<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 12, 1999
PLAINS RESOURCES INC.
(Exact name of registrant as specified in charter)
DELAWARE 0-9808 13-2898764
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
500 DALLAS STREET, SUITE 700
HOUSTON, TEXAS 77002 77002
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 654-1414
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<PAGE>
ITEM 2. ACQUISITION OF ASSETS
Description of Transaction
On May 12, 1999, Plains Scurlock Permian, L.P. ("Plains Scurlock"), a newly
formed operating limited partnership of Plains All American Pipeline, L.P.,
("PAA"), completed the acquisition of Scurlock Permian LLC and certain other
pipeline assets from Marathon Ashland Petroleum LLC (the "Scurlock
Acquisition"). Including working capital adjustments and associated closing and
financing costs, the cash purchase price paid at closing was approximately $146
million.
Plains Resources Inc. (the "Registrant") is the sole stockholder of Plains
All American Inc. (the "General Partner") which is the General Partner of PAA
and each of PAA's operating limited partnerships, including Plains Scurlock. The
General Partner also owns 6,974,239 Common Units, 10,029,619 Subordinated Units
and 1,307,190 Class B Common Units of PAA. With its ownership of the foregoing
units and its 1% general partner interest, the General Partner owns
approximately 59% of PAA.
Financing for the Scurlock Acquisition was provided through (i) Plains
Scurlock's limited recourse bank facility with BankBoston, N.A. (the "Plains
Scurlock Credit Facility"), (ii) the sale to the General Partner of 1.3 million
Class B Common Units of PAA at $19.125 per unit, the price equal to the market
value of PAA's common units and (iii) a $25 million draw under PAA's existing
revolving credit agreement. The Plains Scurlock Credit Facility consists of (i)
a five year $130 million term loan and (ii) a three year $35 million revolving
credit facility.
The Plains Scurlock Credit Facility is nonrecourse to the Registrant, PAA
and PAA's other operating limited partnerships, Plains Marketing, L.P. and All
American Pipeline, L.P., and is secured by the assets acquired by Plains
Scurlock. Borrowings under the term loan bear interest at LIBOR plus 3% and
under the revolving credit facility at LIBOR plus 2.75%. A commitment fee equal
to one-half of one percent per year is charged on the unused portion of the
revolving credit facility. The term loan matures in May 2004 and the revolving
credit facility matures in May 2002. No principal payment is scheduled for
amortization prior to maturity. It is anticipated that the Plains Scurlock
Credit Facility will also be used to finance Plains Scurlock's acquisition of
the West Texas Gathering System from Chevron Pipe Line Company under a recently
announced agreement.
Description of Assets Involved
Scurlock Permian LLC is engaged in crude oil transportation, trading and
marketing, operating in 14 states with more than 2,400 miles of active
pipelines, numerous storage terminals and a fleet of more than 225 trucks. Its
most significant asset is an 800-mile pipeline and gathering system located in
the Spraberry Trend in West Texas that extends into Andrews, Glasscock, Martin,
Midland, Regan and Upton Counties, Texas. The assets acquired also include
approximately 2.4 million barrels of crude oil, of which approximately 1.4
million barrels are used for working inventory.
ITEM 7. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED AND EXHIBITS
(a) Financial Statements of Business Acquired
<TABLE>
<S> <C>
SCURLOCK PERMIAN BUSINESSES
INTERIM FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 1999 and December 31, 1998 F-1
Statements of Operations for the three months ended March 31, 1999 and 1998 F-2
Statements of Cash Flows for the three months ended March 31, 1999 and 1998 F-3
Notes to Interim Financial Statements F-4
SCURLOCK PERMIAN BUSINESSES
FINANCIAL STATEMENTS
Report of Independent Accountants F-5
Report of Independent Accountants F-6
Statement of Operations for the years ended December 31, 1998, 1997 and 1996 F-7
Balance Sheet as of December 31, 1998 and 1997 F-8
Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F-9
Statement of Changes in Parent Company Investment F-10
Notes to Financial Statements F-11
</TABLE>
2
<PAGE>
(b) Pro Forma Financial Information (unaudited)
<TABLE>
<S> <C>
PLAINS RESOURCES INC.
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Introduction F-19
Pro Forma Consolidated Balance Sheet as of March 31, 1999 F-20
Pro Forma Consolidated Statement of Income for the three months ended March 31, 1999 F-21
Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998 F-22
Notes to Pro Forma Consolidated Financial Statements F-23
</TABLE>
(c) - Exhibits
10(p) Agreement for Purchase and Sale of Membership Interest in Scurlock
Permian LLC between Marathon Ashland LLC and Plains Marketing, L.P.
dated as of March 17, 1999.
23.1 Consent of PricewaterhouseCoopers LLP (relating to financial
statements of the Scurlock Permian Businesses)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: May 27, 1999
PLAINS RESOURCES INC.
By: /s/ Cynthia A. Feeback
-----------------------------------
Name: Cynthia A. Feeback,
Title: Vice President - Accounting,
and Assistant Treasurer
3
<PAGE>
SCURLOCK PERMIAN BUSINESSES
BALANCE SHEETS
(in thousands)
March 31, December 31,
1999 1998
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 46 $ 346
Accounts receivable, net 243,998 259,368
Inventory 37,208 18,258
Other current assets 2,988 445
--------- ---------
Total current assets 284,240 278,417
--------- ---------
PROPERTY AND EQUIPMENT 138,287 145,436
Less allowance for depreciation and amortization (14,646) (13,621)
--------- ---------
123,641 131,815
--------- ---------
OTHER ASSETS
Investments and long-term receivables 2,512 2,487
Other 1,706 1,892
--------- ---------
$ 412,099 $ 414,611
========= =========
LIABILITIES AND PARENT COMPANY INVESTMENT
CURRENT LIABILITIES
Accounts payable $ 301,439 $ 294,870
Payroll and benefits payable 2,539 4,865
Other current liabilities 6,578 9,731
--------- ---------
Total current liabilities 310,556 309,466
PARENT COMPANY INVESTMENT 101,543 105,145
--------- ---------
$ 412,099 $ 414,611
========= =========
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
SCURLOCK PERMIAN BUSINESSES
STATEMENTS OF OPERATIONS
(in thousands) (unaudited)
Three Months Ended
March 31,
------------------
1999 1998
-------- --------
REVENUES $774,713 $816,526
COST OF SALES AND OPERATIONS 765,347 806,617
INVENTORY MARKET VALUATION CHARGE (CREDIT) (10,014) 3,985
-------- --------
Gross Margin 19,380 5,924
-------- --------
EXPENSES
General and administrative 7,990 6,941
Depreciation and amortization 2,892 2,847
-------- --------
Total expenses 10,882 9,788
-------- --------
Operating income (loss) 8,498 (3,864)
Interest and other income (1,164) -
-------- --------
NET INCOME (LOSS) $ 9,662 $ (3,864)
======== ========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
SCURLOCK PERMIAN BUSINESSES
STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) $ 9,662 $ (3,864)
Items not affecting cash flows
from operating activities:
Depreciation and amortization 2,892 2,847
Inventory market valuation charge (credit) (10,014) 3,985
Gain on disposal of assets (909) -
Change in assets and liabilities
Accounts receivable 15,370 20,059
Inventory (8,936) (4,747)
Accounts payable and other current liabilities 1,090 (5,951)
Other, net (2,543) (467)
----------- -----------
Net cash provided by (used in)
operating activities 6,612 11,862
----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Disposal of assets 3,112 -
Capital expenditures (493) (82)
Affiliates - distributions from (investments in) (25) 21
----------- -----------
Net cash provided by (used in) investing activities 2,594 (61)
----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Net change in Parent Company advances (9,506) (11,554)
----------- -----------
Net cash provided by (used in) financing activities (9,506) (11,554)
----------- -----------
Net increase (decrease) in cash
and cash equivalents (300) 247
Cash and cash equivalents, beginning of period 346 34
----------- -----------
Cash and cash equivalents, end of period $ 46 $ 281
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SCURLOCK PERMIAN BUSINESSES
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
1. Scurlock Permian LLC (SPLLC) is a wholly owned subsidiary of Marathon Ashland
Petroleum LLC (MAP). MAP was formed effective January 1, 1998, and is owned
62% by Marathon Oil Company (Marathon) and 38% by Ashland Inc. (Ashland).
On March 17, 1999, MAP entered into an agreement with Plains Marketing, L.P.
(Plains) providing for the sale of MAP's membership interest in SPLLC and
certain other pipeline assets (collectively, the Scurlock Permian Businesses
or the Company) to Plains. This transaction was consummated on May 12, 1999.
The accompanying financial statements do not include any adjustments that
might result from the sale.
The accompanying financial statements pertain to the businesses that were
sold to Plains and represent a carve-out financial statement presentation of
a MAP operating unit as of and for the three months ended March 31, 1999 and
1998. The financial statements include allocations and estimates of direct
and indirect MAP corporate administrative costs attributable to the Company.
The methods by which such amounts are attributed or allocated are deemed
reasonable by MAP's management. The financial information herein is not
necessarily indicative of the financial position, results of operations and
cash flows that would have been reported if the Company had operated as an
unaffiliated enterprise, nor is it indicative of future results.
In connection with the formation of MAP, Marathon acquired certain refining,
marketing and transportation net assets, including the operations comprising
SPLLC, from Ashland in exchange for a 38% interest in MAP. The acquisition of
Ashland's net assets was accounted for under the purchase method of
accounting.
The Company is an independent gatherer and marketer of crude oil in the
United States, operating in 14 states. Major operations consist of pipeline,
barge and truck operations. The pipeline component owns and operates more
than 2,400 miles of active pipelines that transport crude oil from leases and
unloading stations to major pipeline connections and terminals. The barge
facilities consist of eight owned barge terminals located in Louisiana and
Texas. The truck operations consist of a fleet of more than 225 units
transporting crude to various locations.
2. For the quarter ended March 31, 1999 and 1998, the Company was treated as a
partnership for federal and most state income tax purposes, and the tax
effect of its activities accrued to Marathon and Ashland. As a result, no
provision for federal or state income taxes has been made in the accompanying
financial statements.
3. For purposes of these separate financial statements, payables and receivables
related to transactions between the Company and MAP are included as a
component of the Parent Company investment. Transactions during the first
quarter of 1999 between the Scurlock Permian Businesses and Marathon and
Ashland are considered to be related party transactions.
4. At December 31, 1998, the Company recorded a charge to earnings of
approximately $10 million to reflect an inventory market valuation reserve.
Such amount represented the amount by which the recorded LIFO cost basis of
crude oil inventory exceeded net realizable value as of such date. At March
31, 1999, the inventory market valuation reserve was released due to
increased crude oil prices and the Company recognized a credit to earnings of
approximately $10 million.
5. The Company is the subject of, or party to, a number of pending or threatened
legal actions, contingencies and commitments involving a variety of matters,
including laws and regulations relating to the environment. Under the
agreement for the sale of the Company by MAP to Plains, MAP has agreed to
indemnify and hold harmless the Company and Plains for claims, liabilities
and losses (collectively "Losses") resulting from any act or omission
attributable to the Company's business or properties occurring prior to the
date of the closing of such sale to the extent the aggregate amount of such
Losses exceed $1 million; provided however, that claims for such Losses must
be asserted by the Company against MAP on or before May 15, 2003. Certain
identified Losses and the first $25,000 of any individual claim are not
included in the calculation of the foregoing $1 million indemnification
threshold.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers of
Marathon Ashland Petroleum LLC
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in parent company investment present
fairly, in all material respects, the financial position of the Scurlock Permian
Businesses (a division of Marathon Ashland Petroleum LLC, hereinafter referred
to as MAP) at December 31, 1998, and the results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
MAP's management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
April 30, 1999
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers of
Marathon Ashland Petroleum LLC
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in parent company investment present
fairly, in all material respects, the financial position of Scurlock Permian
Corporation, the predecessor entity of the Scurlock Permian Businesses, at
December 31, 1997, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Marathon Ashland Petroleum LLC's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
April 30, 1999
F-6
<PAGE>
STATEMENT OF OPERATIONS (Dollars in thousands)
SCURLOCK PERMIAN BUSINESSES
<TABLE>
<CAPTION>
(Company) (Predecessor)
Year Ended Year Ended
----------------- -----------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES - Note E $3,773,536 $4,267,720 $4,246,245
COSTS AND EXPENSES:
Cost of sales (excludes items shown below) - Note E 3,742,276 4,214,952 4,189,303
Selling, general and administrative expenses 31,033 31,800 32,501
Depreciation and amortization 11,136 16,337 16,576
Taxes other than income taxes 2,653 2,689 2,846
Inventory market valuation charges (credit) - Note H 10,014 6,485 (2,650)
---------- ---------- ----------
Total costs and expenses 3,797,112 4,272,263 4,238,576
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES (23,576) (4,543) 7,669
PROVISION (BENEFIT) FOR ESTIMATED INCOME TAXES - NOTE G - (1,176) 3,148
---------- ---------- ----------
NET INCOME (LOSS) $ (23,576) $ (3,367) $ 4,521
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
BALANCE SHEET (Dollars in thousands)
SCURLOCK PERMIAN BUSINESSES
<TABLE>
<CAPTION>
(Company) (Predecessor)
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 346 $ 34
Receivables (net of allowance of $180 and $153) 259,368 262,722
Inventories - Note H 18,258 26,861
Deferred income taxes Note G - 2,270
Other current assets 445 3,422
-------- --------
Total current assets 278,417 295,309
Investments and long-term receivables - Note I 2,487 1,614
Property, plant and equipment - net - Note J 131,815 109,618
Other noncurrent assets - net 1,892 17,234
-------- --------
Total assets $414,611 $423,775
======== ========
LIABILITIES
Current liabilities:
Accounts payable $294,870 $319,111
Payroll and benefits payable 4,865 5,039
Other current liabilities 9,731 7,621
-------- --------
Total current liabilities 309,466 331,771
Long-term deferred income taxes - Note G - 2,473
Other long-term liabilities - 6,279
-------- --------
Total liabilities 309,466 340,523
Parent Company Investment - Note D 105,145 83,252
-------- --------
Total liabilities and Parent Company investment $414,611 $423,775
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
STATEMENT OF CASH FLOWS (Dollars in thousands)
SCURLOCK PERMIAN BUSINESSES
<TABLE>
<CAPTION>
(Predecessor)
(Company) Year Ended
Year Ended -------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income (loss) $(23,576) $ (3,367) $ 4,521
Adjustments to reconcile to net cash provided
from (used in) operating activities:
Depreciation and amortization 11,136 16,337 16,576
Inventory market valuation charges (credits) 10,014 6,485 (2,650)
Deferred income taxes - (2,057) 1,657
Gain on disposal of assets 82 18 234
Changes in current assets and liabilities:
Receivables 3,563 49,190 (51,438)
Inventories (1,946) 4,828 9,386
Accounts payable and accrued expenses (10,754) (109,103) 49,621
All other - net 190 (1,830) 3,064
-------- --------- --------
Net cash provided from (used in) operating activities (11,291) (39,499) 30,971
-------- --------- --------
INVESTING ACTIVITIES:
Disposal of assets 117 443 1,760
Capital expenditures (4,293) (8,269) (5,627)
Affiliates distributions from (investments in) 81 95 (546)
-------- --------- --------
Net cash used in investing activities (4,095) (7,731) (4,413)
-------- --------- --------
FINANCING ACTIVITIES:
Net change in Parent Company advances 15,698 46,827 (27,017)
-------- --------- --------
Net cash provided from (used in) financing activities 15,698 46,827 (27,017)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 312 (403) (459)
Cash and cash equivalents at beginning of year 34 437 896
-------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 346 $ 34 $ 437
======== ========= ========
</TABLE>
See Note K for supplemental cash flow information.
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
STATEMENT OF CHANGES IN PARENT COMPANY INVESTMENT (Dollars in thousands)
SCURLOCK PERMIAN BUSINESSES
(Predecessor)
Parent Company investment at December 31, 1995 $ 62,288
Net income for the year ended December 31, 1996 4,521
Net advances from (to) Parent Company (27,017)
--------
Parent Company investment at December 31, 1996 39,792
Net loss for the year ended December 31, 1997 (3,367)
Net advances from (to) Parent Company 46,827
--------
Parent Company investment at December 31, 1997 $ 83,252
========
(Company)
Parent Company investment at January 1, 1998 - Note A $113,023
Net loss for the year ended December 31, 1998 (23,576)
Net advances from (to) Parent Company 15,698
--------
Parent Company investment at December 31, 1998 $105,145
========
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SCURLOCK PERMIAN BUSINESSES
NOTE A - BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
Scurlock Permian LLC (SPLLC) is a wholly owned subsidiary of Marathon Ashland
Petroleum LLC (MAP). MAP was formed effective January 1, 1998, and is owned 62%
by Marathon Oil Company (Marathon) and 38% by Ashland Inc. (Ashland). Prior to
January 1, 1998, SPLLC was organized as a stock corporation named Scurlock
Permian Corporation and was a wholly owned subsidiary of Ashland. Throughout
these financial statements, the term, Parent Company, relates to MAP for 1998
and Ashland for 1997 and 1996.
On March 17, 1999, MAP entered into an agreement with Plains Marketing, L.P.
(Plains) providing for the sale of MAP's membership interest in SPLLC and
certain other pipeline assets (collectively, the Scurlock Permian Businesses or
the Company) to Plains. This transaction is anticipated to be consummated in the
second quarter of 1999. The accompanying financial statements do not include any
adjustments that might result from the proposed sale.
The accompanying financial statements pertain to the business that is being sold
to Plains and represent a carve-out financial statement presentation of a MAP
operating unit as of and for the year ended December 31, 1998, and of Scurlock
Permian Corporation (the Predecessor) as of December 31, 1997 and 1996 and for
the years then ended. The financial statements include allocations and estimates
of direct and indirect Parent Company corporate administrative costs
attributable to the Company or the Predecessor as described in Note D. The
methods by which such amounts are attributed or allocated are deemed reasonable
by the Parent Company's management. The financial information herein is not
necessarily indicative of the financial position, results of operations and cash
flows that would have been reported if the Company or the Predecessor had
operated as an unaffiliated enterprise, nor is it indicative of future results.
In connection with the formation of MAP, Marathon acquired certain refining,
marketing and transportation net assets, including the operations comprising
SPLLC, from Ashland in exchange for a 38% interest in MAP. The acquisition of
Ashland's net assets was accounted for under the purchase method of accounting.
As a result, the financial statements of the Scurlock Permian Businesses for the
year ended December 31, 1998, were prepared on a different basis than the
financial statements of the Predecessor for the years ended December 31, 1997
and 1996. Due to this lack of comparability, a "black line" has been used to
separate the reporting periods.
The Company and the Predecessor are independent gatherers and marketers of crude
oil in the United States, operating in 14 states. Major operations consist of
pipeline, barge and truck operations. The pipeline component owns and operates
more than 2,400 miles of active pipelines that transport crude oil from leases
and unloading stations to major pipeline connections and terminals. The barge
facilities consist of eight owned barge terminals located in Louisiana and
Texas. The truck operations consist of a fleet of more than 250 units
transporting crude to various locations.
NOTE B - SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
PRINCIPLES APPLIED IN CONSOLIDATION - The investment in the entity over which
the Company or the Predecessor has significant influence is accounted for using
the equity method. The proportionate share of income from this equity method
investment is included in revenues. The investment in the other entity over
which the Company or the Predecessor does not have significant influence and
whose stock does not have a readily determinable fair value is carried at cost.
USE OF ESTIMATES - Generally accepted accounting principles require management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at year end and
the reported amounts of revenues and expenses during the year. Significant items
subject to such estimates and assumptions include the carrying value of long-
lived assets, valuation allowances for receivables and inventories,
environmental liabilities and liabilities for potential claims and settlements.
Actual results could differ from the estimates and assumptions used.
REVENUE RECOGNITION - Revenues principally include sales, equity income and
gains or losses on the disposal of assets. Sales are recognized when products
are shipped or services are provided to customers. Matching crude oil buy/sell
transactions settled in cash are included in both revenues and costs and
expenses, with no effect on income. As of December 31, 1998 and 1997,
receivables from two customers comprised 11 percent and 12 percent,
respectively, of total receivables.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE B - SUMMARY OF PRINCIPAL ACCOUNTING POLICIES - Continued
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand and
on deposit. The Company and the Predecessor participate in the Parent Company's
centralized funding and cash management system (non-interest bearing) (see Note
D).
