indemnified Party, as the case may be)
asserting the Indemnification Claim is herein referred to as the "Indemnified
Party"; (3) the party (the Seller or Purchaser, as the case may be) against
whom an Indemnification Claim is made is herein referred to as the
"Indemnifying Party"; (4) "Seller Indemnified Party" means Seller, Goodyear and
other Affiliates of Seller or Goodyear (other than the Celeron Companies), and
their respective directors, officers, employees and agents; and (5) "Purchaser
Indemnified Party" means Purchaser and its Affiliates (including Plains, but
excluding the Celeron Companies) and their respective directors, officers,
employees and agents.
(b) General Indemnity by Purchaser and Plains. Each of Purchaser, Plains
and each of the Celeron Companies (each of which shall have joint and several
liability as an Indemnifying Party) shall indemnify, defend and hold harmless
each Seller Indemnified Party from and against all Losses (other than Losses or
Taxes of the nature described in Sections 8.3 and 8.4 of this Agreement or
Losses, Taxes, liabilities or obligations expressly assumed by Seller pursuant
to this Agreement or the Employee Agreement) that are incurred by or imposed
upon such Seller Indemnified Party which are caused by, arise out of or are
attributable to:
(i) any liability or other obligation which any Seller
Indemnified Party incurs which is caused by, arises out of or is
attributable to (1) events which occur after the Effective Time in respect
of the Celeron Companies or the ownership, operation, use, misuse, non-use
or disposition (whether by the Celeron Companies or otherwise) of the
Celeron Assets, the Celeron Rights-of-Way, the Celeron Leased Property, the
Linefill, the Current Assets, or any other property, asset, right or
interest of the Celeron Companies, including the All American System and
the SJV System, after the Effective Time, or (2) any other act or omission
by Purchaser, Plains or any Celeron Company, or by any of their respective
directors, officers, employees or agents, in respect of the Celeron
Companies or the Celeron Assets, the Celeron Rights-of-Way, the Celeron
Leased Property, the Linefill, the Current Assets or any other property,
asset, right or interest of the Celeron Companies after the Effective Time;
or
(ii) the non-performance or other breach of any covenant,
agreement or other obligation pursuant to this Agreement or any Related
Agreement, or any other agreement, document or instrument delivered to
Seller or Goodyear pursuant to this Agreement or any Related Agreement,
required to be performed by Purchaser, Plains or any of their
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respective Affiliates (including the Celeron Companies and their respective
successors and assigns), at or at any time subsequent to the Effective
Time; provided, however, that Plains shall not have any (and that Purchaser
and the Celeron Companies shall have) liability in respect of a Loss due to
the failure to pay the Added Settlement Price or the breach or non-
performance of any of the obligations under Section 5.9 of this Agreement
or under the Guaranty Assumption Agreement; or
(iii) the failure of any of the representations or warranties
made by Purchaser or Plains, or, if applicable, any of their respective
Affiliates, in this Agreement or any Related Agreement, or in any other
agreement, document or instrument delivered to Seller or Goodyear pursuant
to this Agreement or any Related Agreement, or in any certificate or other
instrument delivered pursuant to this Agreement or any Related Agreement,
to be true and correct on and as of the Effective Time with the same force
and effect as though made on and as of the Effective Time; or
(iv) any other liability or obligation incurred by any Seller
Indemnified Party after the Effective Time arising out of or in respect of
any of the Celeron Companies, other than (a) any Loss Seller has agreed to
indemnify Purchaser against pursuant to the provisions of this Article VIII
or any Related Agreement or other instrument delivered by any Seller
Indemnified Party pursuant to this Agreement or any Related Agreement or
(b) any such other liability or obligation arising out of any act or
omission of any Seller Indemnified Party when acting or failing to act for
its own account (excluding, however, acts or omissions of any Seller
Indemnified Party in respect of the Celeron Companies taken or omitted in
its (or his or her) capacity as a debtholder, a director or an officer of
one or more of the Celeron Companies); or
(v) any claim in respect of this Agreement or the transactions
contemplated by this Agreement asserted against any Seller Indemnified
Party by any shareholder or debtholder of Purchaser or Plains or their
respective Affiliates.
(vi) any claim in respect of this Agreement or the transactions
contemplated herein asserted against any Seller Indemnified Party by any
Person claiming through or on behalf of Purchaser or Plains or any of their
respective Affiliates or successors or assigns or any successor or assign
of any Celeron Company.
(c) General Indemnity by Seller. Seller shall indemnify, defend and hold
harmless each Purchaser Indemnified Party from and against all Losses (other
than (1) Losses or Taxes of the nature described in Sections 8.3 or 8.4 of this
Agreement, or (2) Losses, Taxes, liabilities or obligations in respect of which
Purchaser assumes liability or responsibility pursuant to the terms and
conditions of this Agreement or any Related Agreement) that are incurred by or
imposed upon such Purchaser Indemnified Party which are caused by, arise out of
or are attributable to:
(i) the failure of any of the representations or warranties made
by Seller in this Agreement or any Related Agreement, or in any other
agreement, document or instrument delivered to Purchaser by Seller pursuant
to this Agreement or any Related Agreement, or
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in any certificate or other instrument delivered pursuant to this Agreement
(other than the representations made at Section 3.1(u) of this Agreement,
or any other representations made elsewhere in this Agreement or in any
instrument delivered pursuant to this Agreement relating to Environmental
Laws or to any event or condition which is of the kind or nature that is
the subject of, or could be covered by, Section 8.3 of this Agreement) to
be true and correct on and as of the Effective Time with the same force and
effect as though made on and as of the Effective Time; or
(ii) the non-performance or other breach of any covenant,
agreement or other obligation pursuant to this Agreement or any Related
Agreement, or any other agreement, document or instrument delivered to
Purchaser by Seller pursuant to this Agreement or any Related Agreement,
required to be performed by Seller at or at any time subsequent to the
Effective Time; or
(iii) any claim in respect of this Agreement or the transactions
contemplated by this Agreement asserted against any Purchaser Indemnified
Party by any shareholder or debtholder of Seller or any Affiliate of
Seller.
(d) Duration of Indemnification Obligations. The indemnification provisions
contained in this Section 8.2 shall remain in effect without limitation as to
time; provided, however, that, notwithstanding the foregoing Seller shall not
have any liability to any Purchaser Indemnified Party under any provision of
this Agreement, including specifically, and without limitation, Subsection (c)
of this Section 8.2 of this Agreement, after the second anniversary of the
Effective Time with respect to any Loss (except with respect to Losses arising
from the inaccuracy of representations made at Sections 3.1(a), 3.1(b), 3.1(c),
3.1(d) and 3.1(e) of this Agreement and except as expressly provided to the
contrary in Sections 8.3 and 8.4 of this Agreement); provided further, however,
that the obligation of Seller shall not terminate at the time provided above
if, prior to such time, such Loss shall have occurred, or shall have been
specifically identified and alleged to have occurred, and a notice of claim
relating to such Loss specifying in reasonable detail the nature thereof shall
have been given to Seller in accordance with Subsection (g) of this Section
8.2. No claim pursuant to subsection (b) or (c) of this Section 8.2 shall be
made in respect of any Loss in respect of Taxes, any Environmental Law or any
violation thereof, or any breach of the representations and warranties set
forth at Section 3.1(u) of this Agreement, or any other Loss or liability,
expense or obligation the subject matter of which is specifically addressed in
Sections 8.3 and 8.4.
(e) Limitation of Claims. Each party's right to indemnification
hereunder shall not be limited in amount, except that: (1) Seller shall not
have any liability in respect of any Loss which is described or referred to in
clause (i) or (ii) of Section 8.2(c) of this Agreement until the aggregate
amount of all such Losses exceeds $1,000,000, and then only in respect of such
Losses in excess of $1,000,000 in aggregate amount; and (2) the aggregate
liability of Seller in respect of all Losses described or referred to in
Section 8.2(c) of this Agreement shall not in any event exceed $10,000,000 in
aggregate amount, except that said limitation shall not apply to a Loss arising
from (i) an inaccuracy in the representations set forth at Section 3.1(a),
3.1(b), 3.1(c), 3.1(d) and 3.1(e) of this Agreement which results in the
Purchaser not receiving title to
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the Shares (and, indirectly, the CGC Shares) as warranted in Section 3.1(e) of
this Agreement, or (ii) any claim in respect of this Affiliate of Seller (which
is subject to indemnification pursuant to Section 8.2(c)(iii)). Notwithstanding
the foregoing, with respect to Losses which arise solely by reason of a breach
of Sections 3.1(g), 3.1(m), 3.1(q) or 3.1(v) of this Agreement, Seller shall
not have any liability with respect to any such Loss until the aggregate amount
of all such Losses exceeds $1,000,000, and then only in respect of such Losses
in excess of $1,000,000 in aggregate amount, and the aggregate amount of
liability of Seller in respect of all such Losses shall not in any event exceed
$21,500,000 in aggregate amount.
(f) Payment. Any payment required to be made to any party entitled to
indemnification hereunder shall be made within thirty (30) days after receipt
of an invoice therefor from the party seeking indemnification. In the event of
any dispute with respect to a party's obligation to make any such payment, the
parties shall use reasonable efforts to resolve such dispute as promptly as
practicable; provided, that, nothing herein shall prevent or delay a party from
seeking judicial resolution of such dispute.