INVENTORIES - Inventories are carried at lower of cost or market. Cost of
inventories is determined primarily under the last-in, first-out (LIFO) method.
DERIVATIVE INSTRUMENTS - The Company and the Predecessor engage in commodity
risk management activities within the normal course of its business as an end-
user of derivative instruments (see Note M). Management is authorized to manage
exposure to price fluctuations related to the purchase and sale of crude oil
through the use of derivative non-financial instruments. Derivative non-
financial instruments require or permit settlement by delivery of commodities
and include exchange-traded commodity futures contracts. The Company's and the
Predecessor's practices do not permit derivative positions to remain open if the
underlying physical market risk has been removed. Changes in the market value of
derivative instruments are deferred, including both closed and open positions,
and are subsequently recognized in income, as sales or cost of sales, in the
same period as the underlying transaction. The margin receivable accounts
required for open commodity contracts reflect changes in the market prices of
the underlying commodity and are settled on a daily basis.
Recorded deferred gains or losses are reflected within other current assets or
accounts payable. Cash flows from the use of derivative instruments are reported
in the same category as the hedged item in the Statement of Cash Flows.
LONG-LIVED ASSETS - Property, plant and equipment are stated at cost and are
depreciated principally by the straight-line method based on estimated useful
lives of: a) 15 years for right of way, b) 5 to 15 years for building and
furniture, and c) 3 to 15 years for transportation and terminal equipment.
Impairment of assets is evaluated on an individual asset basis or by logical
groupings of assets. Assets deemed to be impaired are written down to their fair
value, including any related goodwill, using discounted future cash flows and,
if available, comparable market values.
ENVIRONMENTAL LIABILITIES - Provision is made for remediation costs and
penalties when the responsibility to remediate is probable and the amount of
associated costs is reasonably determinable. Generally, the timing of
remediation accruals coincides with completion of a feasibility study or the
commitment to a formal plan of action. Remediation liabilities are accrued based
on estimates of known environmental exposure (see Note N).
INSURANCE - The Company and the Predecessor maintain insurance for catastrophic
casualty and certain property and business interruption exposures, as well as
those risks required to be insured by law or contract. Costs resulting from
noninsured losses are charged against income upon occurrence.
INCOME TAXES - For the year ended December 31, 1998, the Company was treated as
a partnership for federal and most state income tax purposes, and the tax effect
of its activities accrued to Marathon and Ashland. As a result, no provision for
federal or state income taxes has been made in the accompanying financial
statements for 1998 activity.
Prior to January 1, 1998, when the Predecessor was wholly owned by Ashland, it
operated as a corporation. Accordingly, these financial statements include a
provision for income taxes for the periods ended December 31, 1997 and 1996.
Income taxes pertaining to the years 1997 and 1996 are computed on a separate
return basis using the liability method as prescribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Because the
Predecessor was included in the federal and state income tax returns filed by
Ashland, the calculation of the related tax provisions and deferred taxes
necessarily requires certain assumptions, allocations and estimates which
management believes are reasonable to reflect the tax reporting for the
Predecessor as a stand-alone taxpayer.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of most financial
instruments are based on historical costs. The carrying values of cash and cash
equivalents, receivables and payables approximate their fair value due to the
short-term maturity of these instruments.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE C - NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This new standard requires recognition
of all derivatives as either assets or liabilities at fair value. SFAS No. 133
may result in additional volatility in both current period earnings and other
comprehensive income as a result of recording recognized and unrecognized gains
and losses resulting from changes in the fair value of derivative instruments.
SFAS 133 requires a comprehensive review of all outstanding derivative
instruments to determine whether or not their use meets the hedge accounting
criteria. It is possible that there will be derivative instruments employed in
the Company's businesses that do not meet all of the designated hedge criteria,
and they will be reflected in income on a mark-to-market basis. Based upon the
strategies currently employed by the Company, the relatively short-term duration
of most of the Company's derivative strategies, and the level of activity
related to commodity-based derivative instruments in recent periods, the Company
does not anticipate the effect of adoption to have a material impact on either
financial position or results of operations. The Company plans to adopt SFAS No.
133 effective January 1, 2000, as required.
NOTE D - PARENT COMPANY INVESTMENT, ALLOCATIONS AND RELATED PARTY TRANSACTIONS
For purposes of these separate financial statements, payables and receivables
related to transactions between the Company and MAP and the Predecessor and
Ashland, as well as payables and refunds related to income taxes, are included
as a component of the Parent Company investment. Transactions in 1998 between
the Scurlock Permian Businesses and Marathon and Ashland are considered to be
related party transactions.
The Company's sales in 1998 to Ashland were $580 thousand; sales to MAP were
$732,832 thousand; and sales to Marathon were $2,195 thousand. The Predecessor's
sales in 1997 and 1996 to Ashland were $793,920 thousand and $942,299 thousand,
respectively. The Company's purchases in 1998 from MAP totaled $106,317 thousand
and purchases from Marathon were $9,531 thousand. The Predecessor's purchases in
1997 and 1996 from Ashland totaled $129,816 thousand and $121,837 thousand,
respectively. Such transactions were in the ordinary course of business and
include the purchase, sale and transportation of crude oil.
MAP, Ashland and Marathon provided computer, treasury, accounting, internal
auditing and legal services to the Company in 1998 and Ashland provided such
services to the Predecessor in 1997 and 1996. Charges for these services were
allocated based on usage or other methods, such as headcount and square footage,
that management believed to be reasonable. Charges to the Company for these
services for the year ended December 31, 1998 totaled $7,722 thousand. Ashland
charges for these services in 1997 and 1996 were $7,787 thousand and $6,423
thousand, respectively. The Parent Company uses a centralized cash management
system (non-interest bearing) under which cash receipts of the Company and the
Predecessor were remitted to the Parent Company and cash disbursements of the
Company and the Predecessor were funded by the Parent Company.
As of December 31, 1998, receivables included $832 thousand due from Ashland.
The Company's accounts payable as of December 31, 1998, included $1,601 thousand
due to Marathon.
NOTE E - REVENUES
The items below are included in revenues and costs and expenses, with no effect
on income.
<TABLE>
<CAPTION>
(Predecessor)
(Company) Year Ended
Year Ended ------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
(Thousands) (Thousands)
<S> <C> <C> <C>
Matching crude oil buy/sell
transactions settled in cash $2,179,843 $2,851,069 $2,665,054
</TABLE>
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE F - EMPLOYEE BENEFITS
For the purposes of these financial statements, the Company and the Predecessor
are considered to participate in multi-employer benefit plans.
The Company's employees were included in the various employee benefit plans of
MAP in 1998 and the Predecessor's employees were included in the various
employee benefit plans of Ashland for the years ended December 31, 1997 and
1996. These plans included retirement plans, employee and retiree medical,
dental and life insurance plans, 401(k) and profit-sharing plans and other such
benefits.
MAP has noncontributory defined benefit pension plans covering substantially all
employees of the Scurlock Permian Businesses. Benefits under these plans are
based primarily upon years of service and career earnings. The funding policy
for all plans provides that payments to the pension trusts shall be equal to the
minimum funding requirements of the Employee Retirement and Income Security Act,
plus such additional amounts as may be approved. No charges have been allocated
to the Scurlock Permian Businesses for the MAP defined benefit pension plans for
the year ended December 31, 1998, as the plans are in an overfunded position.
MAP also has defined benefit retiree health insurance plans covering most
employees of the Scurlock Permian Businesses upon their retirement. Health
benefits are primarily provided through comprehensive hospital, surgical and
major medical benefit provisions subject to various cost-sharing features.
The Company's and the Predecessor's share of employee benefit expenses were
$3,121 thousand, $4,815 thousand and $4,117 thousand for the years ended
December 31, 1998, 1997 and 1996, respectively.
NOTE G - INCOME TAXES
Provision (benefit) for estimated income taxes:
(Predecessor)
Year Ended
--------------------------------------
December 31, 1997 December 31, 1996
----------------- -----------------
(Thousands) (Thousands)
FEDERAL TAXES:
Current $ 821 $1,389
Deferred (2,057) 1,657
------- ------
Total federal taxes (1,236) 3,046
STATE AND LOCAL TAXES: 60 102
------- ------
Total provision (benefit) $(1,176) $3,148
======= ======
For the year ended December 31, 1998, the Company was treated as a partnership
for federal and most state income tax purposes and the tax effect of its
activities accrued to Marathon and Ashland. As a result, no provision for income
taxes has been made in the accompanying financial statements for 1998 activity.
Prior to January 1, 1998, the Predecessor was wholly owned by Ashland and
operated as a corporation. Accordingly, these financial statements include a
provision for income taxes for the periods ended December 31, 1997 and 1996.
Income taxes pertaining to the years 1997 and 1996 are computed on a separate
return basis using the liability method as prescribed by Statement of Financial
Accounting Standards No. 109.
The deferred tax asset and liability at December 31, 1997 principally arise from
differences between the book and tax basis of inventory and property, plant and
equipment, respectively.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE G - INCOME TAXES - Continued
A reconciliation of the federal statutory tax rate (35%) to the total income tax
provision (benefit) follows:
(Predecessor)
1997 1996
---- ----
(Thousands) (Thousands)
Statutory rate applied to income before income taxes $(1,590) $2,684
Nondeductible goodwill and business expenses 375 398
State and local income taxes after federal income tax
benefit 39 66
------- ------
Total provision (benefit) $(1,176) $3,148
======= ======
NOTE H - INVENTORIES
Inventories consist of the following:
(Company) (Predecessor)
December 31, 1998 December 31, 1997
----------------- -----------------
(Thousands) (Thousands)
Crude oil $21,294 $24,417
Pipeline line fill 4,638 6,273
Materials and supplies 2,004 2,248
Bulk fuel 336 408
------- -------
Total (at cost) 28,272 33,346
Less inventory market valuation reserve 10,014 6,485
------- -------
Net inventory carrying value $18,258 $26,861
======= =======
Inventories of crude oil and pipeline line fill are valued by the LIFO method.
At December 31, 1998 and 1997, the LIFO method accounted for approximately 92%
of the total inventory value. During 1997, inventory quantities were reduced.
This reduction resulted in a liquidation of LIFO inventory quantities carried at
lower costs prevailing in prior years as compared with the cost of 1997
purchases, the effect of which decreased cost of goods sold by approximately
$1,382 thousand and increased net income by approximately $898 thousand.
The inventory market valuation reserve reflects the extent that the recorded
LIFO cost basis of crude oil inventories exceeds net realizable value. The
reserve is decreased to reflect increases in market prices and inventory
turnover and increased to reflect decreases in market prices. Changes in the
inventory market valuation reserve result in noncash charges or credits to costs
and expenses.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE I - INVESTMENTS AND LONG-TERM RECEIVABLES
(Company) (Predecessor)
December 31, 1998 December 31, 1997
----------------- -----------------
(Thousands) (Thousands)
Equity method investment $2,466 $ 981
Cost method investment - 633
Other 21 -
------ ------
$2,487 $1,614
====== ======
The following represents summarized financial information of the affiliate
accounted for by the equity method of accounting:
(Predecessor)
(Company) Year Ended
Year Ended -------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
(Thousands) (Thousands)
Income data:
Revenues $2,110 $2,474 $3,039
Operating income 66 135 252
Net income 66 135 252
December 31, 1998 December 31, 1997
----------------- -----------------
(Thousands) (Thousands)
Balance sheet data:
Current assets $ 44 $ 28
Non-current assets 1,835 1,961
Current liabilities 44 28
Dividends and partnership distributions received from equity affiliates in 1998,
1997 and 1996 were $81 thousand, $95 thousand and $86 thousand, respectively.
Purchases from equity affiliates in 1998, 1997 and 1996 totaled $2,110 thousand,
$2,474 thousand and $3,039 thousand, respectively. Sales to equity affiliates in
1998, 1997 and 1996 totaled $1,552 thousand, $1,825 thousand and $2,233
thousand, respectively.
NOTE J - PROPERTY, PLANT AND EQUIPMENT
(Company) (Predecessor)
December 31, 1998 December 31, 1997
----------------- -----------------
(Thousands) (Thousands)
Land $ 1,270 $ 2,190
Construction in progress 3,025 385
Right of way 17,928 39,604
Building and furniture 3,323 20,402
Transportation and terminal equipment 119,890 210,958
-------- --------
Total 145,436 273,539
Less accumulated depreciation 13,621 163,921
-------- --------
Net $131,815 $109,618
======== ========
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(Predecessor)
(Company) Year Ended
Year Ended -------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
(Thousands) (Thousands)
<S> <C> <C> <C>
Income taxes paid to Parent Company $ - $5,517 $5,836
Non-cash investing and financing activities:
Like-kind exchanges of transportation equipment $4,540 $ - $5,102
</TABLE>
NOTE L LEASES
The Company and the Predecessor lease a wide variety of facilities and equipment
under operating leases, including land and building space, office equipment, and
transportation equipment.
Future minimum commitments of the Company for operating leases having remaining,
noncancelable lease terms in excess of one year are as follows:
Operating Leases
----------------
(Thousands)
1999 $ 2,073
2000 2,071
2001 2,073
2002 524
2003 384
Later Years 4,811
-------
Total minimum lease payments $11,936
=======
Operating lease costs, which consisted principally of minimum rentals, were
$9,396 thousand, $9,430 thousand and $10,922 thousand for the years ended
December 31, 1998, 1997 and 1996, respectively.
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE M - DERIVATIVE INSTRUMENTS
The Company and the Predecessor use exchange-traded future contracts to manage
exposure to price fluctuations related to the anticipated purchase and sale of
crude oil. The exchange-traded futures contracts do not have a corresponding
fair value since changes in market prices are settled on a daily basis. The
Company remains at risk for possible changes in the market value of the
derivative instrument; however, such risk should be mitigated by price changes
in the underlying hedged item.
The following table sets forth quantitative information for exchange-traded
commodity futures:
Recorded
Deferred Aggregate
Gain or Contract
(Loss) Values/(a)/
------------ ----------------
(Thousands) (Thousands)
(Company)
DECEMBER 31, 1998:
Exchange-traded commodity futures $ 191 $ 8,964
(Predecessor)
DECEMBER 31, 1997:
Exchange-traded commodity futures $(2,817) $29,157
/(a)/ Contract or notional amounts do not quantify risk exposure, but are used
in the calculation of cash settlements under the contracts. The contract
or notional amounts do not reflect the extent to which positions may
offset one another.
NOTE N - CONTINGENCIES AND COMMITMENTS
The Company and the Predecessor are the subject of, or party to, a number of
pending or threatened legal actions, contingencies and commitments involving a
variety of matters, including laws and regulations relating to the environment.
Certain of these matters are discussed below. The ultimate resolution of these
contingencies could, individually or in the aggregate, be material to the
Company's financial statements. However, the Company's management believes that
the Company will remain a viable and competitive enterprise even though it is
possible that these contingencies could be resolved unfavorably.
ENVIRONMENTAL MATTERS - The Company and the Predecessor are subject to federal,
state, and local laws and regulations relating to the environment. These laws
generally provide for control of pollutants released into the environment and
require responsible parties to undertake remediation of hazardous waste disposal
sites. Penalties may be imposed for noncompliance. At December 31, 1997, the
Predecessor had $4,228 thousand accrued for remediation costs on existing
properties. In connection with the formation of MAP (see Note A), Marathon and
Ashland retained the liability, subject to certain thresholds, for costs
associated with remediating conditions existing prior to January 1, 1998. No
amounts were accrued by the Company at December 31, 1998 for environmental
matters. It is not presently possible to estimate the ultimate amount of all
remediation costs that might be incurred or the penalties that may be imposed.
COMMITMENTS - The Company has a contract for use of an oil terminal in Louisiana
with an initial three-year term that began on July 1, 1998. At the end of three
years, the agreement will automatically extend from year to year unless either
party cancels it. The Company is committed to a "minimum receipt throughput
volume" of 4,500 barrels per day at $.25 per barrel.
F-18
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
PLAINS RESOURCES INC. AND SUBSIDIARIES
Introduction
The accompanying unaudited pro forma consolidated financial statements are
presented to reflect the acquisition of Scurlock Permian LLC and certain other
pipeline assets (the "Scurlock Acquisition") from Marathon Ashland Petroleum LLC
("MAP") by Plains Scurlock Permian, L.P. ("Plains Scurlock"), a newly formed
operating limited partnership of Plains All American Pipeline, L.P. ("PAA"). The
Scurlock Acquisition has been accounted for using the purchase method of
accounting. Plains Resources Inc. (the "Registrant") has a 57% ownership
interest (59% subsequent to the Scurlock Acquisition and related transactions)
in PAA, through which the Registrant's midstream operations are conducted.
Plains All American Inc., a wholly owned subsidiary of the Registrant, is the
general partner ("General Partner") of PAA. PAA's results are consolidated into
the Registrant's results with the public's 43% ownership interest (41%
subsequent to the Scurlock Acquisition and related transactions) reflected as a
minority interest deduction from income. The pro forma financial statements are
based upon the historical financial statements of the Registrant and the
Scurlock Permian Businesses ("Scurlock"). The Scurlock financial statements
pertain to the businesses sold to Plains Scurlock by MAP and represent a carve-
out financial statement presentation of a MAP operating unit.
The unaudited pro forma consolidated financial statements are not
necessarily indicative of the results of the future operations of the
Registrant. The unaudited pro forma financial statements should be read in
conjunction with the notes thereto and the historical financial statements of
Scurlock, included in Item 7 (a) of this Form 8-K. In addition, reference should
be made to the historical financial statements of the Registrant included in
Form 10-K for the year ended December 31, 1998, and included in Form 10-Q for
the three months ended March 31, 1999, filed with the Securities and Exchange
Commission.
The following pro forma consolidated financial statements have been
prepared as if the Scurlock Acquisition and related transactions had taken place
on March 31, 1999, in the case of the pro forma consolidated balance sheet or as
of January 1, 1998 in the case of the pro forma consolidated statement of income
for the three months ended March 31, 1999, and pro forma consolidated statement
of operations for the year ended December 31, 1998.
F-19
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (unaudited)
MARCH 31, 1999
(in thousands)
<TABLE>
CAPTION>
Historical
--------------------------
Scurlock
Plains Permian Pro Forma
Resources Inc. Businesses Adjustments Note Pro Forma
-------------- ---------- ----------- ---- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 889 $ 46 $ 145,618 A $ 682
(145,871) B
Accounts receivable 161,742 243,998 56,785 C 452,026
(10,499) K
Inventory 28,826 37,208 (18,516) B 47,518
Prepaid expenses and other 2,464 2,988 - 5,452
---------- -------- --------- ----------
Total current assets 193,921 284,240 27,517 505,678
---------- -------- --------- ----------
PROPERTY AND EQUIPMENT
Oil and natural gas properties - full cost method 669,212 - - 669,212
Crude oil pipeline, gathering and terminal assets 380,956 138,287 129,215 B 510,171
(138,287) B
Other property and equipment 8,869 - - 8,869
---------- -------- --------- ----------
1,059,037 138,287 (9,072) 1,188,252
Less allowance for depreciation,
depletion and amortization (382,382) (14,646) 14,646 B (382,382)
---------- -------- --------- ----------
676,655 123,641 5,574 805,870
---------- -------- --------- ----------
OTHER ASSETS 134,405 4,218 14,527 B 153,150
---------- -------- --------- ----------
$1,004,981 $412,099 $ 47,618 $1,464,698
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 190,063 $310,556 $ 14,042 C $ 504,162
(10,499) K
Notes payable and other current obligations 4,611 - - 4,611
---------- -------- --------- -----------
Total current liabilities 194,674 310,556 3,543 508,773
BANK DEBT 76,800 - 25,000 A 101,800
BANK DEBT OF A SUBSIDIARY 181,000 - 120,618 A 301,618
SUBORDINATED DEBT 202,365 - - 202,365
OTHER LONG-TERM DEBT 2,556 - - 2,556
OTHER LONG-TERM LIABILITIES 7,678 - - 7,678
---------- -------- --------- -----------
665,073 310,556 149,161 1,124,790
---------- -------- --------- -----------
MINORITY INTEREST 175,756 - - 175,756
---------- -------- --------- -----------
PARENT COMPANY INVESTMENT - 101,543 (144,286) B -
42,743 C
---------- -------- --------- -----------
SERIES E CUMULATIVE CONVERTIBLE
PREFERRED STOCK, STATED AT
LIQUIDATION PREFERENCE 90,517 - - 90,517
---------- -------- --------- -----------
NON-REDEEMABLE PREFERRED STOCK,
COMMON STOCK AND
OTHER STOCKHOLDERS' EQUITY
Series D Cumulative Convertible Preferred Stock 22,277 - - 22,277
Common Stock 1,689 - - 1,689
Additional paid-in capital 124,815 - - 124,815
Accumulated deficit (75,146) - - (75,146)
---------- -------- --------- -----------
73,635 - - 73,635
---------- -------- --------- -----------
$1,004,981 $412,099 $ 47,618 $1,464,698
========== ======== ========= ===========
</TABLE>
See notes to pro forma consolidated financial statements.
F-20
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
---------------------------------
Scurlock
Plains Permian Pro Forma
Resources Inc. Businesses Adjustments Note Pro Forma
--------------- --------------- --------------- ------ --------------
<S> <C> <C> <C> <C> <C>
REVENUES
Oil and natural gas sales $ 21,142 $ - $ - $ 21,142
Marketing, transportation, storage
and terminalling revenues 455,760 774,713 (26,511) K 1,203,962
Interest and other income 69 1,164 (715) D 518
-------- -------- -------- ----------
476,971 775,877 (27,226) 1,225,622
-------- -------- -------- ----------
EXPENSES
Production expenses 11,563 - - 11,563
Marketing, transportation, storage
and terminalling expenses 436,396 765,347 (569) H 1,170,500
(372) J
(26,511) K
(3,791) Q
General and administrative 4,062 7,990 (326) D 10,348
(256) H
(1,122) I
Depreciation, depletion and amortization 7,170 2,892 1,457 F 8,627
(2,892) G
Inventory market valuation credit - (10,014) 10,014 Q -
Interest expense 8,753 - 2,721 E 11,474
--------- -------- -------- ----------
467,944 766,215 (21,647) 1,212,512
-------- -------- -------- ----------
Income before income taxes
and minority interest 9,027 9,662 (5,579) 13,110
Minority interest 4,820 - 1,659 O 6,479
-------- -------- -------- ----------
Income before income taxes 4,207 9,662 (7,238) 6,631
Income tax expense:
Current - - - -
Deferred 1,641 - 945 P 2,586
-------- -------- -------- ----------
NET INCOME 2,566 9,662 (8,183) 4,045
Less: cumulative preferred stock dividends 2,361 - - 2,361
-------- -------- -------- ----------
NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS $ 205 $ 9,662 $ (8,183) $ 1,684
======== ======== ======== ==========
Earnings per common share:
Basic $ 0.01 $ 0.10
======== ==========
Diluted $ 0.01 $ 0.09
======== ==========
</TABLE>
See notes to pro forma consolidated financial statements
F-21
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Historical
---------------------------
Plains Scurlock
Resources Permian Pro Forma
Inc. Businesses Adjustments Note Pro Forma
---------- ------------ ------------ ---- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Oil and natural gas sales $ 102,754 $ - $ - $ 102,754
Marketing, transportation, storage
and terminalling revenues 1,129,689 3,773,536 (2,502) D 4,783,112
(116,825) K
(786) L
Gain on formation of PAA 60,815 - - 60,815
Interest and other income 834 - 65 D 1,685
786 L
---------- ---------- --------- ----------
1,294,092 3,773,536 (119,262) 4,948,366
---------- ---------- --------- ----------
EXPENSES
Production expenses 50,827 - - 50,827
Marketing, transportation, storage
and terminalling expenses 1,091,328 3,744,929 (1,451) D 4,721,035
(2,277) H
(1,460) J
(116,825) K
(2,781) M
(638) N
10,210 Q
General and administrative 10,778 31,033 (585) D 33,843
(1,023) H
(3,460) I
(1,743) M
(1,157) N
Depreciation, depletion and amortization 31,020 11,136 (248) D 36,849
5,829 F
(10,888) G
Reduction in carrying cost of oil
and natural gas properties 173,874 - - 173,874
Inventory market valuation charge - 10,014 (10,014) Q -
Interest expense 35,730 - 11,034 E 46,764
---------- ---------- --------- ----------
1,393,557 3,797,112 (127,477) 5,063,192
---------- ---------- --------- ----------
Loss before income taxes and minority interest (99,465) (23,576) 8,215 (114,826)
Minority interest 1,809 - (5,720) O (3,911)
---------- ---------- --------- ----------
Loss before income taxes (101,274) (23,576) 13,935 (110,915)
Income tax expense (benefit):
Current 862 - - 862
Deferred (43,582) - (3,760) P (47,342)
---------- ---------- --------- ----------
NET LOSS (58,554) (23,576) 17,695 (64,435)
Less: cumulative preferred stock dividends 4,762 - - 4,762
---------- ---------- --------- ----------
NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $ (63,316) $ (23,576) $ 17,695 $ (69,197)
========== ========== ========= ==========
Loss per common share:
Basic $ (3.77) $ (4.11)
========== ==========
Diluted $ (3.77) $ (4.11)
========== ==========
</TABLE>
See notes to pro forma consolidated financial statements
F-22
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Pro Forma Adjustments
A. Reflects the financing for the Scurlock Acquisition which was provided
through (i) Plains Scurlock's limited recourse bank facility with BankBoston,
N.A. (the "Plains Scurlock Credit Facility"), (ii) the sale to the General
Partner of 1.3 million Class B Common Units of PAA ("Class B Units") at $19.125
per unit, the price equal to the market value of PAA's common units and (iii) a
$25 million draw under PAA's existing revolving credit agreement. In addition,
the General Partner's $0.3 million capital contribution resulting from the sale
of the Class B Units is reflected. The funds for the purchase of the Class B
Units by the General Partner were provided through a capital contribution by the
Registrant which was financed by the Registrant's revolving credit facility (the
"Revolving Credit Facility").
The Class B Units are initially pari passu with Common Units with respect
to distributions, and after six months are convertible into Common Units upon
approval of a majority of Common Unitholders. After such six month period, the
Class B Unitholder may request that PAA call a meeting of Common Unitholders to
consider approval of conversion of the Class B Units into Common Units. If the
approval of such conversion by the Common Unitholders is not obtained within 120
days of such request (the "Initial Approval Period"), the Class B Unitholders
will be entitled to receive distributions, on a per unit basis, equal to 110% of
the amount of distributions paid on a Common Unit, with such distribution right
increasing to 115% if such approval is not secured within 90 days after the end
of the Initial Approval Period. Except for the vote to approve the conversion,
Class B Units have the same voting rights as the Common Units.
B. Reflects the consummation of the Scurlock Acquisition and the related
purchase accounting entries. The purchase price was allocated in accordance with
APB 16 as follows (in thousands):
Crude oil pipeline, gathering and terminal assets $129,215
Pipeline linefill 16,057
Debt issue costs 2,688
Net working capital items (2,089)
--------
Cash paid $145,871
========
The purchase price allocation has been based on preliminary estimates of
fair value and is subject to adjustment as additional information becomes
available and is evaluated. Minimum amounts of crude oil which are required to
operate Scurlock's pipeline and gathering assets have been classified as
pipeline linefill, a long-term asset. Such amounts were classified as a current
asset and included in inventory by Scurlock.
C. Reflects the reclassification of Scurlock receivables from and payables
to MAP for crude oil purchases. Such amounts, which were repaid by MAP
subsequent to March 31, 1999, are reflected in the Scurlock financial statements
as a component of Parent Company Investment.
D. Reflects the elimination of revenues and expenses associated with
certain assets and liabilities that were retained by MAP at the date of the
Scurlock Acquisition which were included in Scurlock's historical financial
statements as of and for the year ended December 31, 1998. Such assets and
liabilities and related revenues and expenses are not included in Scurlock's
historical financial statements as of and for the three months ended March 31,
1999.
E. Reflects pro forma interest expense on (i) borrowings of approximately
$95.6 million under the Plains Scurlock Credit Facility, (ii) borrowings of $25
million under PAA's existing credit facility and (iii) borrowings of $25 million
under the Revolving Credit Facility. PAA has entered into a series of 5-year
interest rate collars, which provide for a floor of 5.04% and a ceiling of 6.5%
on a notional principal amount of $90 million of the LIBOR portion outstanding
under the Plains Scurlock Credit Facility.
F. Reflects pro forma depreciation and amortization expense based on the
purchase price of the Scurlock assets by Plains Scurlock.
G. Reflects the elimination of historical Scurlock depreciation and
amortization expense.
F-23
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H. Reflects the reduction in compensation and benefits expense due to staff
reductions implemented by PAA. Such amounts are based on historical expenses
incurred by Scurlock. The reductions took place at the date of the Scurlock
Acquisition and PAA has no plans to replace these personnel. The reduction in
personnel is not expected to adversely impact the Registrant's revenues or
costs. This adjustment does not include an additional $3.2 million of estimated
reductions in compensation and benefits expense related to staff reductions
implemented by Scurlock in the fourth quarter of December 1998.
I. Reflects the elimination of incremental amounts of corporate overhead
allocated by MAP to Scurlock representing general corporate allocations not
related to services provided, so that cost of sales and operations and general
and administrative expense reflect the ongoing costs to the Registrant. No such
amounts were allocated to Scurlock by MAP for the three months ended March 31,
1999.
J. Reflects the cost reduction for services provided to Scurlock by MAP
related to the operation of certain pipeline assets. The Scurlock Acquisition
agreement provides for a reduced cost for such services subsequent to the
acquisition date.
K. Reflects the elimination of historical sales and purchases and
associated receivables and payables between Scurlock, PAA and the Registrant.
L. Reflects the reclassification of other income to conform to the
classification of such items in the Registrant's historical financial
statements.
M. Reflects the elimination of expenses associated with MAP's profit
sharing and post retirement pension, health and benefit plans in which
Scurlock's employees are no longer entitled to participate so that cost of sales
and operations and general and administrative expense reflect the ongoing cost
of employee benefits to the Registrant.
N. Reflects the elimination of expenses related to the sale of Scurlock by
MAP. Such amounts are primarily related to employee retention bonuses paid in
connection with the sale of Scurlock.
O. Reflects the minority interest in the pro forma net income (loss) of
PAA resulting from the Scurlock Acquisition.
P. Reflects income tax expense on pro forma pre-tax income based on an
effective tax rate of 39% which is the estimated tax rate of the Registrant.
Q. Reflects the restatement of Scurlock's inventory at average cost, which
is the inventory costing method utilized by PAA. Scurlock utilized the LIFO
method to determine inventory cost. This pro forma adjustment also reflects the
reversal of the adjustment made to Scurlock's historical financial statements to
value inventory at lower of cost or market as Scurlock's inventory stated at
average cost is lower than market, and no such adjustment is necessary.
F-24
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EXHIBIT 10(p)
AGREEMENT FOR PURCHASE AND SALE
OF MEMBERSHIP INTEREST IN
SCURLOCK PERMIAN LLC
BETWEEN
MARATHON ASHLAND PETROLEUM LLC
AND
PLAINS MARKETING, L.P.
MARCH 17, 1999
<PAGE>
TABLE OF CONTENTS
RECITALS.................................................................... 1
AGREEMENT................................................................... 1
ARTICLE I DEFINITIONS....................................................... 1
1.1 Accrued Taxes........................................................ 1
1.2 Adjustment Statement................................................. 1
1.3 Affiliate............................................................ 1
1.4 Annual Financial Statements.......................................... 2
1.7 Closing.............................................................. 2
1.8 Closing Date......................................................... 2
1.9 Confidentiality Agreement............................................ 2
1.10 Corrective Action.................................................... 2
1.11 Current Assets....................................................... 2
1.12 Current Liabilities.................................................. 2
1.13 Effective Time....................................................... 2
1.14 Effective Time Working Capital Statement............................. 3
1.15 Environmental Laws................................................... 3
1.16 Environmental Liabilities............................................ 3
1.17 GAAP................................................................. 3
1.18 Government Authority................................................. 3
1.19 Hazardous Materials.................................................. 3
1.20 Interim Period....................................................... 4
1.21 Inventory Above Minimum.............................................. 4
1.22 License.............................................................. 4
1.23 MAP.................................................................. 4
1.24 Major Pipelines and Terminals........................................ 4
1.25 Material Adverse Effect.............................................. 4
1.25 Materiality.......................................................... 4
1.26 Membership Interest.................................................. 5
1.27 Net Working Capital.................................................. 5
1.28 Permitted Encumbrances............................................... 5
1.29 Person............................................................... 5
1.30 Plains............................................................... 5
1.31 Prior Period Adjustments............................................. 5
1.32 Purchase Price....................................................... 5
1.33 Promissory Note...................................................... 5
1.34 Return or Returns.................................................... 5
1.35 Rights of Way........................................................ 6
1.36 SP................................................................... 6
1.37 SP Group............................................................. 6
1.38 Sub-sublease Agreements.............................................. 6
1.39 TAP.................................................................. 6
1.40 Tax or Taxes......................................................... 6
1.41 Tax Authority and Taxing Authority................................... 6
1.42 Transition Agreement................................................. 6
1.43 Unadjusted Purchase Price............................................ 6
1.44 Units................................................................ 6
ARTICLE II SALE AND PURCHASE OF MEMBERSHIP INTEREST......................... 7
2.1 Sale and Purchase of Membership Interests............................ 7
2.2 Purchase Price....................................................... 7
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TABLE OF CONTENTS
2.3 Closing Adjustments.................................................. 7
2.4 Net Working Capital Adjustment....................................... 9
2.5 Excluded Assets...................................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MAP 10
3.1 Due Organization and Qualification................................... 10
3.2 Financial Statements................................................. 10
3.3 No Material Adverse Change........................................... 10
3.4 Membership Interest.................................................. 11
3.5 Liabilities.......................................................... 11
3.6 Environmental Conditions and Liabilities............................. 11
3.7 Taxes................................................................ 12
3.8 Litigation........................................................... 12
3.9 Equipment, Inventory, and Other Personal Property.................... 13
3.10 Real Property........................................................ 13
3.11 Scurlock Permian Pipe Line LLC; La Grange Oil Terminal Company....... 14
3.12 Licenses............................................................. 14
3.13 Patents, Trademarks and Copyrights................................... 14
3.14 Bank Accounts, Safe Deposit Boxes and Banking Arrangements........... 15
3.15 Contracts............................................................ 15
3.16 Performance of Agreement............................................. 15
3.17 Compliance with Laws................................................. 16
3.18 Common Carrier Obligations........................................... 16
3.19 Consents............................................................. 16
3.20 No Bankruptcy........................................................ 16
3.21 Agent's Fees......................................................... 16
3.22 Third Party Inventory................................................ 17
3.23 Year 2000 Compliance................................................. 17
3.24 River Crossings...................................................... 17
3.25 DOT Pipelines........................................................ 17
3.26 Capital Leases....................................................... 17
3.27 General Provisions Regarding Representations and Warranties.......... 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PLAINS......................... 18
4.1 Due Organization and Qualification................................... 18
4.2 Performance of Agreement............................................. 18
4.3 Agents' Fees......................................................... 18
4.4 Financial Ability.................................................... 18
4.5 No Bankruptcy........................................................ 19
4.6 Units................................................................ 19
4.7 General Provisions Regarding Representations and Warranties.......... 19
ARTICLE V EMPLOYEE MATTERS.................................................. 19
5.1 Benefit Plans and Employment Practices............................... 19
5.2 Severance Arrangements............................................... 20
5.3 Worker Adjustment Retraining Notification Act........................ 21
5.4 Assumption of Permian Corporation Retirement and Savings Plans....... 21
5.5 Workers Compensation................................................. 22
5.6 Representations and Warranties Regarding Employees and Employee
Benefit Plans...................................................... 22
5.7 No Third Party Beneficiaries......................................... 23
ARTICLE VI TAX MATTERS...................................................... 23
6.1 SP Disregarded as Separate Entity for Income Tax Purposes............ 23
6.2 Allocation of Taxable Income to Periods Before and After Effective
Time............................................................... 23
6.3 Sale of SP Treated as Asset Sale for Income Tax Purposes............. 24
<PAGE>
TABLE OF CONTENTS
6.4 Internal Revenue Code 1031 Exchanges................................ 24
6.5 Transfer Taxes...................................................... 24
6.6 Cooperation and Preservation of Books and Records................... 24
ARTICLE VII OBLIGATIONS OF PARTIES PRIOR TO CLOSING........................ 25
7.1 General............................................................. 25
7.2 Access to Records and Properties of SP Group........................ 25
7.3 Conduct of Business of the SP Group Until the Closing............... 26
7.4 Obligations of Plains Until the Closing............................. 27
7.5 Obligations of MAP Regarding Financial Statements................... 28
7.6 Casualty Loss or Condemnation....................................... 28
7.7 Surety Bonds and Guarantees......................................... 28
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF MAP..................... 29
8.1 Absence of Litigation............................................... 29
8.2 Performance and Obligations of Plains............................... 29
8.3 HSR Approval........................................................ 29
8.4 Waiver.............................................................. 29
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF PLAINS.................... 30
9.1 Absence of Litigation............................................... 30
9.2 Performance and Obligations of MAP.................................. 30
9.3 Tender of Resignations.............................................. 30
9.4 HSR Approval........................................................ 30
9.5 Marathon Ashland Pipe Line LLC Transactions......................... 30
9.6 Illinois Basin Gathering Assets..................................... 31
9.7 Waiver.............................................................. 33
ARTICLE X CLOSING........................................................... 33
10.1 Place of Closing and Closing Date................................... 33
10.2 Closing Deliveries by Plains........................................ 34
10.3 Closing Deliveries by MAP........................................... 34
ARTICLE XI TERMINATION...................................................... 35
11.1 Termination......................................................... 35
11.2 Consequences of Termination......................................... 36
ARTICLE XII OBLIGATIONS OF PARTIES AFTER CLOSING............................ 36
12.1 Taxes............................................................... 36
12.2 Indemnification..................................................... 37
12.3 Environmental Indemnification....................................... 38
12.5 Survival of Indemnification Obligations............................. 40
12.6 Indemnification Bucket.............................................. 41
12.7 Procedures for Asserting Indemnity Claims........................... 41
12.8 EXPRESS NEGLIGENCE.................................................. 43
12.9 Prior Period Adjustments............................................ 43
12.10 Accounts Receivable................................................. 43
12.11 Damages............................................................. 43
12.11 People v. Amerada Hess.............................................. 44
12.12 Noncompetition...................................................... 44
12.13 Texas University Lands.............................................. 44
12.14 SPCC PLANS.......................................................... 44
12.15 Unit Restrictions................................................... 45
12.16 Permian Plans....................................................... 45
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TABLE OF CONTENTS
12.17 Nettleton to Tyler Pipeline......................................... 45
ARTICLE XIII MISCELLANEOUS.................................................. 45
13.1 Binding Agreement................................................... 45
13.2 Notices............................................................. 45
13.3 Entire Agreement.................................................... 46
13.4 Waivers............................................................. 46
13.5 Time Period Calculation............................................. 46
13.6 Counterparts........................................................ 46
13.7 Headings............................................................ 46
13.8 Applicable Law...................................................... 47
13.9 Construction of Agreement........................................... 47
13.10 Publicity........................................................... 47
13.11 No Third Party Beneficiaries........................................ 47
13.12 Severability........................................................ 47
13.13 Further Assurances.................................................. 47
13.14 Expenses............................................................ 47
<PAGE>
AGREEMENT FOR PURCHASE AND SALE
OF MEMBERSHIP INTEREST IN
SCURLOCK PERMIAN LLC
THIS AGREEMENT FOR PURCHASE AND SALE 0F MEMBERSHIP INTEREST ("Agreement") in
Scurlock Permian LLC ("SP") has been executed this 17th day of March, 1999, by
Marathon Ashland Petroleum LLC ("MAP"), a Delaware limited liability company,
and Plains Marketing, L.P., a Delaware limited partnership ("Plains").