(g) Notice; Access and Cooperation. Purchaser and Plains and Seller
shall each use all reasonable efforts to deliver or cause to be delivered as
promptly as practicable to any party from which it may be entitled to seek
indemnification hereunder a notice describing in reasonable detail facts or
circumstances which may result in a claim of Loss (or which, but for the
provisions of Section 8.2(e) hereof, might result in a claim of Loss) for which
it may be entitled to indemnification under this Agreement. Such notice shall
describe in reasonable detail the nature of the claim and the basis for
indemnification hereunder and shall be accompanied, in the case of third party
claims (or claims arising out of third party claims), by copies of documents
and instruments received by the Indemnified Party with respect thereto;
provided, however, that any failure to give such notice promptly shall not
release the Indemnifying Party, in whole or in part, from its obligations under
this Article except to the extent that (i) the amount of the Loss is increased
thereby or (ii) the Indemnifying Party's ability to defend against such claim
is prejudiced thereby. In case any such action shall be brought against an
Indemnified Party and it shall give notice to the Indemnifying Party of the
commencement thereof, the Indemnifying Party shall be entitled to participate
therein, and, to the extent that it shall wish, to assume the defense thereof
with counsel reasonably satisfactory to such Indemnified Party, and after
notice from the Indemnifying Party to such Indemnified Party of its election so
to assume the defense thereof, the Indemnifying Party shall not be liable to
such Indemnified Party under such section for any fees of other counsel or any
other expenses, in each case subsequently incurred by such Indemnified Party in
connection with defense thereof, other than reasonable costs of investigation.
If an Indemnifying Party assumes the defense of such an action, (a) no
compromise or settlement thereof may be effected by the Indemnifying Party
without the Indemnified Party's written consent unless (i) there is no finding
or admission of any violation of law or any violation of the rights of any
Person by or on the part of the Indemnified Party and no effect on any other
claims that may be made against the Indemnified Party and (ii) the sole relief
provided is monetary damages that are paid in full by the Indemnifying Party,
and (b) the Indemnified Party shall have no liability with respect to any
compromise or settlement thereof effected without its consent. If notice is
given to an Indemnifying Party of the commencement
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of any action and it does not, within ten days after the Indemnified Party's
notice is given, give notice to the Indemnified Party of its election to assume
the defense thereof, the Indemnifying Party shall be bound by any determination
made in such action or any compromise or settlement thereof effected by the
Indemnified Party. In the event that the Indemnifying Party has assumed the
defense of any action or claim and has obtained or received an offer to
compromise or settle such action or claim on terms and conditions acceptable to
such Indemnifying Party (which offer provided for a monetary settlement and any
non-monetary terms or conditions are not material and adverse to the interests
of the Indemnified Party) and the Indemnified Party refuses for any reason
whatsoever to agree to the terms and conditions of such compromise or
settlement, the Indemnifying Party may (1) continue to defend the action or
claim or (2) tender the further defense of such action to the Indemnified
Party, and, in either case, the Indemnifying Party's liability to the
Indemnified Party shall not exceed the net cost to implement the terms of the
compromise or settlement offered to and rejected by the Indemnified Party. In
the event that the Indemnifying Party has assumed the defense of any action or
claim and the Indemnified Party has obtained or received an offer to compromise
or settle such action or claim, the Indemnified Party shall present such offer
to the Indemnifying Party, and, if the terms of such offer are acceptable to
the Indemnifying Party (and if any non-monetary terms and conditions are not
materially adverse to the Indemnified Party), the Indemnified Party may (1)
reject the offer and continue its defense of the action or claim, or (2) effect
the compromise or settlement of such action or claim and, in either case, the
Indemnifying Party's liability shall not exceed the net cost to implement the
terms of such compromise or settlement. Notwithstanding the foregoing, if an
Indemnified Party determines in good faith that there is a reasonable
probability that an action may materially and adversely affect it or its
Affiliates other than as a result of monetary damages, such Indemnified Party
may, by notice to the Indemnifying Party, assume the exclusive right to defend,
compromise or settle such action, but the Indemnifying Party shall not be bound
by any determination of action so defended or any compromise or settlement
thereof effected without its consent. After the Closing Date, the Indemnified
Party and the Indemnifying Party shall each cooperate fully with the other
(including affording the other an opportunity to assume or participate in the
defense) as to all rights or claims asserted by any third party which may
result in any such Loss, shall make available to the other as reasonably
requested, and shall preserve, all such information, records and documents
until the termination of any claim. The Purchaser and Plains and Seller shall
each also make available to the other as reasonably requested, its personnel
(including technical and scientific), agents and other representatives who are
responsible for preparing or maintaining information, records or other
documents, or who may have particular knowledge with respect to any such claim.
(h) No Insurance. The indemnifications provided in this Section 8.2
shall not be construed as a form of insurance for any regulatory purpose.
(i) Single Claims. It is expressly agreed that, where the provisions of
this Section 8.2 entitle more than one entity to indemnification in respect of
the same Loss, the Indemnifying Party shall be liable only once under this
Section 8.2 in relation to such Loss notwithstanding that more than one
Indemnified Party might have sought indemnification in respect of such Loss.
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(j) Insured Losses; Subrogation. To the extent that any Loss was covered
by insurance maintained by or on behalf of the Celeron Companies prior to the
Effective Time, Seller and its Affiliates shall be fully subrogated to the
rights of the Celeron Companies thereunder. Purchaser and Plains agree to
satisfy, or to cause each of the Celeron Companies to satisfy, any notice
provision under any such insurance policy of which Purchaser and/or Plains
shall have actual notice by reason of its receipt of written advice of such
notice requirement from Seller.
(k) No Transfer-Resales. The indemnifications provided in this Article
VIII shall be binding upon and inure to the benefit of the Seller, Goodyear and
any other Seller Indemnified Party, and their successors and permitted assigns,
and Purchaser, Plains and any other Purchaser Indemnified Party, and their
successors and permitted assigns. Notwithstanding any other provision of this
Agreement, Seller's obligation to indemnify any Person (including any Purchaser
Indemnified Party) shall automatically terminate at such time as substantially
all of the Shares (or substantially all of the capital stock of any one or more
of the Celeron Companies or any successor company or companies) or a major
portion of the Celeron Assets are sold or transferred by Purchaser to, or any
of the Celeron Companies are merged into or consolidated with, any other Person
(any such event a "Transfer"), other than any Wholly-Owned Subsidiary of
Purchaser or Plains or any partnership of which Plains or one of its Wholly-
Owned Subsidiaries is a general partner; it being understood that, in the event
of any Transfer by Purchaser to any Wholly-Owned Subsidiary of Purchaser or
Plains or to any partnership of which Plains or one of its Wholly-Owned
Subsidiaries is a general partner, if (i) the Wholly-Owned Subsidiary or
partnership to which such Transfer was made incurs or suffers an event that
would constitute a Loss that would be entitled to indemnification pursuant to
Section 8.2, Section 8.3 or Section 8.4 of this Agreement (after giving effect
to the limitations on duration and amount set forth in Sections 8.2 and 8.3) if
such Transfer had not been made, and (ii) Purchaser has entered into a binding
contract with such Wholly-Owned Subsidiary or partnership (to which the
Transfer was made) whereunder Purchaser is obligated to indemnify such Wholly-
Owned Subsidiary or partnership for such Loss, then Seller will indemnify
Purchaser to the extent of the lesser of (1) the amount of Seller's obligation
to Purchaser under Sections 8.2, 8.3 or 8.4 of this Agreement had such Transfer
not been made, and (2) the amount of Purchaser's payment in satisfaction of its
indemnification obligation in respect of such Loss made in accordance with its
agreement with such Wholly-Owned Subsidiary or partnership. In no event shall
any other Person other than Seller Indemnified Parties and Purchaser
Indemnified Parties and their respective successors have, obtain or acquire any
right of Purchaser, Plains or Seller, as the case may be, or any other right,
to indemnification pursuant to this Article VIII.
(l) No Gross-Up. All Losses shall be determined before giving effect to
any Taxes payable as a result of the receipt by the Indemnified Party of any
indemnification payment made by Purchaser and/or Plains to a Seller Indemnified
Party or by Seller to a Purchaser Indemnified Party pursuant to this Agreement
or any Related Agreement.
SECTION 8.3 INDEMNIFICATION FOR ENVIRONMENTAL MATTERS.
(a) Pre-Closing Environmental Review and Disclosures. Any Losses
incurred by the Celeron Companies or the Purchaser (or any of their respective
successors or assigns or
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Affiliates, including Plains) caused by, arising out of or attributable to (1)
any violation by any of the Celeron Companies of any Environmental Law, (2) the
disposal by any of the Celeron Companies of any Hazardous Materials, petroleum
or other solid or liquid wastes on any Celeron Real Property, Celeron Leased
Property or Celeron Right-of-Way or onto any land or into any surface or ground
waters of any other Person, (3) the Migration of any Hazardous Materials,
petroleum or other solids or liquids from any Celeron Real Property, Celeron
Leased Property or Celeron Right-of-Way or from the All American System or the
SJV System onto the land or into the surface or ground water of any other
Person, (4) the presence of any Hazardous Materials, petroleum or other liquid
or solid wastes on any Celeron Real Property or Celeron Right-of-Way or on the
land or in the surface or ground water of any other Person, or (5) the emission
of any gases or solids into the atmosphere by any of the Celeron Companies, in
each case whenever the event occurred (whether before or after the Effective
Time), which is disclosed in the Environmental Assessment Report, the Phase II
Study or Part U of Schedule 3.1 to this Agreement shall be the responsibility
of the Purchaser and its Subsidiaries, including the Celeron Companies; and
Plains, Purchaser, their respective Affiliates and their respective successors
and assigns, including the Celeron Companies, shall indemnify, defend and hold
harmless each Seller Indemnified Party from and against any such Losses. In no
event shall any Loss of a nature described in this Section 8.3(a) constitute a
Loss under Section 8.2(b), 8.2(c), 8.3(b) or 8.3(c).
(b) Unknown Environmental Liabilities.