RECITALS
1. SP is a Delaware limited liability company with a single membership interest
which is owned by MAP. Scurlock Permian Pipe Line LLC is a Delaware limited
liability company and is a wholly owned subsidiary of SP. La Grange Oil
Terminal Company is a Texas general partnership which is owned 50% by SP.
2. MAP desires to sell, and Plains desires to acquire, all of the membership
interest in SP pursuant to this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, agreements and mutual
covenants herein contained, MAP and Plains agree as follows:
ARTICLE I DEFINITIONS
Unless otherwise specifically stated in the text of this Agreement, the
following terms shall have the following meanings:
1.1 "Accrued Taxes" shall mean all amounts that have been accrued or are
payable for Taxes in accordance with GAAP.
1.2 "Adjustment Statement" shall mean the statement described in
Section 2.4.
1.3 "Affiliate" shall mean, as to the Person specified, any other Person
controlling, controlled by or under common control with such specified Person.
The concept of control, controlling or controlled as used in the aforesaid
context means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of another, whether through
the ownership of voting securities, by
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<PAGE>
contract or otherwise. Solely for purposes of Sections 6.6, and 7.3(m), Ashland
Inc. and its Affiliates shall be deemed Affiliates of MAP.
1.4 "Annual Financial Statements" shall mean the financial statements of
SP described in Section 3.2.
1.5 "Arbitrator" shall mean a mutually agreed, national public accounting
firm not employed by either party or any of their Affiliates.
1.6 "Assets" shall mean (a) all of the assets and properties of the SP
Group, tangible and intangible, real, personal and mixed, excluding (i) the
assets described in Section 2.5 and (ii) such other assets and properties, if
any, which are disposed of as permitted or required under this Agreement, and
(b) all assets and properties acquired by the SP Group from and after the date
of this Agreement through the Closing Date as permitted or required under this
Agreement. Without limiting the generality of the foregoing, the Assets include
the Major Pipelines and Terminals.
1.7 "Closing" shall mean the consummation of the transactions contemplated
herein in accordance with Article X hereof.
1.8 "Closing Date" shall mean the date for Closing set forth in Section
10.1.
1.9 "Confidentiality Agreement" shall mean that certain Confidentiality
Agreement between MAP and Plains All American Inc. dated February 4, 1999.
1.10 "Corrective Action" shall mean any remedial, removal, response,
construction, closure, disposal, or other corrective action.
1.11 "Current Assets" shall be determined in accordance with GAAP and shall
include SP Group's accounts for current assets as shown on Exhibit 1.11, which
for crude oil shall include only Inventory Above Minimum.
1.12 "Current Liabilities" shall be determined in accordance with GAAP and
shall include SP Group's accounts for current liabilities shown on Exhibit 1.12,
and shall include accruals for vacation earned but not used, for vacation to be
taken after the Effective Time.
1.13 "Effective Time" shall mean 7:00 am CST on April 1, 1999.
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<PAGE>
1.14 "Effective Time Working Capital Statement" shall mean a statement
setting forth the Current Assets and Current Liabilities of SP Group as of the
Effective Time in the form of Exhibit 1.14.
1.15 "Environmental Laws" shall mean any and all laws, statutes, ordinances,
rules, regulations, orders, or determinations of any Government Authority,
heretofore or currently in effect in any and all jurisdictions in which the SP
Group is conducting or at any time has conducted business, or where any of its
assets are located, or where any Hazardous Materials or hazardous substances
generated by or disposed of by the SP Group are located, pertaining to (a) the
control of any potential pollutant including, without limitation, liquid
hydrocarbons, petroleum or petroleum products, or the protection of the air,
water or land; (b) the generation, handling, treatment, remediation, storage,
disposal or transportation of solid, gaseous or liquid waste; or (c) exposure to
hazardous, toxic or other substances alleged to be harmful.
1.16 "Environmental Liabilities" shall mean any and all liabilities,
responsibilities, claims, suits, losses, costs (including remediation, removal,
response, abatement, clean-up, investigative or monitoring costs and any other
related costs and expenses), other causes of action recognized now or at any
later time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, pre-judgment and post-judgment interest, attorney, consultant,
and expert fees incurred or imposed (a) pursuant to any agreement, order, notice
or directive embodied in Environmental Laws or relating to environmental
matters, injunction, judgment or similar documents (including settlements)
relating to environmental matters or (b) pursuant to any claim by a Government
Authority or other Person for damage to natural resources, remediation, or
similar costs or expenses incurred by such Government Authority or Person
pursuant to common law or statute.
1.17 "GAAP" shall mean generally accepted accounting principles used in the
United States of America.
1.18 "Government Authority" shall mean (i) the United States of America,
(ii) any state county, municipality or other governmental subdivision within the
United States of America, and (iii) any court or any governmental department,
commission, board, bureau, agency or other instrumentality of the United States
of America or of any state, county, municipality, or other governmental
subdivision within the United States of America.
1.19 "Hazardous Materials" shall mean any explosives, radioactive materials,
asbestos material, urea formaldehyde, hydrocarbon contaminants, underground
tanks, pollutants, contaminants, hazardous, corrosive or toxic substances,
special waste or waste of any kind, including compounds known as
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<PAGE>
chlorobiophenyls and any material or substance the storage, manufacture,
disposal, treatment, generation, use, transport, mediation or release into the
environment of which is prohibited, controlled, regulated or licensed under
Environmental Laws, including, but not limited to, (a) all "hazardous
substances" as that term is defined in Section 101 (14) of the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, and (b)
petroleum and petroleum products.
1.20 "Interim Period" shall mean the period from the Effective Time to the
Closing Date.
1.21 "Inventory Above Minimum" shall mean liquid hydrocarbon inventory owned
by the SP Group; provided that Inventory Above Minimum does not include the
minimum operating requirements for tank bottoms and line fill in the SP Group
pipelines and tanks, and in third party pipeline systems. Such minimum operating
requirement is agreed, solely for the purposes of this Agreement, to be
1,000,000 barrels. Inventory Above Minimum for barrels which are sold in April,
1999 as part of SP's contango inventory strategy, shall be valued at the sales
price for such barrels. Inventory Above Minimum for all other barrels shall be
valued at the market price. The market price shall be defined as Scurlock
Permian's WTI average posting over the four day period from March 29, 1999
through April 1, 1999, plus the average of the daily high and low quotes for WTI
P-Plus in Platt's Crude Oil Market Wire "America's Crude Oil Assessments" for
the same time period, less $0.50 per barrel. The amount of Inventory Above
Minimum shall be measured as of the Effective Time and shall be reflected in
Exhibit 1.11, and shall be adjusted for the ratio of measured BS&W in the total
liquid hydrocarbon inventory to the total liquid hydrocarbon inventory.
1.22 "License" shall mean a permit, license or other authorization issued by
a Government Authority allowing or permitting the operation of assets of the SP
Group or the conducting of all or part of its business.
1.23 "MAP" shall mean Marathon Ashland Petroleum LLC, a Delaware limited
liability company.
1.24 "Major Pipelines and Terminals" shall mean the pipe, tanks, docks,
pumps, motors, engines, valves, meters, fittings, appurtenances and other
equipment comprising the pipeline systems, terminals and other facilities
described on Exhibit 1.24.
1.25 "Material Adverse Effect" shall mean a material adverse effect or
effects, either individually or in the aggregate, on (a) the business, financial
condition, results of operation or assets of the SP Group taken as a whole or
(b) the validity or enforceability of this Agreement.
1.25 "Materiality" (and the meaning of such terms as "material" or
"materially") in connection with MAP, Plains, and the SP Group shall have the
meanings specifically assigned to those terms for specific provisions in this
Agreement. In those cases in which no meaning is specifically assigned, the
terms
4
<PAGE>
"material" or "materially" shall have the meaning determined in the context of
the financial condition, business, properties and assets of the SP Group
considered as a whole or as to MAP or Plains as the case may be.
1.26 "Membership Interest" shall mean all of the limited liability company
membership interest in SP.
1.27 "Net Working Capital" shall mean Current Assets less Current
Liabilities.
1.28 "Permitted Encumbrances" shall mean (a) liens for current taxes,
assessments, governmental charges or levies not yet due; (b) workers' or
unemployment compensation liens arising in the ordinary course of business; (c)
mechanic's, materialman's, supplier's, vendor's, or similar liens arising in the
ordinary course of business for obligations that are not delinquent; (d)
security interests, pledges, liens or other charges or encumbrances as may have
arisen in the ordinary course of business, none of which individually or in the
aggregate are material to the ownership, use, or operation of the Assets; (e)
any state of facts which an accurate on-the-ground survey would show which
individually and in the aggregate does not materially detract from the value of
or materially interfere with the use and operation of the Assets; (f) any liens,
easements, rights of way, restrictions, rights, leases and other encumbrances
affecting title, whether recorded or not, which do not materially detract from
the value of or materially interfere with the use and operation of the Assets;
and (g) legal highways, zoning and building laws, ordinances and regulations.
1.29 "Person" shall mean any Government Authority or any individual, firm,
partnership, corporation, limited liability company, joint venture, trust,
unincorporated organization or other entity or organization.
1.30 "Plains" shall mean Plains Marketing, L.P., a Delaware limited
partnership.
1.31 "Prior Period Adjustments" shall mean any sums paid or received by the
SP Group for transactions, events, liabilities or income, other than the receipt
of Current Assets or the payment of Current Liabilities in the ordinary course
of business and included in the Effective Time Working Capital Statement,
attributable to periods prior to the Effective Time.
1.32 "Purchase Price" shall have the meaning set forth in Section 2.2.
1.33 "Promissory Note" shall have the meaning set forth in Section 2.3(d).
1.34 "Return" or "Returns" shall mean all returns, declarations, reports,
claims for refund or information returns or statements relating to Taxes,
including any schedule or attachment thereto, and
5
<PAGE>
including any amendment thereof filed or to be filed with any Tax Authority in
connection with the determination, assessment or collection of Taxes.
1.35 "Rights of Way" shall mean the rights of way, permits, licenses,
easements and other authorizations and rights in real property comprising the
land rights under which the SP Group operates the Major Pipelines and Terminals
and the agreements creating such rights, but does not mean the land rights
associated with those segments of the Major Pipelines and Terminals designated
as inactive on Exhibit 1.24.
1.36 "SP" shall mean Scurlock Permian LLC, a Delaware limited liability
company.
1.37 "SP Group" shall mean SP, Scurlock Permian Pipe Line LLC and La Grange
Oil Terminal Company.
1.38 "Sub-sublease Agreements" shall mean the sub-sublease agreements between
SP Group and MAP referred to in Section 10.3(f).
1.39 "TAP" shall mean the MAP Termination Allowance Plan.
1.40 "Tax or Taxes" shall mean all federal, state, and local income, profits,
franchise, gross receipts, payroll, sales, employment, employee withholding,
unemployment insurance, workers' compensation, use, property, real estate,
excise value added, estimated, stamp, alternative or add-on minimum,
environmental tax, withholding, occupation, severance and any other taxes,
duties or assessments with respect to activities or property of the SP Group,
together with all interest, penalties and additions imposed with respect to such
amounts, but excluding any such amounts imposed directly on MAP or the owners of
MAP as the result of Treasury Regulation (S)301.7701-3 or similar state and
local tax provisions.
1.41 "Tax Authority" and "Taxing Authority" shall mean any domestic, federal,
national, state, county or municipal or other local government, any subdivision,
agency, commission or authority thereof, or any quasi-governmental body
exercising any taxing authority or any other authority exercising tax regulatory
authority.
1.42 "Transition Agreement" shall mean the agreement by and between MAP, and
Plains All American Inc., substantially in the form of Exhibit 1.42.
1.43 "Unadjusted Purchase Price" shall mean $135,000,000.
1.44 "Units" shall mean 175,000 common units of Plains All American Pipeline,
L.P.
6
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ARTICLE II SALE AND PURCHASE OF MEMBERSHIP INTEREST
2.1 Sale and Purchase of Membership Interests. At the Closing, subject to
all of the conditions precedent stated in Articles VIII and IX being satisfied
or waived, the sale and purchase of the Membership Interest shall occur and
become effective in accordance with the provisions of this Agreement.
2.2 Purchase Price. At the Closing, Plains shall (a) pay the Unadjusted
Purchase Price, as adjusted pursuant to Section 2.3; and (b) either transfer the
Units to MAP, or pay additional consideration in the amount of $3,000,000 (the
Unadjusted Purchase Price and such additional consideration or the Units, at
Plains' option, together shall mean the "Purchase Price"). The Purchase Price
shall be payable as follows:
(x) a wire transfer of immediately available funds (federal) to MAP at
such account as MAP shall designate in writing not less than five (5) business
days prior to the Closing Date, in the amount of the Unadjusted Purchase Price,
as adjusted pursuant to Section 2.3; and
(y) a simultaneous wire transfer of the the additional consideration,
or an assignment of the Units, in accordance with Plains' election under Section
2.2(b).
2.3 Closing Adjustments. The Unadjusted Purchase Price shall be adjusted at
Closing by each of the following:
(a) If the Net Working Capital, as evidenced by the Effective Time
Working Capital Statement, is less than zero, the Unadjusted Purchase Price
shall be decreased by the amount by which the Net Working Capital is less than
zero. If the Net Working Capital as evidenced by the Effective Time Working
Capital Statement is greater than zero, the Unadjusted Purchase Price shall be
increased by the amount by which the Net Working Capital is greater than zero.
(b) If the net amount of the Prior Period Adjustments received or paid
during the Interim Period is a positive number, the Unadjusted Purchase Price
shall be increased by such amount. If the net amount of the Prior Period
Adjustments is a negative number, the Unadjusted Purchase Price shall be reduced
by such amount.
(c) If, during the Interim Period, the SP Group shall terminate any
employee(s) without cause pursuant to the request of Plains, the salary, or
hourly wage, plus payroll burden and taxes for such employee(s) through the
effective time of the termination will be part of the ordinary operating
expenses for the SP Group. The Unadjusted Purchase Price shall only be reduced
by the amount of any TAP benefits paid to such employee(s).
7
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(d) If, during the Interim Period, the SP Group has a need to borrow
funds to meet its daily obligations for payment of current liabilities in the
ordinary course of business, then MAP will advance to SP such funds. Such
loaned amounts will be evidenced by a Promissory Note in the form attached as
Exhibit 2.3(d). On the Closing Date, the outstanding principal amount of each
advance and its accrued interest under the Promissory Note, if any, shall be due
and payable in full as an addition to the Unadjusted Purchase Price; such upward
addition to be offset, however, by the amount of available cash or borrowed
funds, including interest accrued thereon, utilized to satisfy MAP's obligations
not otherwise provided for in this Agreement, or to satisfy liabilities of SP
which are or would have become on the Closing Date the indemnification
obligations of MAP.
(e) If any of the assets described in and to be excluded from this
transaction under Section 2.5 are owned by a member of the SP Group on or after
the Effective Time, the Unadjusted Purchase Price shall be increased by the
amount that such assets result in revenues to the SP Group and shall be
decreased by the amount that such assets result in costs and expenses to the SP
Group.
(f) The Unadjusted Purchase Price shall be increased by an amount equal
to the federal, and state partnership taxes incurred by or with respect to MAP,
and decreased by an amount equal to any such tax benefit received by or with
respect to MAP, attributable to the income, gain, loss, deduction and credit
with respect to the activities of SP and Scurlock Permian Pipe Line LLC during
the Interim Period included in the MAP federal partnership tax return and its
state tax returns for those states that follow the federal rules. Such income
taxes shall be deemed to equal 39% of the net amount of income, gain, loss and
deduction for the Interim Period included in the MAP federal partnership tax
return. For the purpose of this section, the Unadjusted Purchase Price shall be
increased by $400,000 to reflect the estimated income taxes for the Interim
Period. Such amount shall be adjusted at the time the net amount of income,
gain, loss, and deduction for the Interim Period to be included in the MAP
federal income tax return is determined, but in no event later than ninety (90)
days after the Closing Date.
(g) The Unadjusted Purchase Price shall be decreased by any amount
expended to meet the obligations of MAP under this Agreement. To the extent
that sums are expended that would be subject to the $25,000 threshold or the
$25,000 deductible contained in Section 12.6, such threshold and deductible
shall not apply.
(h) No adjustment made under this Section shall be duplicated.
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2.4 Net Working Capital Adjustment. Within sixty (60) days following the
Closing Date, Plains may elect to prepare and deliver to MAP a statement
("Adjustment Statement") detailing, by item, any instances in which Plains
believes that the Effective Time Working Capital Statement was not prepared in
accordance with the definitions of Current Assets and Current Liabilities set
forth in this Agreement, and the proposed resultant adjustments to Net Working
Capital. Plains shall make available to MAP all information reasonably required
to verify whether proposed adjustments detailed on the Adjustment Statement are
correct. Within thirty (30) calendar days following the receipt of the
Adjustment Statement, MAP may elect to dispute the Adjustment Statement by
giving written notice to Plains detailing each item disputed by MAP and setting
forth the reasons for such dispute. If MAP shall not have given a timely dispute
notice to Plains disagreeing with the Adjustment Statement, it shall be deemed
to have agreed with the Adjustment Statement. If MAP shall give a timely dispute
notice, MAP and Plains shall work in good faith to resolve any disputed items.
If they shall not so agree within thirty (30) calendar days following the date
the dispute notice is received, then either MAP or Plains may cause the matter
to be referred to the Arbitrator, by giving written notice to the other party
and to the Arbitrator. The fees and expenses of the Arbitrator shall be borne
50% by Plains and 50% by MAP. The Arbitrator shall, within ninety (90) calendar
days following the date such matter is referred to it, determine whether any
adjustment proposed on the Adjustment Statement that is the subject of
disagreement among the parties should be made; provided, however, that any
adjustments shall be in accordance with the definitions contained in this
Agreement. Such determination by the Arbitrator shall be final and binding on
the parties for the purposes of computing any payment to be made under this
Section 2.4, and may be enforced by appropriate judicial or other proceedings.
Such payments, in either case, shall be made within fifteen (15) calendar days
following the final determination (whether by agreement of the parties or
determination by the Arbitrator). If Plains elects not to furnish MAP an
Adjustment Statement within sixty (60) calendar days following the Closing Date,
then Plains shall have no further right to seek payment for adjustments to Net
Working Capital.
2.5 Excluded Assets. The following will not be assets owned by the SP Group
on the Closing Date:
(a) The SP corporate aircraft;
(b) The common stock of Marathon Ashland Petroleum Canada, Ltd.; and
(c) Any liquid hydrocarbons in SP Group's custody and owned by third
party shippers which liquid hydrocarbons will remain in the custody
of the SP Group.
In the event that any of the foregoing assets are owned by the SP Group on the
date of this Agreement, MAP shall cause title to such assets to be transferred
from the SP Group prior to the Closing, in accordance with applicable law.
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF MAP
MAP represents and warrants to Plains that:
3.1 Due Organization and Qualification. SP is a limited liability company
duly organized and validly existing under Delaware law and has all requisite
power to carry on its business as now being conducted and to own and operate the
assets now owned and being operated. SP is qualified to do business in every
other jurisdiction in which its failure to so qualify would have or constitute a
Material Adverse Effect, or would materially and adversely affect the ability of
SP to perform the transactions contemplated by this Agreement. Scurlock Permian
Pipe Line LLC is a limited liability company duly organized and validly existing
under Delaware law and has all requisite power to carry on its business as now
being conducted and to own and operate the assets now owned and being operated
by it. Scurlock Permian Pipe Line LLC is qualified to do business in every other
jurisdiction in which its failure to so qualify would have a Material Adverse
Effect. La Grange Oil Terminal Company is a Texas general partnership duly
organized and validly existing under Texas law and has all requisite power to
carry on its business as now being conducted and to own and operate the assets
now owned and being operated by it, and has no assets and conducts no business
in any state other than Texas.
3.2 Financial Statements. Exhibit 3.2 contains the Annual Financial
Statements which have been furnished to Plains for calendar years ending in
1996, 1997 and 1998 for the SP Group. Each of such Annual Financial Statements
consists of a balance sheet at year end and the related statement of income as
of that certain date and accompanying notes, if any. These are unaudited reports
representing the financial condition of the SP Group and the results of its
operations for the periods indicated. The financial condition of the SP Group
and the results of its operations represented in the audited financial
statements to be provided by MAP to Plains under Section 7.5 will not vary
materially from the financial condition and results of operations represented in
the Annual Financial Statements set forth in Exhibit 3.2, except with respect to
noncash writedowns, normal and customary adjustments required to account for the
SP Group as an unaffiliated entity as a result of the consummation of the
transactions contemplated by this Agreement, and the change from a fiscal year
to a calendar year for accounting purposes. Footnotes contained in such audited
financials shall not contain any disclosure of material contingent or other
liabilities or conditions, and that were not fully disclosed to Plains in
writing prior to the execution of this Agreement.
3.3 No Material Adverse Change. Except as set forth in Section 2.5, and
except for matters approved by Plains in accordance with this Agreement, and
except for the execution and delivery of this
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Agreement, since December 31, 1998, SP has (a) had no change in its condition,
financial or otherwise, operations, business, assets or liabilities, other than
changes in the ordinary course of business, none of which has had a Material
Adverse Effect; (b) suffered no damage, destruction or loss of physical property
that has had a Material Adverse Effect; (c) suffered no substantial loss or
waived, released or compromised any substantial right; (d) not made or permitted
any material amendment or termination of any material contract, agreement or
license to which it is a party other than in the ordinary course of business and
none of which has had a Material Adverse Effect; (e) not made any change in its
accounting methods or practices with respect to its condition, operations,
business, properties, assets or liabilities, except to the extent required to
account for the SP Group as an unaffiliated entity as a result of the
consummation of the transactions contemplated by this Agreement, and (f) not
entered into any material transaction not in the ordinary course of business.
3.4 Membership Interest. (a) The Membership Interest constitutes the only
issued and outstanding Membership Interest in SP.
(b) There are no options, warrants, contracts or commitments for the
issuance or sale by SP of, or any securities of SP convertible into or
exchangeable for, any additional Membership Interest.
(c) MAP has and, at Closing, will have good and merchantable title to
the Membership Interest free and clear of any liens, encumbrances, restrictions
(other than those set forth in SP's Second Amended and First Restated Limited
Liability Company Agreement dated effective February 4, 1998) and preferential
purchase rights.
3.5 Liabilities. Except to the extent reflected in the financial statements
referred to in the first sentence of Section 3.2, or in Sections 3.6, 3.7, 3.8,
or in Exhibit 3.5, SP has incurred no liabilities of any nature, whether
accrued, absolute, contingent or otherwise, which would have or would constitute
a Material Adverse Effect.
3.6 Environmental Conditions and Liabilities. (a) Exhibit 3.6(a) describes
all known material Environmental Liabilities of the SP Group. Except as set
forth in Exhibits 3.6(a) and 3.8, none of the SP Group is the subject of an
enforcement proceeding under any Environmental Law. Except as listed in Exhibits
3.6(a) and 3.8, and to the best of the knowledge of MAP or the SP Group: (i) the
SP Group has made all required disclosures under the applicable Environmental
Laws; and (ii) except for such files, documents, and records which cannot be
made available to Plains without waiving any attorney client privilege
pertaining thereto, MAP and the SP Group have made available to Plains all
material files, documents and records in their possession or in the possession
of its consultants related to the environmental condition of the Assets.
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(b) Exhibit 3.6(b) describes SP Group locations, issues or events which
have been identified by parties other than MAP or SP as presenting circumstances
potentially warranting further investigation of environmental conditions. Some
of the locations described on Exhibit 3.6(b) are no longer owned by SP. Except
as set forth in this Section 3.6(b), neither MAP nor the SP Group makes any
warranty or representation with respect to Environmental Liabilities of the SP
Group arising from or relating to the locations, issues or events listed on
Exhibit 3.6(b); provided, however, that to the extent that the environmental
conditions specified in Exhibit 3.6(b) exist, MAP shall defend and indemnify
the Buyer Indemnified Parties against any and all Environmental Liabilities
pursuant to Section 12.3 and claims related to locations, issues, and events
listed on Exhibit 3.6(b) are deemed asserted under Section 12.7.
3.7 Taxes. Any and all Returns required to be filed for any period on or
before the date of this Agreement have been or will be duly prepared and timely
filed by the SP Group and all Taxes shown as due and payable on such Returns
have been timely paid or are included in Accrued Taxes.
Effective January 1, 1998, for federal partnership tax purposes, and
for state income tax purposes in those states which follow the federal rules, SP
and Scurlock Permian Pipe Line LLC are disregarded as entities separate from MAP
pursuant to Treasury Regulation (S)301.7701-3.
SP is the successor to Scurlock Permian Corporation, a Kentucky
corporation, which was a wholly owned subsidiary of Ashland Inc. Scurlock
Permian Corporation was merged into SP immediately after the close of business
on December 31, 1997. On January 1, 1998, Ashland Inc. transferred its interest
in SP to MAP. Scurlock Permian Pipe Line LLC is the successor to Scurlock
Permian Pipe Line Corporation, a Kentucky corporation, which was a wholly owned
subsidiary of Scurlock Permian Corporation. Scurlock Permian Pipe Line
Corporation was merged into Scurlock Permian Pipe Line LLC immediately after the
close of business on December 31, 1997. For periods prior to January 1, 1998,
both Scurlock Permian Corporation and Scurlock Permian Pipe Line Corporation
were included in the federal income tax return for the Ashland Inc. consolidated
group.
3.8 Litigation. Except as set forth in the documentation described in
Section 3.5, in Exhibits 3.6(a), 3.6(b) and 3.8, there are no actions, suits,
proceedings, outstanding judgments, or, to the knowledge of MAP and the SP
Group, investigations against the SP Group involving any Person of any kind now
pending or threatened. Except as set forth in Exhibit 3.8, to the best of the
knowledge of MAP and the SP Group, neither the SP Group, nor any of its
respective properties or assets, is subject to any judicial or administrative
judgment, order, decree or restraint. Except to the extent covered in Section
12.11, none of
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the litigation set out in Exhibits 3.6(a) and 3.8 seeks injunctive relief or
will have a material effect on the operation or practices of the SP Group.
3.9 Equipment, Inventory, and Other Personal Property. (a) Exhibit 3.9(a)
decribes all the items of equipment, inventory, and other personal property
owned by the SP Group that had an original cost to the SP Group equal to or in
excess of $10,000, and all of the motor vehicles owned by the SP Group. Such
items together with the Major Pipelines and Terminals as are currently used in
the SP Group's business are in serviceable and working condition for their
intended use.
(b) The vehicles listed on Exhibit 3.9(b) are leased or subleased by
MAP and constitute all of the vehicles to be sub-subleased to SP pursuant to the
Sub-sublease Agreements or otherwise transferred to SP. Such vehicles are in
serviceable and working condition for their intended use. The subleases, as
amended, and set out in Exhibit 10.3(f), are all of the subleases, are valid and
in effect in accordance with their terms, and shall survive this Agreement and
shall remain in full force and effect in accordance with its terms.
(c) The applications, system documentation and source code for the
crude oil systems and any other proprietary source codes and related documents
used by the SP Group, and the hardware, and necessary rights to use the
software, comprising the SP Group's SCADA system, will be owned or leased by SP
Group at Closing.
(d) The Major Pipelines and Terminals are in serviceable and working
condition for their intended use.
3.10 Real Property. (a) Exhibit 3.10(a) sets forth all lands owned in fee by
the SP Group, with the legal descriptions or recordation information as
maintained in the SP Group's databases. The SP Group has and, at Closing, will
have good and marketable record title in fee to all lands listed on Exhibit
3.10(a), free and clear of any and all mortgages, liens and encumbrances created
by any Person. This Section does not apply to leased property or rights of way
for pipelines owned by the SP Group, as to the title of which Sections 3.10(b)
and (c) below provides the sole and exclusive representation and warranty by MAP
under this Agreement.
(b) All material lease agreements for the portions of the Major
Pipelines and Terminals that are leased by the SP Group are listed on Exhibit
3.10(b) and are in full force and effect in all material respects and constitute
the legal, valid and binding obligation of the parties thereto, enforceable
against the
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parties in accordance with their respective terms, subject to Permitted
Encumbrances. The Major Pipelines and Terminals are within leasehold boundaries
and there are no outstanding requests to relocate or remove any part thereof.
The lessee under such agreements has no notice that it is in default under any
material term or condition thereof.
(c) The SP Group has and, at Closing will have, good and defensible title
to the Rights of Way, subject only to Permitted Encumbrances, and excluding
Rights of Way underlying pipelines that are inactive or abandoned on the Closing
Date. The pipeline systems included within the Major Pipelines and Terminals
are located within the Rights of Way, except with respect to those instances in
which the failure of such systems to lie within the Rights of Way would not have
or constitute a Material Adverse Effect. The Rights of Way constitute
continuous land rights along the pipeline systems included within the Major
Pipelines and Terminals, except with respect to gaps which would not have or
constitute a Material Adverse Effect and there are no outstanding demands to
remove or relocate pipelines, tanks or related facilities.
3.11 Scurlock Permian Pipe Line LLC; La Grange Oil Terminal Company. SP owns
and, at Closing will have, good and merchantable title to 100% of the sole
membership interest in Scurlock Permian Pipe Line LLC, and 50% of the entire
partnership interests in La Grange Oil Terminal Company, free and clear of any
encumbrance, security agreement, restriction, preferential right, lien or charge
of any kind or character; except that the partnership interest in La Grange Oil
Terminal Company is subject to the terms, conditions and restrictions of that
certain Partnership Agreement dated June 17, 1992 between Scurlock Permian
Corporation and Union Pacific Fuels, Inc. Copies of the limited liability
company agreements of SP and Scurlock Permian Pipe Line LLC, and a copy of the
La Grange Oil Terminal Company partnership agreement have been provided to
Plains. There are no amendments of these agreements. Each such agreement is the
valid and binding legal obligation of MAP, SP, Scurlock Permian Pipe Line LLC,
or La Grange Oil Terminal Company, as the case may be, enforceable against MAP,
SP, Scurlock Permian Pipe Line LLC or La Grange Oil Terminal Company in
accordance with the respective terms of each agreement.
3.12 Licenses. The SP Group holds those Licenses that are reasonably
necessary for the purposes of conducting the SP Group's business. Except as set
forth in Exhibit 3.12, the SP Group has not received any notice by any
Government Authority of any intent not to renew any such License, nor any notice
of violation of any License existing, nor is any License not in full force and
effect, which would have or constitute a Material Adverse Effect.
3.13 Patents, Trademarks and Copyrights. The SP Group does not own any
patents, or applications therefor. Exhibit 3.13 contains a listing of all
trademarks owned by the SP Group and such are duly registered or for which an
application for registration has been made.
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3.14 Bank Accounts, Safe Deposit Boxes and Banking Arrangements. Exhibit
3.14 describes all bank accounts maintained by the SP Group and all commodity
brokers with whom a member of the SP Group maintains an account. Exhibit 3.14
also states the location of any safe deposit boxes maintained by the SP Group.
3.15 Contracts. (a) Except with respect to real property interests which are
governed exclusively by Section 3.10, and except with respect to those
agreements described in Section 9.5, Exhibit 3.15(a) lists all material
contracts, agreements, leases, licenses, or commitments to which any member of
the SP Group is a party. Neither any member of the SP Group nor any contracting
party is in material default under any contract, agreement, lease license, or
commitment listed on Exhibit 3.15(a). For the purposes of this Section, a
"material" contract means, with respect to crude oil transactions, any agreement
for the purchase, sale, trade, or exchange of at least 5,000 barrels per day, or
any agreement having a term of 90 days or more for the purchase, sale, trade or
exchange of greater than 1,000 barrels per day but less than 5,000 barrels per
day; otherwise, "material" contract means (a) any agreement having a term of 90
days or more and providing for the receipt by any member of the SP Group of
revenues in excess of $250,000 or requiring future expenditures or payments by
any member of the SP Group in excess of $250,000 or (b) any agreement between
any member of the SP Group and any Affiliate of MAP other than another member of
the SP Group.
(b) Except as described in Exhibit 3.15(b), as of March 12, 1999, there
are no contracts for futures trading positions, over-the-counter options, fixed
term nonhedge sales, lease hedge sales, or grade trade positions marked to
market, on or after the Effective Time to which a member of the SP Group is a
party. Except as set out in Exhibit 3.15(b), no member of the SP Group is not a
party as of March 12, 1999 to any swap or other derivative contract or
agreement.
(c) Except as set out in Exhibit 3.15(c), no member of the SP Group is
subject to any contractual obligations that would restrict its right to engage
in any type of business or compete in any geographic area.
3.16 Performance of Agreement. (a) Neither the execution and delivery of
this Agreement by MAP nor the consummation of the transactions and the
performance by MAP of the terms and conditions contemplated hereby will result
in the breach of any term or provision of, or constitute a default or result in
the acceleration of any obligation under, the limited liability company
agreement or partnership agreement, as applicable, of any member of the SP Group
or any instrument, decree, order, stipulation or consent to which any member of
the SP Group is a party or by which it is bound or will result in the
termination of or
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the right to terminate any instrument, decree, order, stipulation, or consent to
which any member of the SP Group is bound.
(b) MAP has all necessary power and authority to enter into and carry
out the transactions contemplated by this Agreement.
(c) MAP's execution, delivery and performance of this Agreement have
been duly and validly authorized and approved by all necessary company action on
the part of MAP.
(d) Except for the laws governing bankruptcy and similar protections,
this Agreement is the valid and binding agreement of MAP, enforceable against
MAP in accordance with its terms.
3.17 Compliance with Laws. Except as stated in Sections 3.5, and in Exhibits
3.6(a) and 3.8, the SP Group is in substantial compliance with all federal,
state, local and foreign statutes, laws, ordinances, regulations, rules,
judgments, orders or decrees, including but not limited to Environmental Laws,
applicable to it and its assets, businesses and operations.
3.18 Common Carrier Obligations. The SP Group is in substantial compliance
with all federal and state laws, rules and regulations governing tariff rates,
rules and regulations, and transportation practices of common carrier pipelines
including, but not limited to, the regulations of the Federal Energy Regulatory
Commission, and of the Texas Railroad Commission and counterpart regulatory
agencies of other states in which the Major Pipelines and Terminals are located.
3.19 Consents. Except as set forth in Exhibit 3.19, neither the execution
and delivery of, nor performance under this Agreement on the part of MAP is
prohibited by or requires any prior notice or payment to any Person or consent,
approval or authorization by any Person under (a) any agreement, license, lease
or right of way agreement related to the SP Group's business to which MAP or any
member of the SP Group is a party, or by which MAP or any member of the SP Group
is bound, or (b) applicable law and with respect to which the failure to make
such payment, give such notice, or obtain such consent, approval or
authorization would have a Material Adverse Effect.
3.20 No Bankruptcy. There are no bankruptcy, reorganization or arrangement
proceedings against, being contemplated by, or, to the knowledge of MAP and the
SP Group, threatened against MAP or any member of the SP Group or any of their
Affiliates.
3.21 Agent's Fees. No agent, broker, investment banker, or other Person
acting on behalf of MAP
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or under its authority is or will be entitled to any broker's or finder's fee or
any other commission or similar fee directly or indirectly from Plains in
connection with any of the transactions contemplated hereby.
3.22 Third Party Inventory. The quality and quantity of liquid hydrocarbons
that the SP Group holds in custody for third parties conform in all material
respects to shipper linefill and inventory accounts of the SP Group.
3.23 Year 2000 Compliance. The SP Group has provided Plains with its Year
2000 Compliance Plans and Budget, and to the best of the knowledge of MAP and
the SP Group, the SP Group has disclosed to Plains all material Year 2000
compliance issues, and is continuing to implement such Plans.
3.24 River Crossings. The SP Group's pipelines underlying the Mississippi
River are inactive and purged of crude oil.
3.25 DOT Pipelines. To the best of MAP and the SP Group's knowledge and
based upon current SP Group operations, the East Texas line and the Nettleton
to-Tyler line are the only pipelines owned by the SP Group that will, under
regulations in effect on the date of this Agreement, have to be hydrostatically
tested prior to December 31, 1999 in order to meet U.S. Department of
Transportation requirements.
3.26 Capital Leases. No member of the SP Group is a party to a capital lease
or similar arrangement.
3.27 General Provisions Regarding Representations and Warranties. Excepting
only portions of the foregoing representations and warranties which speak only
to a condition as of a specific date, each of the foregoing representations and
warranties shall be true in all material respects on the Closing Date. EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES OF MAP EXPRESSLY SET FORTH HEREIN, MAP
DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREBY.
PLAINS WILL ACQUIRE THE MEMBERSHIP INTEREST WITHOUT ANY REPRESENTATIONS,
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, CONDITION OR FITNESS
OF THE ASSETS FOR A PARTICULAR PURPOSE OR THEIR COMPLIANCE WITH GOVERNMENTAL
REQUIREMENTS OTHER THAN THOSE REPRESENTATIONS OR WARRANTIES SPECIFICALLY SET
FORTH IN THIS AGREEMENT. PLAINS HAS MADE ITS OWN INVESTIGATION AND DETERMINATION
REGARDING THE ASSETS AND THEIR NATURE AND CONDITION AND THE PURCHASE THEREOF AND
HAS NOT RELIED ON ANY REPRESENTATIONS, STATEMENTS OR WARRANTIES OF MAP, ITS
AGENTS OR EMPLOYEES WITH RESPECT TO THE ASSETS, EXCEPT AS SPECIFICALLY SET FORTH
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HEREIN. PLAINS ACKNOWLEDGES THAT NO SUCH REPRESENTATIONS, STATEMENTS OR
WARRANTIES HAVE BEEN MADE, EXCEPT AS SPECIFICALLY SET FORTH HEREIN.
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PLAINS
Plains represents and warrants to MAP that:
4.1 Due Organization and Qualification. Plains is a limited partnership
duly organized and validly existing under Delaware law and has all requisite
power to carry on its business as now being conducted. Plains is qualified to do
business in each other jurisdiction in which its failure to so qualify would
materially and adversely affect Plains or its financial condition or business or
ability to perform the transactions contemplated by this Agreement.
4.2 Performance of Agreement. (a) The execution and delivery of this
Agreement by Plains will not result in the breach of any term or provision of,
or constitute a default under, the Second Amended and Restated Agreement of
Limited Partnership of Plains or any contract, agreement, decree, order,
stipulation, or consent to which Plains is a party or by which it is bound.
(b) Plains has all necessary power and authority to enter into and
carry out the transactions contemplated by this Agreement including, without
limitation, the approval or vote, if required, of its limited partnership unit
holders to enter into this Agreement or perform the transactions contemplated
hereunder.
(c) Plains' execution, delivery and performance of this Agreement have
been duly and validly authorized and approved by all necessary partnership
action on the part of Plains and each affiliate of Plains whose authorization
and approval is required.
(d) Excepting for the laws governing bankruptcy and similar
protections, this Agreement is the valid and binding Agreement of Plains,
enforceable against Plains in accordance with its terms.
4.3 Agents' Fees. No agent, broker, investment banker or other Person
acting on behalf of Plains or under its authority is or will be entitled to any
broker's or finder's fee or any other commission or similar fee directly or
indirectly from MAP in connection with any of the transactions contemplated
hereby.
4.4 Financial Ability. Plains has, and on the Closing Date will have, the
financial ability to perform its obligations under this Agreement.
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4.5 No Bankruptcy. There are no bankruptcy, reorganization, or arrangement
proceedings against, being contemplated by or, to the knowledge of Plains,
threatened against Plains or any of its Affiliates.
4.6 Units. Should Plains elect to deliver Units pursuant to Section 2.2,
Plains, at Closing, will have good and merchantable title to the Units, free and
clear of any liens, encumbrances, restrictions and preferential purchase rights
other than those set forth in Plains' Second Amended and Restated Partnership
Agreement dated November 17, 1998, and no sale by MAP or distributions to MAP
for one year.