(i) Seller shall indemnify, defend and hold harmless each Purchaser
Indemnified Party and each Celeron Company from and against Losses that are
caused by, arise out of or are attributable to:
(1) Hazardous Materials or petroleum or other solid or liquid wastes
(other than naturally occurring substances) that are demonstrated to have
been present (other than petroleum and corrosion inhibiting chemicals in
the All American System, in the SJV System or in other containment devices
or facilities which comply with applicable Environmental Laws as in effect
on the date of this Agreement) on any Celeron Real Property, Celeron Leased
Property or Pipeline Right-of-Way at the Effective Time, the presence of
which is not disclosed in the Environmental Assessment Report, the Phase II
Study or Part U of Schedule 3.1 to this Agreement; or
(2) the inaccuracy of any representation and warranty set forth in
Section 3.1(u) of this Agreement at the Effective Time, if and to the
extent such inaccurate representation and warranty failed to disclose a
violation at the Effective Time of an applicable Environmental Law in
effect on the date of this Agreement; or
(3) Hazardous Materials or petroleum or other solid or liquid wastes
that are demonstrated to have migrated or leached onto, under or upon the
property of any Person (other than property of the Celeron Companies,
Purchaser or any of their respective Affiliates) prior to the Effective
Time from any Celeron Real
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Property, Celeron Leased Property or Pipeline Right-of-Way, the occurrence
of which is not disclosed in the Environmental Assessment Report, the Phase
II Study or Part U of Schedule 3.1 to this Agreement; or
(4) any emission of any gases or solids into the atmosphere from the All
American System or the SJV System by any of the Celeron Companies that is
demonstrated to have occurred prior to the Effective Time in violation of
any applicable Environmental Law then in effect, the occurrence of which is
not disclosed in the Environmental Assessment Report, the Phase II Study or
Part U of Schedule 3.1 to the Agreement.
(ii) Seller shall have no liability under clause (i) of this Section 8.3(b)
for claims made after the third anniversary of the Effective Time. Seller shall
not have any liability in respect of any Losses covered by this Section 8.3(b)
until the aggregate amount of all such Losses exceeds $1,000,000, and then only
in respect of such Losses in excess of $1,000,000 in aggregate amount; and the
aggregate liability of Seller in respect of all such Losses shall in no event
exceed $30,000,000 in aggregate amount; provided, however, that subject to the
$30,000,000 limitation on the aggregate liability of Seller pursuant to this
Section 8.3(b), Seller and Purchaser shall share the aggregate liabilities in
respect of Losses covered by this Section 8.3(b) as follows:
(1) the first $1,000,000 of Losses covered by this Section 8.3(b) shall be
borne solely by Purchaser;
(2) In respect of Losses incurred pursuant to claims made during the
period beginning at the Effective Time and ending on the first anniversary of
the Effective Time:
(a) the cumulative aggregate amount of all Losses covered by this
Section 8.3(b) in excess of $1,000,000 but not in excess of $20,000,000
shall be borne 80% by Seller and 20% by Purchaser;
(b) the cumulative aggregate amount of all Losses covered by this
Section 8.3(b) in excess of $20,000,000 but not in excess of $45,000,000
shall be borne 60% by Seller and 40% by Purchaser.
(c) the cumulative aggregate amount of all Losses covered by this
Section 8.3(b) in excess of $45,000,000 shall be borne 100% by Purchaser;
and
(3) In respect of Losses incurred pursuant to claims made during the period
beginning on the day following the first anniversary of the Effective Time and
ending on the second anniversary of the Effective Time:
(a) the cumulative aggregate amount of all Losses covered by this
Section 8.3(b) in excess of $1,000,000 (on a cumulative basis) but not in
excess of $20,000,000 (if any) shall be borne 60% by Seller and 40% by
Purchaser;
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(b) the cumulative aggregate amount of all Losses covered by this
Section 8.3(b) in excess of $20,000,000 but not in excess of $30,000,000
(if any) shall be borne 50% by Seller and 50% by Purchaser;
(c) the cumulative aggregate amount of all Losses covered by this
Section 8.3(b) in excess of $30,000,000 but not in excess of $50,000,000
shall be borne 40% by Seller and 60% by Purchaser;
(d) the cumulative aggregate amount of all Losses in respect of this
Section 8.3(b) in excess of $50,000,000 shall be borne 100% by Purchaser;
and
(4) In respect of Losses incurred pursuant to claims made during the period
beginning on the day following the second anniversary of the Effective Time and
ending on the third anniversary of the Effective Time:
(a) the cumulative aggregate amount of all Losses covered by this
Section 8.3(b) in excess of $1,000,000 (on a cumulative basis) but not in
excess of $20,000,000 (if any) shall be borne 50% by Seller and 50% by
Purchaser; and
(b) the cumulative aggregate amount of all Losses covered by this
Section 8.3(b) in excess of $20,000,000 shall be borne 100% by Purchaser.
Seller's maximum aggregate liability for Losses in respect of this Section
8.3(b) shall be $30,000,000. In no event shall any Loss (whether or not barred
by the provisions of this Section 8.3(b)(ii)) of the nature described in this
Section 8.3 constitute a Loss under Section 8.2(c) or any other provision of
this Agreement.
(c) Pre-Effective Time Off-Site Disposal. Seller shall indemnify, defend
and hold harmless each Purchaser Indemnified Party and each Celeron Company
from and against Losses claimed by any Person (other than the Celeron Companies
or any Purchaser Indemnified Party) that are caused by, arise out of or are
attributable to Hazardous Materials or petroleum or other solid or liquid
wastes disposed of or dumped as waste material at any time prior to the
Effective Time by the Celeron Companies at any waste disposal site other than
(i) any waste disposal site located on any Celeron Real Property, any Celeron
Right-of-Way, any Celeron Leased Property, (ii) any waste disposal site located
on any property owned, leased or used by any Purchaser Indemnified Party, or
(iii) any waste disposal site used (whether before or after the Effective Time)
by any Purchaser Indemnified Party, or (iv) any waste disposal site used by any
of the Celeron Companies after the Effective Time.
(d) Post-Effective Time Off-Site Disposal. Each of Plains and Purchaser
shall indemnify, defend and hold harmless each Seller Indemnified Party from
and against Losses claimed by any Person that are caused by, arise out of or
are attributable to Hazardous Materials or petroleum or other solid or liquid
wastes disposed of or dumped as waste material (i) at any waste disposal site
at any time on or after the Effective Time, if disposed of or dumped by or on
behalf of any
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of the Celeron Companies, Plains, Purchaser or any of their respective
Subsidiaries or Affiliates (including the Celeron Companies after the Effective
Time), or any of their respective successors and assigns, or (ii) on any
property owned, leased or used by any Purchaser Indemnified Party, if disposed
of or dumped by or for Celeron Company at any time (whether before or after the
Effective Time).
(e) Participation In Negotiations. Plains, Purchaser and the Celeron
Companies, and any of their respective successors and assigns, agree to allow
Seller and Goodyear to participate in any negotiations or dealings with any
Governmental Body with respect to any remediation of contaminated soil or
groundwater or any alleged violation of any Environmental Law which may result
in an obligation on the part of any Seller Indemnifying Party to indemnify any
Purchaser Indemnified Party pursuant to this Section 8.3.
(f) Incorporations by Reference. The provisions of Subsections (f), (g),
(h), (i), (j), (k) and (l) of Section 8.2 shall also apply to this Section 8.3
and are hereby incorporated herein in their entirety and made a part hereof.
SECTION 8.4 INDEMNIFICATION FOR TAXES. (a) As set forth in Exhibit P to
this Agreement, Seller shall be responsible for, and shall indemnify and hold
each Purchaser Indemnified Party and each Celeron Company harmless from and
against (i) all Taxes on the Celeron Companies for periods ended on or before
December 31, 1997, (ii) all Income Taxes (as defined in Exhibit P) for periods
ended on or before the Closing Date, and (iii) all Other Taxes (as defined in
Exhibit P) for that portion of any tax year or period beginning prior to, and
ending subsequent to, December 31, 1997 which commences on the first day of
such period and ends on December 31, 1997. As set forth in Exhibit P, Purchaser
and Plains shall be responsible for, and shall indemnify and hold each Seller
Indemnified Party harmless from and against (a) all Income Taxes on the Celeron
Companies for all tax years or periods ending after the Closing Date, (b) all
Other Taxes on the Celeron Companies for all tax years beginning after December
31, 1997, and (c) all Other Taxes for that portion of any tax year or period
beginning prior to, and ending subsequent to, December 31, 1997 which commences
the day after December 31, 1997 and ends on the last day of such tax year or
period. The sole remedy for any breach of the Tax Agreement will be the
indemnifications set forth therein and in no event shall a Loss pursuant to
this Section 8.4 constitute a Loss under Section 8.2 or any other provision of
this Agreement.
(b) The provisions of Subsections (f), (g), (h), (i), (j), (k) and (l)
of Section 8.2 shall also apply to this Section 8.4 and are hereby incorporated
herein in their entirety and made a part hereof.
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ARTICLE IX
MODIFICATION AND TERMINATION
SECTION 9.1 AMENDMENT. Purchaser, Plains and Seller may at any time
amend, modify or supplement this Agreement in such manner as may be agreed upon
by them in writing.
SECTION 9.2 TERMINATION. This Agreement may be terminated and the
transactions contemplated by this Agreement abandoned at any time prior to the
Closing:
(a) by mutual written consent of Purchaser, Plains and Seller;
(b) by Purchaser and Plains, on the one hand, or by Seller, on
the other hand, if the purchase and sale of the Shares shall not have been
consummated on or before September 30, 1998 other than by reason of the breach
of this Agreement by the party (Seller, on the one hand, or Purchaser and
Plains, on the other hand, as the case may be) terminating this Agreement;
(c) by Purchaser and Plains if any condition specified in
Section 6.1 of this Agreement has not been satisfied (or waived by Purchaser
and Plains) at such time as such condition can no longer be satisfied; or
(d) by Seller if any condition specified in Section 6.2 of this
Agreement has not been satisfied (or waived by Seller) at such time as such
condition can no longer be satisfied.