4.7 General Provisions Regarding Representations and Warranties. Excepting
only portions of the foregoing representations and warranties which speak only
to a condition as of a specific date, each of the foregoing representations is
continuing and shall be true with the same force and effect as if made on the
Closing Date. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF PLAINS EXPRESSLY
SET FORTH HEREIN, PLAINS DOES NOT MAKE ANY REPRESENTATION OR WARRANTY WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY.
ARTICLE V EMPLOYEE MATTERS
5.1 Benefit Plans and Employment Practices. (a) Unless otherwise
specifically provided in this Agreement, coverage under any employee benefit
plan sponsored by MAP as that term is defined under Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA") or employment policy sponsored
by MAP shall cease for all SP employees effective at Closing, except for those
transferred to MAP. Except for the Frozen Permian Plans described in Section
5.4, SP is not the sponsor of any employee benefit Plan as that term is defined
under Section 3(3) of ERISA.
(b) Effective as of the Closing Date, Plains shall offer SP employees
its benefit plans based on the terms and conditions of such plans and SP
employees will be covered by Plains' employment practices. For each SP employee
who is employed immediately after Closing, Plains will recognize each such
employee's prior service for eligibility and vesting purposes only under its
qualified and welfare plans and employment practices with the exception of its
vacation plan or policy. Plains will cause SP to observe the existing MAP
Vacation Plan for the balance of 1999 for employees employed by SP immediately
after Closing.
(c) Prior to Closing, MAP shall be responsible for any required
continuation of coverage notification under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and Sections 601 through 608 of ERISA
("COBRA") to any of SP's employees who have a qualifying COBRA event. Prior to
Closing MAP shall be responsible for issuing any required Certificates of
Creditable Coverage under the Health
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Insurance Portability and Accountability Act of 1996 ("HIPAA") to SP's
employees. MAP's responsibility under COBRA and HIPAA shall cease at Closing.
(d) Subsequent to Closing, Plains agrees to provide MAP reasonable
access to all employment records required by MAP for legal or tax purposes.
5.2 Severance Arrangements. (a) Employees terminated by SP Group prior to
Closing shall be paid severance from the TAP to the extent they meet that
benefit plan's eligibility requirements.
(b) At least ten (10) business days prior to the Closing Date, Plains
will designate which individuals it does not wish to have as employees for any
purpose following the Closing. MAP will cause those individuals to be
terminated by SP Group prior to Closing.
(c) At least ten (10) business days prior to the Closing Date, Plains
will designate which SP employees, and MAP ITS employees assigned to SP, Plains
wishes to have as Loaned Employees. "Loaned Employees" for purposes of this
Section shall have the meaning set forth in the Transition Agreement. The terms
of such loan will be governed by the Transition Agreement. MAP will cause the
Loaned Employees to be reassigned from SP to become employees of MAP prior to
Closing. From and after the date of this Agreement until ten days prior to
Closing, Plains may extend an offer of employment to any MAP ITS employee
assigned to the SP Group. Such offer of employment and acceptance thereof by a
MAP ITS employee shall be contingent upon the Closing of the transaction
contemplated herein. No employee who accepts an offer of assignment with Plains
prior to Closing will suffer any loss of compensation, benefit, or position as a
result of a contingent acceptance of employment with Plains. If for any reason,
the transactions contemplated by this Agreement does not close, all MAP ITS
employees that made a contingent acceptance of an offer of employment will
retain their position as MAP employees at will and will retain all benefits and
current level of compensation. Plains may designate any employee who has
declined employment with the SP Group as a Loaned Employee under Section 5.2(c).
During the period from the date of this Agreement through the Closing Date, (i)
MAP will not make a pre-emptive specific relocation or reassignment offer to a
MAP ITS employees without the prior written consent of Plains; (ii) only after
Plains makes a formal employment offer will MAP advise a MAP ITS employee of
whether the possibility of continued employment exists after the end of the term
of the Transition Agreement, it being understood that such discussions may
include the general nature of the MAP ITS employee's anticipated future
assignment and location and will include normal pay treatment for relocations,
and that MAP's relocation package may be discussed where appropriate; and (iii)
MAP ITS employees who have not accepted Plains employment offers may bid on
positions normally listed on MAP's company-wide job posting system; provided,
however, that no MAP ITS employee will be specifically solicited for these
positions; provided, further, that once a MAP ITS employee
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has requested consideration for a posted position, the MAP ITS employee may be
given the same consideration as MAP's other employees. Upon notice to MAP of a
MAP ITS employee's contingent acceptance of an offer, MAP shall not solicit,
offer employment to, or otherwise attempt the retain the employment of such
employee.
(d) Plains may designate SP employees as "Transitional Employees" by
written notice to MAP. Transitional Employees terminated without cause by SP
Group or its successor for up to twelve (12) months after Closing shall be paid
severance, to the extent they meet eligibility requirements, from a plan either
sponsored by Plains or one of its subsidiaries (including SP). However, for any
individual paid severance pursuant to this Section 5.2(d), Plains or its
subsidiaries shall be reimbursed by MAP for an amount equal to what the employee
would have received under the TAP had they remained eligible for a benefit under
TAP. As part of any severance payment, Plains shall obtain a release from any
employees terminated pursuant to this section which releases MAP and that is
substantially similar to the release used by the TAP, a copy of which is
attached hereto as Exhibit 5.2(d).
(e) The total of the employees terminated by SP under Sections 5.2(b),
(c) other than Loaned Employees providing IT services to SP, and (d) for which
MAP shall be obligated to reimburse Plains shall not exceed seventy-five (75).
Plains agrees not to terminate or cause termination of more than seventy-five
(75) SP employees until after the ninety-first (91st) day following the Closing
Date.
5.3 Worker Adjustment Retraining Notification Act. (a) Prior to the Closing
Date MAP shall have the sole responsibility and liability for making any and all
necessary employee notifications under the Worker Adjustment Retraining
Notification Act ("WARN") and comparable state laws. This includes any employees
which Plains anticipates terminating within sixty (60) days after Closing,
provided that Plains provides the names of the employees it anticipates
terminating to MAP at least seventy (70) days prior to the anticipated
termination of employment date.
(b) After the Closing Date, Plains will have sole responsibility and
liability for making any and all necessary employee notifications under WARN and
comparable state laws except for those employees whose names were provided to
MAP pursuant to Section 5.3(a). MAP shall provide to Plains, not less than ten
(10) business days prior to Closing and updated at Closing, a list of SP
employees, full and part-time, who have terminated their employment with SP in
the ninety (90) day period prior to Closing.
5.4 Assumption of Permian Corporation Retirement and Savings Plans Prior to
Closing SP shall assume from MAP, as the new plan sponsor and administrator, the
responsibilities of the operation and administration of the Frozen Permian
Corporation Retirement Plan and the Frozen Permian Corporation
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Savings Plan (the "Permian Plans"). In connection with such assumption, MAP
represents and warrants that the Permian Plans are tax qualified under Internal
Revenue Code (S) 401(a), all contributions have been made as required by the
Permian Plans, and are and have been operating in substantial compliance with
all applicable requirements of the Code and ERISA through the date on which SP
assumes the duties of plan sponsor and administrator thereof. MAP agrees, from
and after the Closing Date, to indemnify, defend, protect and hold harmless the
Buyer Indemnified Parties (as defined in Article XII) from and against, any and
all claims, actions, causes of action, arbitrations, proceedings, losses,
damages, liabilities, judgments, and expenses (including, without limitation,
reasonable attorneys' fees and court costs) incurred by the Buyer Indemnified
Parties as a result of any breach of the representations and warranties made by
or on behalf of MAP in this Section or in Section 12.16. Any claim for
indemnification under this provision shall not be subject to any limitation
under Article XII but shall be subject to the procedures for asserting indemnity
claims set forth in Section 12.7.
5.5 Workers Compensation. MAP shall maintain workers compensation coverage
for SP Group employees until the date of Closing. Plains shall be responsible
for providing workers compensation coverage after Closing.
5.6 Representations and Warranties Regarding Employees and Employee Benefit
Plans.
(a) At no time has SP been required to contribute to any "multi-
employer pension plan" as defined in (S) 3(37) of ERISA or incurred any
withdrawal liability with the meaning of (S) 4201 of ERISA.
(b) No employees are represented by any union or subject to any
collective bargaining agreement. SP has not suffered any work stoppage, nor, to
MAP or SP's knowledge is any work stoppage threatened at any SP location. To
MAP and SP's knowledge, no union organizing or election activities involving any
nonunion employees of SP are in progress or threatened.
(c) Except as provided in Exhibit 5.6(c) SP has not entered into any
contract or promise of employment with any person which cannot be terminated at
or prior to the Closing without cost to Plains, or which applies to any time
period after Closing. Except as set forth on Exhibit 3.8, no employee has filed
any complaint which is currently pending with any regulatory or administrative
body, asserted any claim or demand, or filed any suit relating to the employment
relationship with SP which is currently pending. MAP shall reimburse Plains for
any retention payment or other similar bonus or payment made by or on behalf of
Plains to SP employees that exists at Closing but are due and payable on or
after Closing under the provisions of the contracts listed in Exhibit 5.6 (c).
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(d) The transactions contemplated by this Agreement will not accelerate
the time of payment or vesting, or increase the amount of regular compensation
due any director, officer, or employee (or former director, officer, or
employee, including any beneficiary) of the SP Group.
(e) Prior to Closing, the SP Group shall not amend or adopt or agree to
adopt any benefit plan or employment practice without the consent of Plains.
(f) If, during the Interim Period, SP pays its employees pursuant to SP
Group's "Success Through People" incentive program, MAP shall reimburse SP in
the amount of such payment.
(g) Effective no later than Closing, SP shall terminate its
participation in all employee benefit plans sponsored by MAP or its Affiliates
in which the SP Group participates.
5.7 No Third Party Beneficiaries. Nothing expressed or implied in this
Agreement is intended to confer upon or deny any employee any rights or remedies
including, but not limited to, any rights of employment for any specified period
of time.
5.8 Obligations of Plains All American Inc. For purposes of Article V,
references to the responsibilities, obligations and undertakings of an employer
shall be deemed to apply to Plains All American, Inc. Plains shall cause Plains
All American Inc. to perform all such responsibilities, obligations and
undertakings.
ARTICLE VI TAX MATTERS
6.1 SP Disregarded as Separate Entity for Income Tax Purposes. For federal
income tax purposes, and for state income tax purposes in those states which
follow the federal rules, SP and Scurlock Permian Pipe Line LLC are disregarded
as entities separate from MAP pursuant to Treasury Regulation (S)301.7701-3.
6.2 Allocation of Taxable Income to Periods Before and After Effective
Time. MAP shall include in its federal partnership tax return, and in its state
tax returns for those states that follow the federal rules, income, gain, loss,
deduction and credit with respect to (i) activities of SP and Scurlock Permian
Pipe Line LLC prior to the Closing Date, and (ii) the net amount of any Prior
Period Adjustments treated as an adjustment to the Unadjusted Purchase Price
pursuant to Section 2.3(b). Plains shall include the income, gain, loss,
deduction and credit with respect to activities of SP and Scurlock Permian Pipe
Line LLC on and after the Closing Date, less any amounts attributable to Prior
Period Adjustments included by MAP, in either (i) its own federal income tax
return, and in its own state income tax returns for those states that follow the
federal rules or (ii) in federal and state income tax returns filed by an
affiliate or affiliates of Plains, including
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SP and Scurlock Permian Pipe Line LLC. MAP shall pay any penalties and interest
assessed, and Plains shall hold MAP harmless from and reimburse MAP for income
tax due and unpaid, resulting from Plains' reporting of SP's income, gains,
losses and deductions, and credits for the Interim Period.
6.3 Sale of SP Treated as Asset Sale for Income Tax Purposes. The sale of
the Membership Interest shall be treated for federal income tax purposes, and
for state income tax purposes in those states that follow the federal rules, as
a sale of the underlying assets of SP and Scurlock Permian Pipe Line LLC in
exchange for the Purchase Price and the assumption of the liabilities of SP and
Scurlock Permian Pipe Line LLC at the Closing Date. MAP and Plains agree to
timely file Internal Revenue Service Form 8594, "Asset Acquisition Statement."
The aggregate fair market value and the allocation of sales price shown on the
Form 8594 shall be determined and agreed to by MAP and Plains in reasonable,
good faith negotiations.
6.4 Internal Revenue Code 1031 Exchanges. MAP and Plains acknowledge and
agree that MAP may engage in a deferred exchange of like-kind property utilizing
a qualified intermediary pursuant to Section 1031 of the Internal Revenue Code
of 1986, as amended. Notwithstanding any provision herein to the contrary, in
the event MAP elects to engage in a deferred like-kind exchange, Plains agrees
to consent to the assignment of MAP's rights under this Agreement to a qualified
intermediary in order to facilitate the deferred like-kind exchange. MAP and
Plains agree to execute any and all documents necessary to consummate the
purposes of this section; provided, however, any costs incurred by Plains
including legal fees and all incidental and related expenses shall be reimbursed
by MAP.
6.5 Transfer Taxes. All transfer, documentary, sales, use, registration and
other such similar Taxes (including all applicable real estate transfer taxes)
and related fees (including any penalties, interest and additions to Tax, if
any) incurred in connection with this agreement and the transactions
contemplated hereby shall be paid by Plains, and MAP and Plains shall cooperate
in timely making all Returns as may be required to comply with the provisions of
such Tax laws.
In the opinion of Buyer and Seller this purchase and sale constitutes an
isolated or occasional sale and is not subject to sales or use tax with any of
the taxing authorities having jurisdiction over this transaction, and no sales
tax need be collected by MAP from Plains at Closing. MAP agrees to cooperate
with Plains in demonstrating the requirements for an isolated or occasional sale
or other sales tax exemption have been met.
6.6 Cooperation and Preservation of Books and Records. MAP and Plains shall
provide such assistance to each other (and their Affiliates) as the other party
may reasonably request in connection with the preparation of any Return required
to be filed in respect of the SP group, any audit or other examination
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by any Tax Authority, any judicial or administrative proceeding relating to
liability for Taxes, or any claim for refund in respect of such Taxes, and MAP
and Plains will retain, and upon request provide, any records or information
which may be relevant to such Return, audit, examination, proceeding or claim.
Such assistance shall include (i) making employees or counsel available at and
for reasonable times to provide additional information and explanation of any
material to be provided hereunder and (ii) furnishing access to, and permitting
the copying of any records, returns, schedules, documents, work papers or other
relevant materials which might reasonably be expected to be of use in connection
with such Return, audit, examination, proceeding or claim.
MAP and Plains recognize that they (or an Affiliate) may need access, from
time to time, after the Closing Date, to certain accounting and Tax records and
information held by the other party or the SP Group; therefore, MAP and Plains
agree (i) to use their best efforts to properly retain and maintain such records
until such time as the parties agree that such retention and maintenance is no
longer necessary and (ii) to allow the requesting party and its respective
agents and other representatives (and agents or other representatives of any of
their respective affiliates), at times and dates mutually acceptable to the
parties, to inspect, review, and make copies of such records as the requesting
party may deem necessary or appropriate from time to time, such activities to be
conducted during normal business hours and at the requesting party's expense.
ARTICLE VII OBLIGATIONS OF PARTIES PRIOR TO CLOSING
7.1 General. From and after the date of this Agreement, up to and including
the Closing Date, neither party will take any action which would cause any of
its representations and warranties herein not to be true and correct in all
material respects as of the Closing Date except by written authorization of the
other party. Each party shall use reasonable best efforts to carry out and
comply with the provisions of this Agreement, to satisfy the conditions
applicable to such party and to consummate the sale and purchase in accordance
with this Agreement. Plains and MAP agree to file their Hart-Scott-Rodino Act
Pre-Merger Notifications prior to or within three (3) business days after the
execution of this Agreement.
7.2 Access to Records and Properties of SP Group. Subject to requirements
of confidentiality imposed by contract or by law, MAP will cause the SP Group to
make available to Plains and its accountants, counsel and other representatives
access for copying and inspecting, during normal business hours and such other
reasonable times to which the parties may agree, to the properties, books and
records of the SP Group and allow the SP Group's officers and representatives to
be available to Plains for consultation. In exercising the right of access,
Plains may conduct environmental tests and sampling, the scope of which shall
require the consent of MAP, which consent shall not be unreasonably withheld,
and such other testing and inspection
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of the SP Group Assets as it shall reasonably deem necessary; provided, always,
that Plains will give such advance notice of such activities as will give MAP's
desired representatives sufficient time to be present for witnessing; and
provided, further, that Plains in exercising rights under this Section will not
unreasonably interfere with the conduct of the business or make disclosure of
this Agreement or its terms except as provided for under the Confidentiality
Agreement or as required by law or applicable stock exchange rules.
7.3 Conduct of Business of the SP Group Until the Closing. During the
period from the date of execution of this Agreement to the Closing Date, unless
Plains consents in writing to contrary action, MAP will cause the SP Group to:
(a) Not cause or receive any distributions, cash or otherwise, in
respect of, nor issue or sell, or purchase or otherwise reacquire, the
Membership Interest or SP's interests in the other members of the SP Group, or
grant or commit to grant any options, warrants, or other rights to subscribe
for, or purchase, or otherwise acquire, any shares of the Membership Interest or
SP's interests in the other members of the SP Group, or issue or commit to issue
any securities convertible into or exchangeable for shares of the Membership
Interest or SP's interests in the other members of the SP Group;
(b) Not change or amend its limited liability company agreement or the
limited liability company agreement or partnership agreement (as the case may
be) of the other members of the SP Group;
(c) Maintain its books, records and accounts in accordance with GAAP
and in the usual and regular manner consistent with current practice, except to
the extent required to account for the SP Group as an unaffiliated entity
pursuant to this Agreement.
(d) Not borrow or agree to borrow any money or guarantee, or agree to
guarantee the obligations of others, except the SP Group may borrow from MAP and
cause the issuance of guarantees and letters of credit in the ordinary course of
business.
(e) Not make, without prior written consent of Plains, any material
contracts or amend any existing material contracts. For purposes of this
Section, the term "material" shall have the meaning ascribed to that term in
Section 3.15.
(f) Not create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance on any of its assets except for Permitted Encumbrances.
(g) Not sell, assign, lease or otherwise dispose of, without prior
notice to Plains, any of the
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Assets having an original cost to the SP Group in excess of $50,000 other
than in connection with the replacement of obsolete or worn-out items or
pursuant to Section 2.5.
(h) Continue to diligently pursue implementation of its current "Year
2000" compliance program, a complete copy of which has been furnished to Plains.
(i) Except as otherwise expressly provided herein, operate its business
and maintain its assets in the ordinary course consistent with prudent operation
and accepted industry standards. Except for capital expenditures committed, not
to exceed $500,000, by the SP Group on the date of this Agreement, the SP Group
shall not make, and shall have no obligation to make, any capital expenditure
without the prior written consent of Plains.
(j) Not solicit or accept any other bids for the purchase and sale of
the Membership Interest or SP's interests in the other members of the SP Group.
(k) Take all necessary company and other action and use reasonable best
efforts to obtain such third party consents, approvals and amendments of
agreements, if any, as may be necessary for it to carry out the transactions
contemplated in this Agreement.
(l) Update Exhibit 3.10 (a) prior to Closing to the extent that
inaccuracies are found in the legal descriptions or recordation information, and
update the Right-of-Way and lease records to the extent required to satisfy the
record requirements of any mortgagee of Plains. Any third party costs to
satisfy mortgagee requirements shall be at Plains' expense.
(m) obtain conveyances from its Affiliates to SP or Scurlock Permian
Pipe Line LLC, as appropriate, any permits, rights of way and leases in the name
of such Affiliates, including rights of way or leases in the Homochitto National
Forest.
(n) cause SP to draw upon the Promissory Note to cover its cash needs
during the Interim Period in lieu of outside credit facilities.
Should Plains not object to any issue for which Plains receives written
notice under this Section, within three (3) business days after such notice is
received by Plains, Plains shall be deemed to have approved such issue.
7.4 Obligations of Plains Until the Closing. During the period from the
date of this Agreement to the Closing, Plains will:
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(a) Take all necessary partnership and other action and use reasonable
best efforts to obtain such third party consents, approvals and amendments of
agreements, if any, as may be necessary for it to carry out the transactions
contemplated in this Agreement; and
(b) Treat, and cause its employees, agents and representatives to
treat, all information obtained regarding the SP Group, which is not otherwise
lawfully known to or already in the public domain, as proprietary and
confidential, and to observe strictly the terms of any confidentiality
agreements to which the SP Group is a party or is bound, provided copies of such
agreements have first been provided to Plains.
7.5 Obligations of MAP Regarding Financial Statements. MAP, at its cost,
shall furnish Plains with an Effective Time Working Capital Statement no later
than May 1, 1999. MAP, at its cost, shall furnish to Plains, no later than May
1, 1999, annual SP income statements, balance sheets and cash flow statements,
including accompanying footnotes, sufficient for preparation of Plains' Form 8K
report, for calendar years 1996, 1997 and 1998 audited by
PricewaterhouseCoopers. MAP shall provide to Plains unaudited SP Group financial
statements for the first quarter ended March 31, 1999 no later than May 1, 1999.
7.6 Casualty Loss or Condemnation. Except as otherwise provided in this
Agreement, from and after the Effective Time through the Closing Date, MAP shall
bear the risk of loss due to damage or destruction of the Assets by fire or
other casualty, except that the risk of the first $100,000 per occurrence of any
such loss shall be borne by Plains. Except as set forth on Exhibit 3.8, neither
MAP nor any member of the SP Group has received any notice, and neither has any
knowledge of, any proceedings for the taking, by eminent domain or condemnation,
of all or any portion of any of the Assets.
7.7 Surety Bonds and Guarantees. (a) Exhibit 7.7(a) lists all of the surety
bonds issued on behalf of the SP Group as may be required by a Government
Authority. To the extent permitted by their terms, MAP will cause those bonds to
be cancelled at or immediately prior to Closing. Plains agrees to replace those
bonds that are not cancelable at will, no later than thirty (30) days following
the Closing.
(b) Exhibit 7.7(b) lists all of the guarantees issued on behalf of any
member of the SP Group by MAP or Ashland, Inc. for the benefit of various SP
crude oil trading partners. MAP will cause these guarantees to be terminated on
the first to occur of (i) the date of termination stated therein; or (ii) such
other date on or after the Closing Date to which the respective guaranty
beneficiaries may agree. Plains agrees thereafter to provide credit support, if
any, required by third parties.
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(c) Election to Deliver Units. If Plains elects to deliver Units
pursuant to Section 2.2, Plains and MAP shall agree to such additional
representations and warranties and shall execute such additional instruments and
agreements as are customary and reasonably necessary to effect the transfer of
Units pursuant to this Agreement.
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF MAP
The obligations of MAP hereunder are subject to satisfaction of the
conditions set out in this Article VIII at or before the Closing Date.
8.1 Absence of Litigation. Excluding actions or proceedings initiated by
MAP or any of its Affiliates, no action or proceeding shall have been instituted
or threatened before any Government Authority to enjoin, restrain or prohibit,
or to obtain substantial damages from MAP in respect of, this Agreement or the
consummation of the transactions contemplated hereby.
8.2 Performance and Obligations of Plains. (a) All of the terms and
conditions of this Agreement to be complied with and performed by Plains at or
before the Closing Date shall have been complied with and performed in all
material respects, and the representations and warranties made by Plains in this
Agreement shall be correct in all material respects with the same force and
effect as though such representations and warranties had been made at and as of
the Closing Date.
(b) MAP shall have received from Plains an officer's certificate in a
form reasonably satisfactory to MAP to the effect that to such officer's
knowledge, the conditions set forth in Section 8.2(a) have been satisfied.
(c) MAP shall have received from Plains a written opinion of counsel,
dated as of the Closing Date, covering the matters set forth in Section 4.1, 4.2
and, if applicable, 7.8, which opinion shall be in a form reasonably
satisfactory to MAP.
8.3 HSR Approval. All necessary governmental approvals shall have been
obtained.
8.4 Waiver. At the Closing, MAP may waive in writing the failure of Plains
to satisfy any of the foregoing conditions precedent.
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ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF PLAINS
The obligations of Plains hereunder are subject to satisfaction of the
conditions set out in this Article IX at or before Closing Date.
9.1 Absence of Litigation. Excluding actions or proceedings initiated by
Plains or any of its Affiliates, no action or proceeding shall have been
instituted or threatened before any Government Authority to enjoin, restrain or
prohibit, or to obtain substantial damages from Plains in respect of, this
Agreement or the consummation of the transactions contemplated hereby.
9.2 Performance and Obligations of MAP. (a) All of the terms and conditions
of this Agreement to be complied with and performed by MAP at or before the
Closing Date shall have been complied with and performed in all material
respects, and the representations and warranties made by MAP in this Agreement
shall be correct in all material respects with the same force and effect as
though such representations and warranties had been made as of the Closing Date.
(b) Plains shall have received from MAP an officer's certificate in a
form reasonably satisfactory to Plains to the effect that to such officer's
knowledge, the conditions set forth in Section 9.2(a) have been satisfied.
(c) Plains shall have received from MAP a written opinion of counsel,
dated as of the Closing Date, covering the matters set forth in Sections 3.1 and
3.16 (a), (b), and (c), which opinion shall be in a form reasonably satisfactory
to Plains.
9.3 Tender of Resignations. Each MAP-appointed member representative and
officer of the SP Group shall have tendered in writing his or her resignation as
such effective upon Closing and copies of such written resignations shall have
been furnished to Plains.
9.4 HSR Approval. All necessary governmental approvals shall have been
obtained.
9.5 Marathon Ashland Pipe Line LLC Transactions. Agreements evidencing the
following transactions between SP Group and Marathon Ashland Pipe Line LLC
("MAPL"), or SP, MAP and MAPL, as the case may be, shall be mutually approved
and shall have been fully executed by all necessary parties by the Effective
Time:
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(a) First Amendment to Lease Agreement (Venice, Louisiana Terminal), to
include a three (3) year term provided MAPL is the operator - SP
and MAP
(b) Conveyance (Indiana and Illinois truck unloading facilities) - MAPL
to SP
(c) Conveyance (Indiana and Kentucky truck unloading facilities) - MAP
to SP
(d) Operating Agreements (truck unloading facilities described in (b)
and (c)) - SP and MAP
(e) Lease Agreements (Slick Creek, Wyoming; Smith Mill, Kentucky; Stoy,
Illinois; Martinsville, Illinois; Sandoval, Illinois; Noble,
Illinois; Enfield, Illinois; Bridgeport, Illinois; Owensboro,
Kentucky; Oregon Basin, Wyoming truck unloading facilities) - MAP,
MAPL, and SP.
9.6 Illinois Basin Gathering Assets. (a) On or before the Closing Date, the
crude oil gathering systems, including all pipe, pumps, valves, fittings,
appurtenances and other personal property comprising such systems, described in
Exhibit 9.6(a); all land rights necessary to the ownership or operation of such
gathering systems; all contracts material to the operation of such pipelines
including, but not limited, all necessary contract rights for the operation of
such gathering systems through the SP Group's SCADA system; shall have been
transferred by MAPL to a member of the SP Group as may be designated by Plains,
and all material approvals of Government Authorities required to be obtained
before Closing as a result of such transfer shall have been obtained.
(b) MAP hereby represents and warrants that as to the Basin Assets:
1. The financial performance of such assets conforms in all material
respects to the Exhibit 9.6(b) and that there are no material
changes in the financial condition, of the business conducted
through the Basin Assets.
2. There are no environmental conditions or liabilities that would
have a Material Adverse Effect with respect to the Basin Assets.
3. There is no litigation, proceedings, enforcement actions or other
legal proceedings pending or to the knowledge of MAP, threatened,
relating to the assets or business conducted through the Basin
Assets that would have a Material Adverse Effect.
4. The equipment, inventory, pumps, meters, motors, tanks, pipe, and
all other facilities, personal property and vehicles currently used
to operate the Basin Assets are in working order and serviceable
condition for their intended use.
5. Title to the real property, rights of way, leases, easements and
licenses contained in the
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active portion of Basin Assets is good and defensible, in full
force and effect. The active portion of the Basin Assets are
located within the right of way, leases or real property
boundaries, all rights of way are contiguous and there are no
outstanding requests to relocate or remove any part of the action
portion of the Basin Assets.
6. All licenses, permits, contracts and other authorizations and
incidental rights reasonably necessary to the current operation of
the Basin Assets are valid, enforceable in accordance with their
terms and conditions and are transferable.
7. The Basin Assets have been operated in substantial compliance with
all laws, statutes, rules and regulations, including without
limitation all Environmental Laws, laws and regulations concerning
common carrier obligations and responsibilities.
8. Other than approvals that may be required by the Illinois Commerce
Commission, there are no third party consents required to transfer
the Basin Assets to a member of the SP Group.
(c) MAP hereby covenant that as to the Basin Assets, MAP shall:
1. Cause all real property, leases, licenses and other interests in
real property upon which the Basin Assets are located to be
conveyed to such member of the SP Group as may be designated by
Plains, with full warranty of title or right, free and clear of any
liens or encumbrances, except Permitted Encumbrances in a form
approved by Plains.
2. Cause all equipment, parts, inventory, vehicles and personal
property to be conveyed with warranty of title, warranty of
serviceability and working order for its intended condition, free
and clear of all liens and encumbrances, except for Permitted
Encumbrances.
3. Cause the transfer of such member of the SP Group as may be
designated by Plains, of all the Licenses and contracts, after
first obtaining all material consents and approvals.
4. Cause all the transfer of the Basin Assets to be in compliance with
all laws, rules and regulations and contractual commitments.
5. Cause a shipper's balance to be issued at closing to Plains
reflecting the quantity and quality of crude oil held for the
account of each shipper.
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(d) Plains shall have received an officer's certificate from MAP, in a
form reasonably satisfactory to Plains, to the effect that to such officer's
knowledge, the representations and warranties made by MAP in Section 9.6(b)
above is true in all material respects. Such representations and warranties
shall be correct in all material respects with the same force and effect as
though such representations and warranties had been made as of the Closing Date.
(e) MAP shall cause MAPL to enter into an operating agreement in a
mutually agreeable form with a member of the SP Group under which MAPL shall
operate the assets described in Exhibit 9.6(a) for a period of six months from
and after Closing, providing such services as are necessary to facilitate
transition to operations by Plains.
(f) In the event that the parties are required to obtain the
approval of the Illinois Commerce Commission in order to consummate the
transactions contemplated under this Section, and such approval has not been
obtained on or before the Closing Date then title to the Assets shall be
retained by MAPL subject to the following. MAPL shall continue to operate the
Basin Assets under the Operating Agreement, but the economic results from
operations pending such approval shall be for the account of Plains; it being
understood that neither party shall have the right to terminate this Agreement
under Article 11 as a result of the failure to obtain necessary Illinois
Commerce Commission approvals on or before Closing. The Basin Assets shall be
conveyed to the member of the SP Group so designated by Plains, as provided
above, within ten (10) business days following the date on which MAPL obtains
such approval; provided, however, if such approval is not received within ten
(10) years following the Closing Date then the Basin Assets shall not be
conveyed by MAPL to such member of the SP Group and shall cease to be subject to
this Agreement.
9.7 Waiver. At the Closing, Plains may waive in writing any of the
foregoing conditions precedent.
ARTICLE X CLOSING
10.1 Place of Closing and Closing Date. The Closing shall take place at the
offices of Marathon Oil Company, 5555 San Felipe, Houston, Texas, subject to the
satisfaction of the conditions precedent stated in Articles VIII and IX on the
later to occur of (a) May 18, 1999, or such other date as may be mutually
agreed, or (b), if such approvals have not been obtained by such date provided
in clause (a) above, the 10th calendar day following the date upon which all
material governmental approvals have been obtained; it being understood and
agreed that if Closing is delayed beyond June 18, 1999 due to the inability of a
party to secure a material approval of any Government Authority having
jurisdiction over the parties or the Assets of, but not limited to the approval
of the Federal Trade Commission in connection with its antitrust review
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of the subject transaction, then MAP shall be entitled to interest on the
Purchase Price at a rate equal to the London Inter Bank Offered Rate as
published in the June 15, 1999 edition of the Wall Street Journal, plus 1% for
the period from June 18, 1999 through the date on which Closing occurs which
shall be payable if and when Closing occurs.
10.2 Closing Deliveries by Plains. At the Closing, Plains shall deliver to
MAP the following:
(a) the Purchase Price in accordance with Article II which, should
Plains elect to transfer the Units pursuant to Section 2.2, shall include, if
applicable, an assignment instrument executed by an authorized officer of Plains
evidencing Plains' transfer to MAP of and warranting title to the Units as set
forth in this Agreement, in a form reasonably satisfactory to MAP and Plains ;
(b) the certificate executed by an authorized officer of Plains, and
the opinion of counsel, described in Sections 8.2(b) and (c);
(c) a certificate executed by the Secretary (or Assistant Secretary),
of Plains or its general partner dated as of the Closing Date, evidencing that
Plains has authorized the execution of this Agreement and the performance of the
transaction hereunder, and presenting the incumbency and representative
signatures of the officers executing this Agreement on behalf of Plains or its
general partner;
(d) a certificate of good standing for Plains issued by the Secretary
of State of Delaware and dated as of a date no more than ten (10) days prior to
the Closing Date; and
(e) the Transition Agreement executed by an authorized officer of
Plains.
10.3 Closing Deliveries by MAP. At the Closing, MAP shall deliver to Plains
the following:
(a) An assignment instrument executed by an authorized officer of MAP
evidencing MAP's transfer to Plains of and warranting title to the Membership
Interest as set forth in this Agreement substantially in the form attached as
Exhibit 10.3(a);
(b) A certificate of good standing for SP and Scurlock Permian Pipe
Line LLC issued by the Delaware Secretary of State, and from the counterpart
agency of each other state in which SP and Scurlock Permian Pipe Line LLC are
qualified to do business, and dated as of a date as close to the Closing Date as
is possible through reasonable efforts;
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(c) The certificates executed by an authorized officer of MAP described
in Sections 9.2(b) and 9.6(b), and the opinion of counsel described in Section
9.2 (c);
(d) A certificate executed by the Secretary (or Assistant Secretary),
of MAP dated as of the Closing Date, providing the resolutions authorizing the
sale under this Agreement adopted by the Board of Managers of MAP and the
continued effectiveness of such resolutions, and presenting the incumbency and
representative signatures of the officers executing this Agreement on behalf of
MAP;
(e) Each of the resignations in accordance with the provisions of
Section 9.3;
(f) The Sub-sublease Agreements executed by an authorized officer of
MAP whereby MAP will sublease to SP the vehicles described in Section 3.9(b)
substantially in the forms attached as Exhibit 10.3(f); and
(g) The Transition Agreement executed by an authorized officer of MAP.
(h) A schedule of third party shipper volumes by location and grade as
of the Effective Time.
ARTICLE XI TERMINATION
11.1 Termination. This Agreement may be terminated:
(a) At any time prior to the Closing Date with the mutual written
consent of MAP and Plains; or
(b) By MAP, if any condition provided in Article VIII shall not have
been satisfied, complied with or performed in any material respect on the
Closing Date, and MAP shall not have waived in writing such non-satisfaction,
noncompliance or nonperformance on or before the Closing Date, provided the
failure of such condition did not result from the failure of MAP to perform any
of its obligations that is required to be performed under this Agreement on or
prior to Closing; or
(c) By Plains, if any condition provided in Article IX shall not have
been satisfied, complied with or performed in any material respect on the
Closing Date and Plains shall not have waived in writing such non-satisfaction,
noncompliance or nonperformance on or before the Closing Date, provided the
failure of such condition did not result from the failure of Plains to perform
any of its obligations that is required to be performed under this Agreement on
or prior to Closing.
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(d) By either MAP or Plains, if the other shall have failed to perform
any obligation that it is required to perform under this Agreement on or prior
to the Closing Date.
(e) By either MAP or Plains, if Closing is delayed beyond June 30,
1999, pursuant to Section 10.1(b).
11.2 Consequences of Termination.
(a) Except with respect to a party's termination under Section 11.1(d),
no party will be otherwise liable for damages to the other party as a result of
termination pursuant to this Article XI. In the event of termination of this
Agreement, each party shall return to the provider all documents and papers
furnished in the course of the negotiation or carrying out of this Agreement and
each party shall treat as proprietary and confidential any and all information
obtained from any other party in accordance with the Confidentiality Agreement.
(b) A party terminating this Agreement pursuant to Section11.1(d) shall
be entitled to liquidated damages from the defaulting party in the amount of
$7,500,000, which amount the parties agree represents a reasonable estimate of
the amount by which the terminating party will actually be damaged by such
default, in view of the difficulty of arriving at a meaningful formula or
measure of actual damages and the uncertainty thereof. The provisions of this
Section 11.2(b) shall survive termination of this Agreement pursuant to Section
11.1(d).
ARTICLE XII OBLIGATIONS OF PARTIES AFTER CLOSING
12.1 Taxes. (a) MAP will cause all Returns due on or before the Closing Date
to be filed and all Taxes due on or before the Closing Date to be paid. In
addition, MAP will cause the Returns due after the Closing Date listed in
Exhibit 12.1 to be properly and timely filed, but the Taxes due on such Returns
shall be the responsibility of Plains except to the extent attributable to a
period ending on or before the Closing Date.
(b) Except as provided otherwise in Section 6.5 or this Section12.1,
Plains will timely pay all Taxes due after the Closing Date and will cause all
Returns due after the Closing Date to be prepared and filed on a timely and
proper basis. MAP shall pay to Plains within fifteen days after the date on
which Taxes are paid with respect to such Returns an amount equal to the portion
of such Taxes attributable to periods
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ending on or before the Closing Date. For purposes of this Section 12.1, such
Taxes for a period including the Closing Date shall be allocated to the period
prior to the Closing Date in the following manner: (i) if the Tax is measured on
or by net income, sales, receipts, expenditures, expenses, compensation,
purchases or a similar base, based on the amount of Tax determined as if the
books were closed and the taxable period ended on the Closing Date; and (ii) in
all other cases, a pro-rata portion of such Tax based on a ratio of the number
of days in the taxable period ending on the Closing Date to the number of days
in the taxable period. Any credits relating to a taxable period that begins
before and ends after the Closing Date shall be taken into account as though the
relevant taxable period ended on the day before the Closing Date.
(c) Plains shall defend, indemnify, and hold MAP harmless from and against
any and all claims, demands, liabilities, costs, judgements, expenses and
reasonable attorneys' fees and court costs, damages (together with any interest,
penalties or additional amounts) and losses of whatsoever nature as a result of
a Tax due after the Closing Date not being timely paid, or a Return due after
the Closing Date not being properly prepared or timely filed. To the extent
permitted by law, MAP, from and after the Closing Date, shall defend, indemnify
and hold Plains harmless from any and all unpaid Taxes, if any, attributable to
periods ending on or before the Closing Date, as the result of any liability not
expressly assumed by Plains pursuant to this Section 12.1.
(d) MAP's liability and/or indemnity for unpaid Taxes under this Section
12.1 shall be reduced by the amount of such unpaid Tax included in Accrued Taxes
at the Effective Time.
(e) To the extent Plains or SP receive any refund of Taxes with respect to
any period ending on or before the Closing Date, such refund shall be promptly
paid to MAP except to the extent such refund has been included in Net Working
Capital at the Effective Time.
12.2 Indemnification. (a) Except with respect to Environmental Liabilities
for which indemnification under this Agreement is governed by Section 12.3
below, Plains covenants and agrees, from and after the Closing Date, to defend,
protect, indemnify and hold harmless MAP, its owners, Marathon Oil Company and
Ashland Inc., and USX Corporation, and their respective officers, directors,
employees, partnerships, and Affiliates (the "Seller Indemnified Parties"), from
and against any and all penalties, claims, demands, fines, assessments, damages,
dimunitions in value, liabilities, suits, costs, judgments, settlements,
expenses (including, without limitation, court costs and reasonable attorneys',
expert and consultant fees), and losses of whatsoever kind or nature, resulting
from (i) breach of any representation or warranty of Plains set forth in this
Agreement; or (ii) any act or omission attributable to the SP Group's business
or the ownership or operation of the SP Group or the Assets occurring from and
after the Closing Date.