SECTION 9.3 EFFECT OF TERMINATION. In the event of any termination of
this Agreement in accordance with Section 9.2 hereof, this Agreement shall
forthwith become void (except as may be otherwise expressly provided herein)
and there shall be no liability under this Agreement on the part of Purchaser
and Plains, on the one hand, or Seller, on the other hand, or their respective
Affiliates, officers, directors, employees or agents by virtue of such
termination. Neither Seller nor its shareholders, directors, officers,
employees or agents, on the one hand, nor Purchaser and Plains, nor their
respective Affiliates, directors, officers, employees or agents, on the other
hand, shall have any liability to the other for costs, expenses, loss of
anticipated profits or otherwise if this Agreement is terminated in accordance
with Section 9.2 hereof and the transactions contemplated herein abandoned.
SECTION 9.4 NON-PERFORMANCE.
(a) In the event Seller has not properly terminated this Agreement in
accordance with Section 9.2 of this Agreement and shall refuse to complete the
transaction contemplated by this Agreement to occur on the Closing Date, and,
at September 30, 1998 (1) Purchaser shall have completed all of the actions it
is required to complete pursuant to this Agreement prior to the Closing Date,
(2) Purchaser shall have performed or tendered performance of all of its
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obligations to deliver instruments and moneys at the Closing as provided at
Article II and Section 7.3 of this Agreement, and (3) all of the conditions
precedent to the obligations of Seller pursuant to Section 6.2 of this
Agreement shall have been satisfied or waived, then Seller agrees to pay to
Purchaser the sum of $10,000,000 as liquidated damages and as the sole and
exclusive remedy for non-performance by Seller of its obligations under or in
respect of this Agreement; provided, however, that in the event (i) Seller
either (x) has not properly terminated this Agreement in accordance with
Section 9.2 of this Agreement and at September 30, 1998 the conditions
specified in clauses (1), (2) and (3) of this sentence shall have been
satisfied, or (y) the Seller shall fail to observe its undertakings set forth
in Subsection 9.4(c), and (ii) Seller shall sell, or shall have agreed to sell,
the Celeron Companies to any other Person on or before 18 months following the
earlier of September 30, 1998 or any prior termination of this Agreement by
Seller, then Seller shall pay to Purchaser an additional sum of $40,000,000
within ten (10) days following receipt of notice demanding payment thereof from
Purchaser, as liquidated damages and as of the sole and exclusive remedy for
non-performance or other breach of Seller's obligations under or in respect of
this Agreement. Except as provided in the preceding sentence, Seller shall not
have any liability to Purchaser or Plains for any failure to complete the
transaction contemplated by this Agreement.
(b) In the event Purchaser has not properly terminated this Agreement in
accordance with Section 9.2 of this Agreement and shall refuse to complete the
transaction contemplated by this Agreement to occur on the Closing Date, and,
at September 30, 1998 (1) Seller shall have completed all of the actions it is
required to complete pursuant to this Agreement prior to the Closing Date, (2)
Seller shall have performed or tendered performance of all of its obligations
to deliver the Shares and other instruments at the Closing as provided at
Section 7.2 of this Agreement, and (3) all of the conditions precedent to the
obligation of Purchaser set forth at Section 6.1 of this Agreement have been
satisfied or waived by Seller, then Purchaser shall pay to Seller the sum of
$10,000,000 as liquidated damages and as the sole and exclusive remedy for non-
performance or other breach by Purchaser or Plains of their obligations under
or in respect of this Agreement. Except as provided in the preceding sentence,
neither Purchaser nor Plains shall have any liability to Seller for any failure
to complete the transaction contemplated by this Agreement.
(c) Seller agrees that upon the execution of this Agreement, Seller
shall terminate, and shall cause Goodyear to terminate, any and all discussions
and negotiations with third persons regarding a sale or other transaction
involving (a) the Shares, (b) the assets and businesses of the Celeron
Companies, or (c) any other transaction substantially similar to the
transaction contemplated by this Agreement (collectively, the "Possible
Alternatives"), and thereafter so long as this Agreement remains in effect
Seller will not, and will not permit or authorize Goodyear, directly or
indirectly, nor shall Seller authorize or permit any officer, director or
employee, or authorize any investment banker, financial advisor, attorney,
accountant or other representative retained by Seller or Goodyear (i) to
solicit, initiate, encourage (including by way of furnishing information or
assistance), conduct discussions or engage in negotiations with any other
Person may reasonably be expected to lead to a Possible Alternative, (ii) to
enter into an agreement with any Person, other than Plains or Purchaser,
providing for a Possible Alternative, or (iii) subject to the fiduciary duties
of Seller and Goodyear, and their Boards of Directors
59
<PAGE>
under applicable law, to withdraw or qualify the recommendation of the
transactions contemplated by this Agreement by the Boards of Directors of
Seller and Goodyear. Notwithstanding the foregoing, Seller and Goodyear shall
be entitled to take any action otherwise prohibited in respect to any third
party inquiry, contact or proposal received by them if (a) the initial inquiry,
contact or proposal from any third party was not received in violation of the
preceding sentence, (b) the Boards of Directors of Seller and Goodyear shall
have determined, in their good faith judgment, that any such otherwise
prohibited action may lead to the negotiation and consummation of a Possible
Alternative that in the opinion of such Boards of Directors may be more
beneficial than the transactions contemplated by this Agreement, taken as a
whole, to their respective shareholders (a "Superior Transaction") and (c) such
Boards of Directors shall have determined, after consultation with and based on
the advice of its legal counsel, that the failure to take such action would be
inconsistent with their fiduciary duties to their respective shareholders under
applicable law; provided, that, if a Superior Transaction is entered into by
Seller or Goodyear prior to March 31, 2000, clause (i) (y) of Section 9.4(a)
shall be deemed to have occurred. Seller agrees that it will notify Purchaser
immediately if any such discussions or negotiations are initiated.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 NOTICES. All notices, requests, consents, demands, waivers,
instructions, advices, confirmations, certificates, required deliveries and
other communications and instruments required or permitted to be given or
delivered ("Notices") to or by, or made upon, either party hereto (and, in
accordance with the provisions of this Agreement, upon any other Person) shall
be in writing and shall be deemed to have been duly given, made or delivered
(i) when delivered in person, upon the receipt thereof by each Person entitled
to such Notice, (ii) in the case of any Notice sent by Priority Mail or Courier
Service, upon the receipt thereof by each Person entitled to such Notice, and
(iii) in the case of any Notice sent by telecopier or other facsimile
transmission device ("fax"), two hours after oral confirmation of the receipt
thereof by each Person entitled to such Notice. Unless otherwise specified in a
Notice sent or delivered in accordance with the foregoing provision of this
Section 10.1, Notices shall be given to or made upon the parties entitled to
the receipt thereof at their respective street and post office box addresses,
or to their respective fax numbers, set forth on Annex A to this Agreement.
SECTION 10.2 INCORPORATION BY REFERENCE OF ATTACHMENTS.
(a) Three complete sets of the Exhibits, Schedules, Annexes and
Appendixes to this Agreement (the "Agreement Attachments") have been marked for
identification and delivered by each party hereto to the other party hereto at
the execution and delivery of this Agreement.
60
<PAGE>
(b) The Agreement Attachments, together with any and all annexes,
appendices, riders and schedules thereto, are hereby incorporated herein by
specific reference and made a part of this Agreement as and to the same extent
as if set forth herein in their entirety.
SECTION 10.3 ENTIRE AGREEMENT. This Agreement and all other agreements
and instruments referred to herein set forth and constitute the entire
understanding and agreement among Purchaser, Plains and Seller pertaining to
the subject matter hereof and supersede all prior agreements, negotiations,
correspondence, memoranda, representations and understandings of the parties in
respect of the subject matter hereof. There are no promises, representations,
agreements, conditions, covenants or understandings, written or oral, between
the parties hereto in respect of the subject matter hereof other than as set
forth or referred to herein. Except as expressly set forth herein, no
representation or warranty has been made by or on behalf of any party to this
Agreement, the Celeron Companies, or by any of their respective Affiliates,
directors, officers, employees, agents or other representatives, to induce the
other party to enter into this Agreement or to consummate any of the
transactions contemplated by any term of this Agreement or any other agreement
delivered pursuant to this Agreement. This Agreement may not be supplemented,
altered, modified or amended except by a written instrument executed by
Purchaser, Plains and Seller.
SECTION 10.4 INTERPRETATION. It is acknowledged by Purchaser, Plains and
Seller that this Agreement has undergone several drafts with the negotiated
suggestions of each and, therefore, no presumptions shall arise favoring any
party by virtue of the authorship of any provision of this Agreement. Any
representation or warranty herein contained made by or on behalf of a party to
the knowledge of such party shall be deemed to mean and be limited to actual
knowledge of an elected officer of such party of the matter in question after
having made a reasonable inquiry, or actual knowledge of such facts as would
charge such officer of such party with knowledge of the matter in question
after having made a reasonable inquiry.
SECTION 10.5 WAIVER. No waiver by any party to this Agreement of any
term or provision contained in this Agreement shall be effective unless it is
in writing and signed by the party or parties against whom such waiver is
sought to be enforced. Except as otherwise provided herein, neither the failure
nor any delay on the part of any party to this Agreement in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, or of any
other right, power or remedy; nor shall any single or partial exercise of any
right, power or remedy preclude any further or other exercise thereof, or the
exercise of any other right, power or remedy.
SECTION 10.6 SUCCESSORS; NO ASSIGNMENT. This Agreement shall inure to
the exclusive benefit of and be binding upon Purchaser, Plains and Seller and
their respective successors and permitted assigns; provided, however, that this
Agreement, or any interest, right or obligation hereunder, shall be assignable
by any party hereto only after receipt of the express written consent of the
other parties hereto to such assignment. In no event may any party hereto
assign its rights or obligations under Article VIII of this Agreement to any
other Person.
61
<PAGE>
SECTION 10.7 FURTHER ASSURANCES. Purchaser, Plains and Seller each agree
to, from time to time after the Closing, upon the reasonable request of the
other party, execute, acknowledge and deliver, or cause to be executed,
acknowledged or delivered, such other documents or instruments as may be
reasonably required for the carrying out of the provisions of this Agreement or
any agreement or other instrument entered in accordance with the terms of this
Agreement.
SECTION 10.8 NO RIGHTS IN THIRD PARTIES. This Agreement is not intended
to, nor shall it be construed to, create in, confer upon or give any Person,
other than the parties hereto and their respective successors and permitted
assigns, any claim, cause of action, remedy or right of any kind or nature.
SECTION 10.9 NO PARTNERSHIP. In no event shall this Agreement or any
provision hereof (or of any agreement entered into pursuant to the terms
hereof) be deemed or construed by any Person to create the relationship of
principal and agent, a partnership or a joint venture among Purchaser, Plains
and Seller.
SECTION 10.10 COSTS AND EXPENSES. Each party hereto shall bear and pay
all costs and expenses incurred by such party in connection with the
negotiation, preparation and consummation of this Agreement and its performance
of and compliance with all agreements and conditions contained herein and the
transactions contemplated herein on its part to be performed or complied with,
including, without limitation, all fees, expenses and disbursements for legal
counsel, independent accountants, consultants, experts and other out-of-pocket
costs and expenses.
SECTION 10.11 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
SECTION 10.12 TABLE OF CONTENTS AND HEADINGS. The Table of Contents and
the Article, Section and Subsection headings used in this Agreement are for
convenience of reference only and shall not form a part of, or affect the
interpretation or construction of, this Agreement.
SECTION 10.13 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto on separate counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but
one and the same instrument.
SECTION 10.14 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF OHIO AND FOR ALL PURPOSES SHALL BE
CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
OHIO, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
62
<PAGE>
SECTION 10.15 JURISDICTION. ANY SUIT, ACTION OR PROCEEDING
("PROCEEDINGS") ARISING OUT OF OR UNDER, OR SEEKING TO ENFORCE ANY PROVISION
OF, THIS AGREEMENT OR ANY RELATED AGREEMENT OR OTHER INSTRUMENT ENTERED INTO
PURSUANT TO THIS AGREEMENT MAY BE BROUGHT BY ANY PARTY TO THIS AGREEMENT
AGAINST ANY OTHER PARTY TO THIS AGREEMENT IN ANY STATE OF OHIO OR UNITED STATES
FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN THE CITY OF CLEVELAND OR
AKRON, OHIO, AND EACH OF THE PARTIES HERETO HEREBY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF SUCH COURTS (AND OF THE APPROPRIATE APPELLATE COURTS) IN ANY
SUCH PROCEEDINGS AND WAIVES ANY OBJECTION TO VENUE BEING LAID THEREIN. NOTHING
CONTAINED IN THIS SECTION 10.15 SHALL LIMIT THE RIGHT OF ANY PARTY HERETO TO
INSTITUTE PROCEEDINGS IN ANY COURT OF COMPETENT JURISDICTION, NOR SHALL THE
INSTITUTION OF PROCEEDINGS IN ONE OR MORE JURISDICTION PRECLUDE THE TAKING OF
PROCEEDINGS IN ANY OTHER JURISDICTION, WHETHER CONCURRENTLY OR OTHERWISE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
PLAINS ALL AMERICAN INC.
("Purchaser")
By:/s/
-------------------------------
Harry N. Pefanis,
President
PLAINS RESOURCES INC.
("Plains")
By: /s/
--------------------------------
Greg L. Armstrong,
President and Chief Executive Officer
WINGFOOT VENTURES SEVEN INC
("Seller")
By: /s/
---------------------------------
Richard W. Hauman, Vice President
63
<PAGE>
EXHIBIT 10(T)
Dated as of November 20, 1997
Plains Marketing & Transportation Inc.
1600 Smith Street
Houston, TX 77002
Re: Amendment No. 7 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
BankBoston, N.A. (f/k/a The First National Bank of Boston) ("BKB"),
Internationale Nederlanden (U.S.) Capital Corporation, Den Norske Bank ASA,
Comerica Bank-Texas, Wells Fargo Bank (Texas), National Association and such
other banks as may from time to time become parties thereto, (collectively, the
"Lenders") and BKB, 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.
The Borrower acknowledges that the 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
Lenders, the Agent, and PMCT Inc. ("PMCT") has been permitted to expire and is
of no further force and effect. The Borrower further acknowledges that any
reference to the PMCT Letter Agreement in the Marketing Letter Agreement, or any
other reference thereto, is of no further force and effect.
The Borrower, the Lenders and the Agent wish to amend certain terms of the
Marketing Letter Agreement as follows:
1. EXPIRATION DATE. Section 1(e)(i) of the Marketing Letter Agreement is
hereby amended and restated in its entirety to read as follows:
<PAGE>
-2-
"(e) EXPIRATION: (i) No request for any Accommodation may be made after
November 21, 1998, unless the Lenders, in their sole discretion and
without any obligation to do so, extend such date in writing."
2. REPRESENTATION The Borrower hereby represents that the execution and
delivery of this Amendment will not constitute a "Default" or an "Event of
Default" under that certain Third Amended and Restated Credit Agreement, dated
as of April 11, 1996, by and among Plains Resources Inc., a Delaware
corporation, Internationale Nederlanden (U.S.) Capital Corporation, a Delaware
corporation, as agent, and the Lenders named therein (as the terms "Default" and
"Event of Default" are defined therein).
3. 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.; and
(b) the Borrower's acknowledgment that the representation of the Borrower
set forth herein shall be true as of the date hereof.
<PAGE>
-3-
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 2 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/ PHILLIP D. KRAMER
-------------------------
Name: Phillip D. Kramer
Title: Vice President
BANKBOSTON, N.A.,
Individually and as Agent
By: /s/ TERRENCE RONAN
-------------------------
Name: Terrence Ronan
Title: Vice President
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
CORPORATION
By: /s/ CHRISTOPHER R. WAGNER
-----------------------------
Name: Christopher R. Wagner
Title: Vice President
DEN NORSKE BANK ASA DEN NORSKE BANK ASA
By: /s/ WILLIAM V. MOYER By: /s/ BYRON L. COOLEY
--------------------- -----------------------------
Name: William V. Moyer Name: Byron L. Cooley
Title: First Vice President Title:Senior Vice President
COMERICA BANK-TEXAS
By: /s/ JAMES KIMBLE
----------------------------
Name: James Kimble
Title: Assistant Vice President
<PAGE>
-4-
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: /s/ ANN M. RHOADS
----------------------------
Name: Ann M. Rhoads
Title: Vice President
<PAGE>
-5-
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.
PLAINS RESOURCES INC.
By: /s/ PHILLIP D. KRAMER
--------------------------------
Name: Phillip D. Kramer
Title: Senior Vice President
<PAGE>
EXHIBIT 10(u)
Dated as of January 23, 1998
Plains Marketing & Transportation Inc.
1600 Smith Street
Houston, TX 77002
Re: Amendment No. 8 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
BankBoston, N.A. (f/k/a The First National Bank of Boston) ("BKB"),
Internationale Nederlanden (U.S.) Capital Corporation, Den Norske Bank ASA,
Comerica Bank-Texas, Wells Fargo Bank (Texas), National Association and such
other banks as may from time to time become parties thereto, (collectively, the
"Lenders") and BKB, 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.
The Borrower, the Lenders and the Agent wish to amend certain terms of the
Marketing Letter Agreement as follows:
1. ACCOMMODATIONS. Section 1(i)(i) of the Marketing Letter Agreement is
hereby amended and restated in its entirety to read as follows:
"(i) Copies of all applicable written purchase and sale contracts
for the purchase and sale of crude oil in form acceptable to the Agent
and other relevant third party documentation (such purchase and sale
contracts and other relevant documentation shall be referred to herein
as "BACK-UP DOCUMENTATION") must be provided to the Agent and the
Lenders prior to the issuance or advance of any Accommodation securing
Borrower's obligation in connection with such transaction; provided
that Back-up Documentation need not be provided to the Agent for any
L/C with a maximum drawing amount less than $100,000 so long as: (a)
<PAGE>
-2-
the total aggregate maximum drawing amount of all L/Cs issued and then
outstanding to any one customer for which no Back-up Documentation has
been received does not exceed $200,000 after giving effect to any L/C
then being requested; and (b) the total aggregate maximum drawing
amount of all L/Cs then outstanding for which no Back-up Documentation
has been received does not exceed $600,000 after giving effect to any
L/Cs then being requested;"
2. REPORTING AND INSPECTION REQUIREMENTS. Section 1(j)(iv) of the
Marketing Letter Agreement is hereby amended and restated in its entirety to
read as follows:
"(iv) as soon as possible and, in any event prior to the date
requested for the issuance of an L/C hereunder on a monthly basis, a
monthly scheduling forecast report listing purchases, sales and
exchange volumes, counterparties, pricing indices and other
information relating to crude oil purchases and exchanges for the next
month, together with copies of purchase and sales contracts (other
than purchase and sales contracts not required to be delivered as
Back-up Documentation under Section 1(i)(i)) and an estimate of the
gross profit margin and operating income for such month;"
3. CONDITIONS PRECEDENT. This Amendment shall become effective upon
receipt by the Agent of a counterpart of this Amendment duly signed where
indicated below by each Lender, the Agent, the Borrower and Plains Resources
Inc.
<PAGE>
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 3 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/ PHILLIP D. KRAMER
----------------------------
Name: Phillip D. Kramer
Title: Vice President
BANKBOSTON, N.A.,
Individually and as Agent
By: /s/ TERRENCE RONAN
----------------------------
Name: Terrence Ronan
Title: Vice President
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
CORPORATION
By: /s/ CHRISTOPHER R. WAGNER
----------------------------
Name: Christopher R. Wagner
Title: Vice President
DEN NORSKE BANK ASA DEN NORSKE BANK ASA
By: /s/ WILLIAM V. MOYER By: /s/ BYRON L. COOLEY
--------------------- ----------------------------
Name: William V. Moyer Name: Byron L. Cooley
Title: First Vice President Title: Senior Vice President
COMERICA BANK-TEXAS
By: /s/ JAMES KIMBLE
---------------------------
Name: James Kimble
Title: Assistant Vice President
<PAGE>
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: /s/ ANN M. RHODES
---------------------------
Name: Ann M.Rhodes
Title: Vice President
<PAGE>
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.
PLAINS RESOURCES INC.
By: /s/ PHILLIP D. KRAMER
-----------------------------
Title: Senior Vice President
--------------------------
<PAGE>
EXHIBIT 10(v)
SIXTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of the 10th day of February, 1998, 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, as amended by
that certain First Amendment to Third Amended and Restated Credit Agreement
dated December 16, 1996, that certain Second Amendment to Third Amended and
Restated Credit Agreement dated March 7, 1997, that certain Third Amendment to
Third Amended and Restated Credit Agreement dated July 18, 1997, that certain
Fourth Amendment to Third Amended and Restated Credit Agreement dated August 29,
1997 and that certain Fifth Amendment to Third Amended and Restated Credit
Agreement dated November 3, 1997 (as amended, 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 for the purposes described herein;
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
(S) 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.
(S) 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 (S) 1.2.
"Amendment" means this Sixth Amendment to Third Amended and Restated Credit
Agreement.
"Amendment Documents" means this Amendment.
<PAGE>
"Credit Agreement" means the Original Agreement as amended hereby.
ARTICLE II. -- Amendments
(S) 2.1. Definitions. The definition of "Subsidiary" set forth in Section
1.01 of the Original Agreement is hereby amended by adding the following
sentence at the end thereof.
Notwithstanding the foregoing, pursuant to Section 8.35 no Unrestricted
Subsidiary shall be deemed a "Subsidiary" of the Company for purposes of
this Agreement and each other Basic Document.
The following definition of "Unrestricted Subsidiary" is hereby added to
Section 1.1 of the Original Agreement immediately following the definition of
"Type":
"Unrestricted Subsidiary" shall have the meaning given it in Section 8.35.
(S) 2.2. Use of Proceeds. Section 8.17 of the Original Agreement is
hereby amended by adding a new sentence at the end thereof, to read as follows:
In addition, the Company may use up to $40,000,000 of the proceeds of the
Loans hereunder to make capital contributions to Unrestricted Subsidiaries
as permitted in Section 8.10(e).
(S) 2.3. Investments. Section 8.10 of the Original Agreement is hereby
amended by renumbering current subsection (e) and (f) as (g) and (h),
respectively, and adding new subsections (e) and (f), to read as follows:
(e) capital contributions to Unrestricted Subsidiaries from time to time in
an aggregate amount not to exceed $40,000,000;
(f) in addition to any capital contributions permitted in subsection (e)
above, capital contributions to Unrestricted Subsidiaries of up to
$70,000,000 of the proceeds of any capital stock of the Company issued
after January 1, 1998;
(S) 2.4. Unrestricted Subsidiaries. Article VIII of the Original
Agreement is hereby amended by adding a new Section 8.35 at the end thereof, to
read as follows:
Section 8.35 Unrestricted Subsidiaries. The Company may form one new
subsidiary, which may be in the form of a corporation, partnership, limited
liability company or other business entity (such new subsidiary, and each
of its subsidiaries, each an "Unrestricted Subsidiary"), which Unrestricted
Subsidiaries shall be subject to the following:
(a) Subject to subsection (d) below, no Unrestricted Subsidiary shall be
deemed to be a "Subsidiary" of the Company for purposes of this
Agreement or any other Basic Document, and no Unrestricted Subsidiary
shall be subject to or included within the scope of any provision
herein or in any other Basic Document, including without
<PAGE>
limitation any representation, warranty, covenant or Event of Default
herein or in any other Basic Document, except as set forth in this
Section 8.35.
(b) Neither the Company nor any of its Subsidiaries shall Guarantee any
Indebtedness or other obligation of, grant any Lien on any of its
Property to secure any Indebtedness or other obligation of, make any
Investment in (except as permitted under Section 8.10(e) and (f)), or
provide any other form of credit support to, any Unrestricted
Subsidiary, and neither the Company nor any of its Subsidiaries shall
enter into (i) any management contract or agreement with any
Unrestricted Subsidiary, except upon the prior written consent of
Majority Lenders, not to be unreasonably withheld, or (ii) any other
contract or agreement with any Unrestricted Subsidiary, except in the
course of ordinary business on terms no less favorable to the Company
or such Subsidiary, as applicable, than could be obtained in a
comparable arm's length transaction from an unaffiliated party.
(c) No Unrestricted Subsidiary shall enter into any contract or agreement
to acquire, or acquire any Property, except upon the prior approval of
Majority Lenders with respect to (i) existing or potential
environmental or litigation liabilities and (ii) satisfaction as to
any governmental approval as required.
(d) In the event Unrestricted Subsidiaries shall fail to consummate an
acquisition of Property prior to September 30, 1998 with a fair market
value of not less than the amount of Investments made in such
Unrestricted Subsidiaries pursuant to Section 8.10(e) and (f), then on
and after October 1, 1998 each Unrestricted Subsidiary shall be deemed
to be a "Subsidiary" of the Company for purposes of this Agreement and
shall be subject to the terms and conditions hereof.
ARTICLE III. -- Conditions of Effectiveness
(S) 3.1. Effective Date. This Amendment shall become effective as of
the date first above written when and only when Agent shall have received, at
Agent's office, a counterpart of this Amendment executed and delivered by the
Company and Majority Lenders.
ARTICLE IV. -- Representations and Warranties
(S) 4.1. 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:
(a) 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.
(b) The Company and the Subsidiaries are duly authorized to execute
and deliver this Amendment and the other Amendment Documents to the extent
a party thereto, and the
<PAGE>
Company is and will continue to be duly authorized to borrow and perform
its obligations under the Credit Agreement. The Company and the
Subsidiaries have duly taken all corporate action necessary to authorize
the execution and delivery of this Amendment and the other Amendment
Documents, to the extent a party thereto, and to authorize the performance
of their respective obligations thereunder.
(c) The execution and delivery by the Company and the Subsidiaries of
this Amendment and the other Amendment Documents, to the extent a party
thereto, the performance by the Company and the Subsidiaries of their
respective obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby, do not and will not
conflict with any provision of law, statute, rule or regulation or of the
certificate or articles of incorporation and bylaws of the Company or any
Subsidiary, or of any material agreement, judgment, license, order or
permit applicable to or binding upon the Company or any Subsidiary, or
result in the creation of any lien, charge or encumbrance upon any assets
or properties of the Company or any Subsidiary, except in favor of Agent
for the benefit of Lenders. Except for those which have been duly
obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by the Company or any Subsidiary of this Amendment
or any other Amendment Document, to the extent a party thereto, or to
consummate the transactions contemplated hereby and thereby.
(d) When this Amendment and the other Amendment Documents have been
duly executed and delivered, each of the Basic Documents, as amended by
this Amendment and the other Amendment Documents, will be a legal and
binding instrument and agreement of the Company and the Subsidiaries, to
the extent a party thereto, enforceable in accordance with its terms,
(subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency and similar laws applicable to creditors' rights generally and
to general principles of equity).
ARTICLE V. -- Miscellaneous
(S) 5.1. 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 or affected by this Amendment and/or the other Amendment
Documents, 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 and
the other Amendment Documents 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.
(S) 5.2. 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,
<PAGE>
re-grants and re-assigns a security interest in and lien on every asset of the
Company described as collateral in any Security Document.
(S) 5.3. Survival of Agreements. All representations, warranties,
covenants and agreements of the Company herein and in the other Amendment
Documents shall survive the execution and delivery of this Amendment and the
other Amendment Documents 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, under the other Amendment Documents 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.
(S) 5.4. Basic Documents. This Amendment and each of the other
Amendment Documents is a Basic Document, and all provisions in the Credit
Agreement pertaining to Basic Documents apply hereto and thereto.
(S) 5.5. GOVERNING LAW. THIS AMENDMENT AND THE OTHER AMENDMENT
DOCUMENTS 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.
(S) 5.6. Counterparts. This Amendment and each of the other Amendment
Documents 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 or Amendment Document, as the
case may be.
<PAGE>
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
ING (U.S.) CAPITAL CORPORATION,
f/k/a Internationale Nederlanden (U.S.) Capital
Corporation, individually as a Lender and as
Agent
By: /s/ CHRISTOPHER R. WAGNER
-----------------------------------------
Christopher R. Wagner, Vice President
BANKBOSTON, N.A., Lender
By: /s/ TERRENCE RONAN
----------------------------------------
Name: Terrence Ronan
Title: Vice President
DEN NORSKE BANK ASA, Lender
By: /s/ BYRON L. COOLEY
----------------------------------------
Name: Byron L. Cooley
Title: Senior Vice President
By: /s/ J. MORTEN KREUTZ
----------------------------------------
Name: J. Morten Kreutz
Title: 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
<PAGE>
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (f/k/a
Texas Commerce Bank National Association), Lender
By: /s/ RUSSELL M. JOHNSON
----------------------------------------
Name: Russell M. Johnson
Title: Vice President
COMERICA BANK-TEXAS, Lender
By: /s/ JAMES KIMBLE
----------------------------------------
Name: James Kimble
Title: Assistant Vice President
<PAGE>
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.
PLAINS MARKETING & TRANSPORTATION INC.
PLAINS RESOURCES INTERNATIONAL INC.
PLAINS TERMINAL & TRANSFER CORPORATION
PLX CRUDE LINES INC.
STOCKER RESOURCES, INC.
PLX INGLESIDE INC.
CALUMET FLORIDA, INC.
PLAINS ILLINOIS INC.
By: /s/ PHILLIP D. KRAMER
----------------------------------------
Phillip D. Kramer
Vice President and Chief Financial Officer
STOCKER RESOURCES, L.P.
By: Stocker Resources, Inc.,
its General Partner
By: /s/ PHILLIP D. KRAMER
----------------------------------------
Phillip D. Kramer
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT 10(w)
SEVENTH AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS SEVENTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") dated as of the 20th day of March, 1998, 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, as amended by
that certain First Amendment to Third Amended and Restated Credit Agreement
dated December 16, 1996, that certain Second Amendment to Third Amended and
Restated Credit Agreement dated March 7, 1997, that certain Third Amendment to
Third Amended and Restated Credit Agreement dated July 18, 1997, that certain
Fourth Amendment to Third Amended and Restated Credit Agreement dated August 29,
1997, that certain Fifth Amendment to Third Amended and Restated Credit
Agreement dated November 3, 1997 and that certain Sixth Amendment to Third
Amended and Restated Credit Agreement dated February 10, 1998 (as amended, 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 for the purposes described herein;
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
(S) 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.
(S) 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 (S) 1.2.
"Amendment" means this Seventh Amendment to Third Amended and Restated
Credit Agreement.
-1-
<PAGE>
"Amendment Documents" means this Amendment.
"Credit Agreement" means the Original Agreement as amended hereby.
ARTICLE II. -- Amendments
(S) 2.1. Use of Proceeds. The last sentence of Section 8.17 of the
Original Agreement (which was added pursuant to the Sixth Amendment to the
Credit Agreement) is hereby amended to read as follows:
In addition, the Company may use up to $55,000,000 of the proceeds of the
Loans hereunder to make capital contributions to Unrestricted Subsidiaries
as permitted in Section 8.10(e).
(S) 2.2. Investments. Sections 8.10(e) and (f) of the Original Agreement
(which were added pursuant to the Sixth Amendment to the Credit Agreement) are
hereby amended to read as follows:
(e) capital contributions to Unrestricted Subsidiaries from time to
time in an aggregate amount not to exceed $55,000,000;
(f) in addition to any capital contributions permitted in subsection
(e) above, the following Investments in Unrestricted Subsidiaries: (i)
captial contributions of up to $85,000,000 of the proceeds of any
preferred or common stock of the Company issued after January 1, 1998; and
(ii) any Investment represented by, or required to comply with the
obligations undertaken under, the Stock Purchase Agreement described in
Section 8.35(c);
(S) 2.3. Unrestricted Subsidiaries. Section 8.35 of the Original Agreement
(which was added pursuant to the Sixth Amendment to the Credit Agreement) is
hereby amended to read as follows:
Section 8.35 Unrestricted Subsidiaries. The Company has or may form
a new subsidiary to be known as Plains All American Inc., a Delaware
corporation (such subsidiary, and each of its subsidiaries, whether now
existing or hereafter formed or acquired, each an "Unrestricted
Subsidiary"), which Unrestricted Subsidiaries shall be subject to the
following:
(a) Subject to subsection (d) below, no Unrestricted Subsidiary shall be
deemed to be a "Subsidiary" of the Company for purposes of this
Agreement or any other Basic Document, and no Unrestricted Subsidiary
shall be subject to or included within the scope of any provision
herein or in any other Basic Document, including without limitation
any representation, warranty, covenant or Event of Default herein or
in any other Basic Document, except as set forth in this Section 8.35.
-2-
<PAGE>
(b) Except as permitted under Section 8.10(e) and (f) or Section 8.35 (c),
neither the Company nor any of its Subsidiaries shall Guarantee any
Indebtedness or other obligation of, grant any Lien on any of its
Property to secure any Indebtedness or other obligation of, make any
Investment in, assume or grant an indemnity with respect to, or
provide any other form of credit support to, any Unrestricted
Subsidiary, and neither the Company nor any of its Subsidiaries shall
enter into (i) any management contract or agreement with any
Unrestricted Subsidiary, except upon the prior written consent of
Majority Lenders, not to be unreasonably withheld, or (ii) any other
contract or agreement with any Unrestricted Subsidiary, except in the
course of ordinary business on terms no less favorable to the Company
or such Subsidiary, as applicable, than could be obtained in a
comparable arm's length transaction from an unaffiliated party.
(c) Notwithstanding anything to the contrary contained in this Agreement,
the Company and Plains All American Inc. may (i) enter into that
certain Stock Purchase Agreement substantially in the form of the
draft Stock Purchase Agreement attached hereto as Exhibit A, with such
additions or modifications as may be agreed to by the Company and
Plains All American Inc., provided that such additions or
modifications shall not modify or increase any direct or indirect
liability of the Company or any of its Subsidiaries (other than the
liability of any Unrestricted Subsidiary) which arises or may arise
under the Stock Purchase Agreement, unless such additions or
modifications have been consented to by Majority Lenders, and (ii)
observe and perform their respective obligations under the Stock
Purchase Agreement, including, without limitation, the consummation
of the stock purchases contemplated thereby, but only insofar as any
such observance or performance does not constitute or result in a
default or violation of any Indenture or other agreement governing
Indebtedness of the Company or its Subsidiaries.
(d) In the event Unrestricted Subsidiaries shall fail to consummate the
transactions contemplated by such Stock Purchase Agreement prior to
September 30, 1998, then on and after October 1, 1998 each
Unrestricted Subsidiary shall be deemed to be a "Subsidiary" of the
Company for purposes of this Agreement and shall be subject to the
terms and conditions hereof.
ARTICLE III. -- Conditions of Effectiveness
(S) 3.1. Effective Date. This Amendment shall become effective as of the
date first above written when and only when Agent shall have received, at
Agent's office, a counterpart of this Amendment executed and delivered by the
Company and Majority Lenders.
-3-
<PAGE>
ARTICLE IV. -- Representations and Warranties
(S) 4.1. 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:
(a) 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.
(b) The Company and the Subsidiaries are duly authorized to execute
and deliver this Amendment and the other Amendment Documents to the extent
a party thereto, and the Company is and will continue to be duly authorized
to borrow and perform its obligations under the Credit Agreement. The
Company and the Subsidiaries have duly taken all corporate action necessary
to authorize the execution and delivery of this Amendment and the other
Amendment Documents, to the extent a party thereto, and to authorize the
performance of their respective obligations thereunder.
(c) The execution and delivery by the Company and the Subsidiaries of
this Amendment and the other Amendment Documents, to the extent a party
thereto, the performance by the Company and the Subsidiaries of their
respective obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby, do not and will not
conflict with any provision of law, statute, rule or regulation or of the
certificate or articles of incorporation and bylaws of the Company or any
Subsidiary, or of any material agreement, judgment, license, order or
permit applicable to or binding upon the Company or any Subsidiary, or
result in the creation of any lien, charge or encumbrance upon any assets
or properties of the Company or any Subsidiary, except in favor of Agent
for the benefit of Lenders. Except for those which have been duly
obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by the Company or any Subsidiary of this Amendment
or any other Amendment Document, to the extent a party thereto, or to
consummate the transactions contemplated hereby and thereby.
(d) When this Amendment and the other Amendment Documents have been
duly executed and delivered, each of the Basic Documents, as amended by
this Amendment and the other Amendment Documents, will be a legal and
binding instrument and agreement of the Company and the Subsidiaries, to
the extent a party thereto, enforceable in accordance with its terms,
(subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency and similar laws applicable to creditors' rights generally and
to general principles of equity).
-4-
<PAGE>
ARTICLE V. -- Miscellaneous
-5-
<PAGE>
(S) 5.1. 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 or affected by this Amendment and/or the other Amendment
Documents, 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 and
the other Amendment Documents 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.
(S) 5.2. 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.
(S) 5.3. Survival of Agreements. All representations, warranties, covenants
and agreements of the Company herein and in the other Amendment Documents shall
survive the execution and delivery of this Amendment and the other Amendment
Documents 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,
under the other Amendment Documents 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.
(S) 5.4. Basic Documents. This Amendment and each of the other Amendment
Documents is a Basic Document, and all provisions in the Credit Agreement
pertaining to Basic Documents apply hereto and thereto.
(S) 5.5. GOVERNING LAW. THIS AMENDMENT AND THE OTHER AMENDMENT DOCUMENTS
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.
(S) 5.6. Counterparts. This Amendment and each of the other Amendment
Documents 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 or Amendment Document, as the
case may be.
-6-
<PAGE>
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
ING (U.S.) CAPITAL CORPORATION,
f/k/a Internationale Nederlanden (U.S.) Capital
Corporation, individually as a Lender and as
Agent
By: /s/ CHRISTOPHER R. WAGNER
------------------------------------------
Christopher R. Wagner, Vice President
BANKBOSTON, N.A., Lender
By: /s/ TERRENCE RONAN
------------------------------------------
Name: Terrence Ronan
Title:
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
-7-
<PAGE>
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (f/k/a
Texas Commerce Bank National Association), Lender
By: /s/ RUSSELL A. JOHNSON
---------------------------------------------
Name: Russell A. Johnson
Title: Vice President
COMERICA BANK-TEXAS, Lender
By: /s/ JAMES KIMBLE
---------------------------------------------
Name: James Kimble
Title: Assistant Vice-President
-8-
<PAGE>
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.
PLAINS MARKETING & TRANSPORTATION INC.
PLAINS RESOURCES INTERNATIONAL INC.
PLAINS TERMINAL & TRANSFER CORPORATION
PLX CRUDE LINES INC.
STOCKER RESOURCES, INC.
PLX INGLESIDE INC.
CALUMET FLORIDA, INC.
PLAINS ILLINOIS INC.
By:/s/ PHILLIP D. KRAMER
-----------------------------------------------
Phillip D. Kramer
Vice President and Chief Financial Officer
STOCKER RESOURCES, L.P.
By: Stocker Resources, Inc.,
its General Partner
By:/s/ PHILLIP D. KRAMER
-----------------------------------------------
Phillip D. Kramer
Vice President and Chief Financial Officer
-9-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF PLAINS RESOURCES INC.
. PMCT INC.
. Plains Terminal & Transfer Corporation
. Plains Marketing & Transportation Inc.
. Plains Resources International Inc.
. PLX Crude Lines Inc.
. Stocker Resources Inc.
. Calumet Florida, Inc.
. Plains Illinois Inc.
. PLX Ingleside Inc.
. Stocker Resources, L.P.
. Plains All American Inc.
<PAGE>
EXHIBIT 23.(A)
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, 333-42773, 333-42767) and in each of the Registration
Statements on Form S-8 (Nos. 33-43788, 33-48610, 33-53802, 33-06191, 333-27907)
of Plains Resources Inc. of our report dated February 19, 1998, appearing on
page F-2 of the Annual Report on Form 10-K for the year ended December 31, 1997.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Houston, Texas
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1997, AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,714
<SECURITIES> 0
<RECEIVABLES> 99,597
<ALLOWANCES> 0
<INVENTORY> 22,802
<CURRENT-ASSETS> 126,780
<PP&E> 593,587
<DEPRECIATION> 180,279
<TOTAL-ASSETS> 556,819
<CURRENT-LIABILITIES> 132,791
<BONDS> 285,728
0
20,671
<COMMON> 1,670
<OTHER-SE> 110,852
<TOTAL-LIABILITY-AND-EQUITY> 556,819
<SALES> 861,925
<TOTAL-REVENUES> 862,244
<CGS> 785,528
<TOTAL-COSTS> 809,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,012
<INCOME-PRETAX> 22,586
<INCOME-TAX> 8,327
<INCOME-CONTINUING> 14,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,259
<EPS-PRIMARY> .85
<EPS-DILUTED> .77
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1997, AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,085
<SECURITIES> 0
<RECEIVABLES> 91,412
<ALLOWANCES> 0
<INVENTORY> 33,245
<CURRENT-ASSETS> 128,957
<PP&E> 553,870
<DEPRECIATION> 174,125
<TOTAL-ASSETS> 525,063
<CURRENT-LIABILITIES> 130,249
<BONDS> 282,484
0
0
<COMMON> 1,667
<OTHER-SE> 105,544
<TOTAL-LIABILITY-AND-EQUITY> 525,063
<SALES> 616,161
<TOTAL-REVENUES> 616,384
<CGS> 560,542
<TOTAL-COSTS> 577,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,877
<INCOME-PRETAX> 16,503
<INCOME-TAX> 6,601
<INCOME-CONTINUING> 9,902
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,902
<EPS-PRIMARY> .60
<EPS-DILUTED> .55
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE
30, 1997, AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,557
<SECURITIES> 0
<RECEIVABLES> 65,649
<ALLOWANCES> 0
<INVENTORY> 39,583
<CURRENT-ASSETS> 111,307
<PP&E> 531,198
<DEPRECIATION> 168,496
<TOTAL-ASSETS> 490,347
<CURRENT-LIABILITIES> 121,721
<BONDS> 261,929
0
0
<COMMON> 1,657
<OTHER-SE> 101,558
<TOTAL-LIABILITY-AND-EQUITY> 490,347
<SALES> 395,578
<TOTAL-REVENUES> 395,724
<CGS> 358,449
<TOTAL-COSTS> 369,713
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,891
<INCOME-PRETAX> 11,905
<INCOME-TAX> 4,762
<INCOME-CONTINUING> 7,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,143
<EPS-PRIMARY> .43
<EPS-DILUTED> .40
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH
31, 1997, AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,114
<SECURITIES> 0
<RECEIVABLES> 84,714
<ALLOWANCES> 0
<INVENTORY> 10,210
<CURRENT-ASSETS> 96,982
<PP&E> 506,456
<DEPRECIATION> 163,087
<TOTAL-ASSETS> 459,576
<CURRENT-LIABILITIES> 99,952
<BONDS> 256,714
0
0
<COMMON> 1,654
<OTHER-SE> 97,992
<TOTAL-LIABILITY-AND-EQUITY> 459,576
<SALES> 207,074
<TOTAL-REVENUES> 207,132
<CGS> 188,523
<TOTAL-COSTS> 193,843
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,710
<INCOME-PRETAX> 6,484
<INCOME-TAX> 2,593
<INCOME-CONTINUING> 3,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,891
<EPS-PRIMARY> .24
<EPS-DILUTED> .22
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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>
<RESTATED>
<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
0
0
<COMMON> 1,652
<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> 1.01
<EPS-DILUTED> .94
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 30, 1996, AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 625
<SECURITIES> 0
<RECEIVABLES> 79,336
<ALLOWANCES> 0
<INVENTORY> 6,977
<CURRENT-ASSETS> 86,938
<PP&E> 454,847
<DEPRECIATION> 152,605
<TOTAL-ASSETS> 409,707
<CURRENT-LIABILITIES> 97,892
<BONDS> 218,785
0
0
<COMMON> 1,643
<OTHER-SE> 89,217
<TOTAL-LIABILITY-AND-EQUITY> 409,707
<SALES> 448,468
<TOTAL-REVENUES> 448,688
<CGS> 399,359
<TOTAL-COSTS> 415,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,806
<INCOME-PRETAX> 10,529
<INCOME-TAX> (6,787)
<INCOME-CONTINUING> 17,316
<DISCONTINUED> 0
<EXTRAORDINARY> (5,104)
<CHANGES> 0
<NET-INCOME> 12,212
<EPS-PRIMARY> .75
<EPS-DILUTED> .70
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE
30, 1996, AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,605
<SECURITIES> 0
<RECEIVABLES> 71,049
<ALLOWANCES> 0
<INVENTORY> 4,385
<CURRENT-ASSETS> 81,039
<PP&E> 439,359
<DEPRECIATION> 147,285
<TOTAL-ASSETS> 393,982
<CURRENT-LIABILITIES> 89,464
<BONDS> 218,182
0
0
<COMMON> 1,628
<OTHER-SE> 83,212
<TOTAL-LIABILITY-AND-EQUITY> 393,982
<SALES> 279,322
<TOTAL-REVENUES> 279,443
<CGS> 247,730
<TOTAL-COSTS> 258,151
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,532
<INCOME-PRETAX> 4,718
<INCOME-TAX> (9,112)
<INCOME-CONTINUING> 13,830
<DISCONTINUED> 0
<EXTRAORDINARY> (6,619)
<CHANGES> 0
<NET-INCOME> 7,211
<EPS-PRIMARY> .44
<EPS-DILUTED> .42
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET AS OF
MARCH 31, 1996, AND CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,853
<SECURITIES> 0
<RECEIVABLES> 64,655
<ALLOWANCES> 0
<INVENTORY> 4,031
<CURRENT-ASSETS> 70,539
<PP&E> 427,977
<DEPRECIATION> 142,126
<TOTAL-ASSETS> 376,850
<CURRENT-LIABILITIES> 80,612
<BONDS> 217,068
0
0
<COMMON> 1,618
<OTHER-SE> 76,145
<TOTAL-LIABILITY-AND-EQUITY> 376,850
<SALES> 123,447
<TOTAL-REVENUES> 123,513
<CGS> 110,153
<TOTAL-COSTS> 115,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,197
<INCOME-PRETAX> (1,784)
<INCOME-TAX> (11,000)
<INCOME-CONTINUING> 9,216
<DISCONTINUED> 0
<EXTRAORDINARY> (8,507)
<CHANGES> 0
<NET-INCOME> 709
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS
RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31,
1995, AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,129
<SECURITIES> 0
<RECEIVABLES> 51,632
<ALLOWANCES> 0
<INVENTORY> 5,120
<CURRENT-ASSETS> 63,632
<PP&E> 418,084
<DEPRECIATION> 137,546
<TOTAL-ASSETS> 352,046
<CURRENT-LIABILITIES> 68,381
<BONDS> 206,636
0
0
<COMMON> 1,618
<OTHER-SE> 75,411
<TOTAL-LIABILITY-AND-EQUITY> 352,046
<SALES> 403,906
<TOTAL-REVENUES> 404,225
<CGS> 363,716
<TOTAL-COSTS> 401,573
<OTHER-EXPENSES> 7,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,606
<INCOME-PRETAX> 2,652
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,652
<EPS-PRIMARY> .19
<EPS-DILUTED> .16
</TABLE>