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(b) Except with respect to Environmental Liabilities for which
indemnification under this Agreement is governed by Section 12.3 below, MAP
covenants and agrees, from and after the Closing Date, to defend, protect,
indemnify and hold harmless Plains Resources, Inc., Plains, the SP Group and
their respective partners, officers, directors, employees, partnerships,
Affiliates, successors and assigns (the "Buyer Indemnified Parties"), from and
against any and all penalties, claims, demands, fines, assessments, damages,
dimunitions in value, liabilities, suits, costs, judgments, settlements,
expenses (including, without limitation, court costs and reasonable attorneys',
expert and consultant fees), and losses of whatsoever kind or nature, resulting
from (i) breach of any representation or warranty of MAP set forth in this
Agreement; (ii) any act or omission attributable to the SP Group's business or
the ownership or operation of SP or the Assets occurring prior to the Closing
Date (including without limitation, the matters described in Exhibit 3.8); (iii)
the disposition of the assets described in Section 2.5; or (iv) royalty suspense
account claims for royalties or interest not reflected on SP's balance sheet as
of the Effective Time, as to which the $25,000 threshold contained in Section
12.6 will not in any case apply.
12.3 Environmental Indemnification. (a) Plains covenants and agrees, from
and after the Closing Date, to defend, protect, indemnify and hold harmless the
Seller Indemnified Parties from and against any and all Environmental
Liabilities arising from any act or omission attributable to the SP Group's
business or the ownership or operation of SP or the Assets occurring from and
after the Closing Date.
(b) MAP covenants and agrees, from and after the Closing Date, to
defend, protect, indemnify and hold harmless the Buyer Indemnified Parties from
and against any and all Environmental Liabilities (i) arising from any act or
omission attributable to the business of the SP Group or the ownership or
operation of SP or the Assets occurring prior to the Closing Date (including,
without limitation, the matters described in Exhibits 3.6 (a) and 3.6 (b), and
(ii) other than the matters described in Exhibits 3.6 (a) and 3.6 (b), for which
no claim need be asserted, that are asserted by any of the Buyer Indemnified
Parties against MAP on or before May 15, 2003. It is understood and agreed that
MAP's obligations under this subparagraph (b) (other than with respect to those
matters described in Exhibits 3.6 (a) and (b)), do not extend to or cover any
Environmental Liabilities relating to SP or the Assets that are not asserted by
a Buyer Indemnified Party against MAP within the time specified above.
(c) MAP shall have (i) the right of access to the Assets in connection
with, and (ii) the right to conduct the defense of any claims pursuant to
Section 12.7, and to respond to and conduct the remediation of any Environmental
Liabilities for which MAP assumes an obligation of indemnity under this
Agreement. Such rights of MAP shall survive Closing and shall be subject to the
following terms and conditions:
(A) Prior to commencing any Corrective Actions or related
activities on or with respect to
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the Assets, MAP shall propose to Plains a plan for such work ("Plan"). Prior to
the implementation of any Plan or Plans, MAP shall provide Plains with a
comprehensive schedule showing in reasonable detail the Corrective Action to be
taken by MAP to comply with such Plans and a budget showing the estimated timing
and estimated amount of expenditures required to implement the Plans. At the
request of Plains from time to time, MAP shall meet and consult with Plains
fully with respect to each such Plan, schedule and budget. Once each calendar
quarter (commencing with the first full calendar quarter after commencement of
such Corrective Action), MAP shall provide Plains with a report showing in
reasonable detail the current status of all Corrective Actions undertaken by MAP
since commencement of such Corrective Actions, including expenditures to date.
To the extent that similar quarterly reports are filed by MAP with Government
Authorities, provision of copies of such reports to Plains shall satisfy this
requirement. MAP shall be required to obtain Plains' prior written approval
(which shall not be unreasonably withheld or delayed) for each Plan and the
budget and schedule therefor prior to proceeding with any Plan or filing any
Plan with any applicable Government Authorities (except that, in the event of an
emergency posing an imminent threat of harm to the safety of persons or
property, MAP may take such immediate action as may be necessary under the
circumstances to protect the safety of persons or property, without obtaining
the prior approval of Plains, provided that MAP shall notify Plains in writing
of such action as soon thereafter as practicable). Plains shall be deemed to
have approved such Plan, budget and schedule unless Plains shall have objected
thereto by notice to MAP within thirty (30) days following Plains' receipt
thereof setting forth in reasonable detail the basis for Plains' objections. If
Plains objects to such proposed Plan and MAP and Plains do not reach agreement
on such objections, then MAP shall provide Plains with an alternative Plan as
soon as reasonably practicable in light of the circumstances following MAP's
receipt of a request therefor from Plains. Upon request from Plains from time to
time, MAP shall provide Plains with copies of invoices and such other supporting
data regarding the amounts of expenditures referred to in reports provided by
MAP to Plains under this Section.
(B) MAP shall conduct all Corrective Actions and related activities on or
with respect to the Assets in accordance with all applicable laws, rules and
regulations of Government Authorities having jurisdiction and in such manner as
shall not unreasonably interfere with the operation of the Assets and the SP
Group's business. Promptly upon completion of such activities, MAP shall notify
Plains in writing of such completion.
(C) MAP shall defend, protect, indemnify and hold harmless the Buyer
Indemnified Parties from and against any and all penalties, claims, demands,
fines, assessments, damages, diminution in value, liabilities, suits, costs,
judgments, settlements, expenses (including, without limitation, court costs and
reasonable attorneys', expert and consultant fees) and losses of whatsoever kind
or nature, for personal injury or property damage that are incurred by or
asserted against any Buyer Indemnified Party by any third Person to the extent
same are caused by the acts or omissions of MAP or MAP's agents, employees or
consultants
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in conducting or performing any Corrective Actions or related activities on or
with respect to the Assets. For purposes of this Agreement, MAP's' obligations
with respect to any such third-party claim shall be subject to the terms and
provisions of Section 12.7.
(D) If, within thirty (30) days after MAP's receipt of the Buyer
Indemnified Party's notice of an Environmental Liability for which the Buyer
Indemnified Party believes MAP is obligated to indemnify the Buyer Indemnified
Parties under Section 12.3(b), MAP does not notify Plains that MAP elects to
respond to and conduct the remediation of such Environmental Liability in
accordance with the provisions of this Section 12.3(c), or gives such notice of
election and thereafter fails to respond to and conduct the remediation of such
Environmental Liability diligently and in good faith, then MAP's right to
respond to and conduct such remediation shall terminate and the Buyer
Indemnified Parties shall have the sole right to proceed with such activities
but shall not thereby waive any right to indemnity therefor pursuant to this
Agreement.
(E) Such rights of MAP under this Section 12.3(c) shall in no event
preclude the Buyer Indemnified Parties at any time or times from conducting such
immediate Corrective Actions or related activities that, in case of any
emergency posing an imminent threat of harm to the safety of persons or
property, may be necessary under the circumstances to protect the safety of
persons or property.
(F) Survival of Representations and Warranties and Covenants. (a) The
representations and warranties of MAP and Plains hereunder and in the Exhibits
hereto, the Sub-sublease Agreements and any certificate furnished in connection
with this Agreement shall survive the Closing only until the date which is three
(3) years after the Closing Date, notwithstanding any investigation at any time
made by or on behalf of MAP or Plains, as the case may be; provided that the
representations of MAP under Sections 3.1, 3.4, 3.7, 3.10(a), 3.11, and 3.16(b),
(c) and (d), and the representations of Plains under Sections 4.1, 4.2, and, if
applicable, 7.8, shall survive the Closing for ninety (90) days following the
expiration of the relevant statute of limitations (including all periods of
extension, whether automatic or progressive. Any claim with respect to any
breach of representations and warranties described in this Section must be made
within the time periods specified herein and, if timely asserted, the
representations and warranties that are the subject thereof shall survive until
such claims are fully and finally resolved in accordance with the provisions of
this Agreement.
(b) The obligations of the parties under Articles V, VI and VII shall
survive Closing and not terminate.
12.5 Survival of Indemnification Obligations. The indemnification
obligations of MAP under Section 12.3(b) shall survive the Closing only with
respect to indemnification claims that are asserted by a Buyer Indemnified Party
against MAP on or before May 15, 2003, except that the indemnification
obligations of
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MAP under Section 12.3(b) with respect to matters described in Exhibits 3.6(a)
and 3.6(b) shall survive the Closing and not terminate. The indemnity
obligations of MAP under Section 12.2(b), and the indemnification obligations of
Plains under Section 12.2(a) and 12.3(a) shall survive the Closing and not
terminate. Indemnification provisions contained in other Sections of this
Agreement shall survive the Closing to the extent provided in those Sections.
12.6 Indemnification Bucket. (a) Notwithstanding any term or provision of
this Agreement to the contrary, except with respect to the matters described in
Exhibits 3.5, 3.6(a), 3.6(b), 3.8, and 5.6(c) and Section 5.4 (for which Plains
shall be entitled fully to rights of indemnification under Sections 12.2(b) and
12.3(b), as applicable), the Buyer Indemnified Parties shall not be entitled to
rights of indemnification under Section 12.2(b) and 12.3(b) until the aggregate
of all claims covered thereunder exceeds $1,000,000; it being understood that
the following claims shall not be included in the aggregation: (i) under Section
12.2(b), the litigation and claims listed on Exhibit 3.8 (for which Plains shall
be entitled fully to rights of indemnification under Sections 12.2(b)), and the
first $25,000 of any other individual claim (for which there shall be no rights
of indemnification); and (ii) under Section 12.3(b), individual claims of less
than $25,000 (for which there shall be no rights of indemnification), and the
Environmental Liabilities listed on Exhibits 3.6(a) and (b) (for which Plains
shall be entitled fully to rights of indemnification). For purposes of the
preceding sentence, all losses arising from the same event, condition, or set of
circumstances at a single facility shall be considered an individual loss. For
purposes of the first sentence of this Section 12.6, in determining whether
there has occurred a breach of a representation or warranty of MAP contained in
or made pursuant to Article III, (a) the provisions of Article III that are
qualified by materiality (including, without limitation, a Material Adverse
Effect) shall be read and interpreted as if such qualification was not included
therein and (b) the provisions of Article III that are qualified by knowledge
shall be read and interpreted as if such qualification was not included therein.
12.7 Procedures for Asserting Indemnity Claims. (a) A party seeking to
assert a claim for indemnity under this Agreement with respect to any claim,
suit, action or proceeding (the "Indemnified Party"), shall give prompt and
timely notice to the other party (the "Indemnifying Party") of such assertion or
commencement, as soon as is practicable following the receipt, by the manager
responsible for the operation of the facility involved in such claim, of oral or
written notice of the claim or action. Such notice shall describe in reasonable
detail the nature of the claim or action, an estimate of the amount of damages
attributable to the claim, and the basis for the Indemnified Party's request for
indemnification under this Agreement. Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party copies of all notices and documents (including
court papers) received by the Indemnified Party relating to the claim. Failure
by the Indemnified Party to provide such notice to the Indemnifying Party
promptly shall not affect the right of the Indemnified Party to indemnification
hereunder except to the extent the Indemnifying Party is prejudiced thereby.
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(b) The Indemnifying Party shall promptly assume the defense of any
such claim, suit, action or proceeding; provided, however, that (i) the
Indemnifying Party shall cooperate and communicate with the Indemnified Party as
to significant developments in the matters being defended or handled, shall seek
the advice and opinions of the Indemnified Party, and shall give due regard to
such advice and opinions as to aspects of the matters being handled or defended
which relate to settlements thereof or are reasonably expected to require the
expenditure of substantial sums of money; (ii) the Indemnified Party shall at
all times have the right, at its option and expense, to participate fully in the
defense of any such claim, suit, action, or proceeding; (iii) the Indemnifying
Party shall not settle any claim involving relief other than monetary relief
that may affect the Indemnified Party without the prior written consent of the
Indemnified Party; and (iv) if, within thirty (30) days after the receipt of the
Indemnified Party's notice of a claim of indemnity hereunder, the Indemnifying
Party does not notify the Indemnified Party that it elects, at the Indemnifying
Party's cost and expense, to undertake the defense thereof and assume full
responsibility for all losses, liabilities and other amounts with respect
thereto, or gives such notice and thereafter fails to contest such claim
diligently and in good faith, the Indemnified Party shall have the right to
contest, settle or compromise the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement.
(c) The parties shall cooperate in defending any such claim, suit,
action or proceeding and each party shall have reasonable access to the books
and records, and personnel in the possession or control of the other party which
are pertinent to the defense. Any party shall have the right to join another in
any action, claim or proceeding brought by a third party, as to which any right
of indemnity created by this Agreement would or might apply, for the purpose of
enforcing its right of indemnity granted hereunder.
(d) In furtherance of the foregoing procedures, as soon as a party
becomes aware of circumstances that reasonably could be expected to lead to an
Environmental Liability for which the other party owes and indemnification
obligation hereunder, the party shall:
(i) define the nature and extent of the Environmental Liability in
writing, including copies of all reports to Government Authorities filed as
of this date, using a degree of detail reasonably necessary to inform the
Indemnifying Party of the nature and scope of, and the justification for,
any claim based on the Environmental Liability; and
(ii) to the extent that the assessment involves discussions or
meetings with Government Authorities, the party seeking indemnification
shall use reasonable best efforts to provide the other party with timely
notice of and opportunity to participate in all such discussions or
meetings.
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12.8 EXPRESS NEGLIGENCE. TO THE EXTENT PERMITTED BY LAW, THE
INDEMNIFICATION PROVIDED HEREUNDER SHALL APPLY NOTWITHSTANDING SUCH MATTER FOR
WHICH INDEMNIFICATION IS TO BE PROVIDED MAY RESULT FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE OR GROSS NEGLIGENCE OR VIOLATION OF LAW BY A PARTY TO BE INDEMNIFIED,
AND FOR LIABILITIES BASED ON THEORIES OF STRICT LIABILITY, AND SHALL BE
APPLICABLE WHETHER OR NOT NEGLIGENCE OF SUCH PARTY IS ALLEGED OR PROVEN, IT
BEING THE INTENTION OF THE PARTIES TO INDEMNIFY EACH OTHER FROM AND AGAINST
THEIR SOLE AND CONTRIBUTORY NEGLIGENCE AND GROSS NEGLIGENCE AS WELL AS
LIABILITIES BASED ON THEORIES OF STRICT LIABILITY TO THE EXTENT PROVIDED IN THIS
AGREEMENT.
12.9 Prior Period Adjustments. After Closing, both MAP and Plains shall
have the continuing obligation to remit to the other any Prior Period
Adjustments to which the other is entitled.
12.10 Accounts Receivable. (a) MAP will compile lists of accounts receivable
and accounts payable of the SP Group as of the Effective Time. Plains shall have
a claim against MAP for the undiscounted balance of any and all such accounts
receivable that, as of the one hundred eightieth (180th) day after the Effective
Time, have not been collected. MAP shall have a claim against Plains for the
undiscounted balance of any and all such accounts payable that, as of the one
hundred eightieth (180th) day after the Effective Time, have not been paid.
(b) Plains shall cause SP to determine the amounts of claims due and owing
under this Section and, on or before the two hundred tenth (210th) day following
the Effective Time, and to advise Plains and MAP of the net overdue receivables
or payables balance, as the case may be. Provided that the party owing the net
balance shall have had a reasonable opportunity to verify the result reported by
SP, such party shall remit the full amount thereof within thirty days (30) days
following receipt of advices from SP.
(c) Plains shall cause SP to (i) pay and collect its accounts in the
ordinary course of business during the one hundred eighty day period following
the Effective Time; and (ii) remit to MAP the full amount of receivables listed
under Section 12.10(a) above that are collected, in whole or in part, after the
payment under 12.10(b) is made, until the amount paid by MAP under Section
12.10(b), if any, has been repaid in full. MAP shall pay SP for any such
accounts payable that SP subsequently is required to pay.
12.11 Damages. NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY
OTHER PROVISION OF THIS AGREEMENT, MAP AND PLAINS AGREE THAT, EXCEPT FOR THE
LIQUIDATED DAMAGES SPECIFICALLY PROVIDED FOR IN SECTION 11.2 (b), THE RECOVERY
BY
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EITHER PARTY HERETO OF ANY DAMAGES SUFFERED OR INCURRED BY IT AS A RESULT OF ANY
BREACH BY THE OTHER PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR
OBLIGATIONS UNDER THIS AGREEMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES SUFFERED
OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT OF THE BREACH BY THE
BREACHING PARTY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER AND
IN NO EVENT SHALL THE BREACHING PARTY BE LIABLE TO THE NON-BREACHING PARTY FOR
ANY INDIRECT, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES SUFFERED OR INCURRED
BY THE NON-BREACHING PARTY AS A RESULT OF THE BREACH BY THE BREACHING PARTY OR
ANY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER. For purposes of
the foregoing, actual damages may, however, include indirect, consequential,
special, exemplary or punitive damages to the extent (i) the injuries or losses
resulting in or giving rise to such damages are incurred or suffered by a Person
which is not a Seller Indemnified Party, a Buyer Indemnified Party or an
Affiliate of any of the foregoing and (ii) such damages are recovered against an
Indemnified Party by a Person which is not a Seller Indemnified Party, a Buyer
Indemnified Party or an affiliate of any of the foregoing.
12.11 People v. Amerada Hess. MAP shall obtain the written consent and
approval of Plains to any terms of settlement in the People v. Amerada Hess
royalty litigation which limit or establish crude oil pricing formulas or
methods, practices, or procedures that impact the conduct of the SP Group's
business or operations from and after the Closing Date. Plains shall not
unreasonably withhold its consent and approval to any such settlement.
12.12 Noncompetition. For a period of one year from and after the Closing
Date, and provided that Plains' crude oil prices remain competitive, MAP agrees
and covenants not to acquire, and shall cause its Affiliates not to acquire,
first purchase rights to crude oil produced under leases for which any member of
the SP Group holds first purchase rights on the date of this Agreement.
12.13 Texas University Lands. In the event that dismantling and removal of
the SP Group's abandoned pipelines from lands owned by the Texas University
system lands is required after Closing, Plains shall have the obligation to
satisfy the requirement.
12.14 SPCC PLANS. Plains will undertake to prepare Spill Prevention Control
and Countermeasures Plans for crude oil stations for which such plans are not in
place on the Closing Date, at its own cost and expense; provided, however, that
in no event shall Plains assume any responsibility for the failure to have such
Plans in place prior to the Closing Date.
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12.15 Unit Restrictions. The Units shall be subject to the restrictions
that MAP shall not be entitled to receive any distributions in respect thereof
for a period of one year from and after the Closing Date; and further, that MAP
shall not sell, assign, transfer, convey or dispose of the Units for a period of
one year from and after the Closing Date. The limited partnership unit
certificates representing the Units may reflect such restrictions.
12.16 Permian Plans. After Closing, MAP shall provide all required notices
to Plan Participants and shall provide Plains with an updated list of all Plan
Participants, their current mailing addresses and beneficiary designations.
12.17 Nettleton to Tyler Pipeline. After Closing, the Nettleton to Tyler
pipeline system is scheduled for hydrostatic testing. The budget for such test
is presently $800,000. MAP agrees that in the event that the costs of such test
exceed $800,000, MAP will reimburse Plains for up to $200,000 of such additional
cost, upon receipt from Plains of verification of such excess expenditures.
Plains shall conduct the hydrostatic test in accordance with accepted pipeline
industry practices and standards and shall use reasonable best efforts in
keeping MAP informed of the costs and progress of the test.
ARTICLE XIII MISCELLANEOUS
13.1 Binding Agreement. All the provisions, covenants, representations,
warranties and conditions of this Agreement shall be binding upon, and inure to
the benefit of and be enforceable by, the parties hereto and their respective
legal representatives, successors and assigns. Neither party hereto may assign
its rights under this Agreement without the prior written consent of all other
parties, except that Plains shall have the right to assign its rights under this
Agreement to any of its Affiliates of which Plains Marketing, L.P. is a limited
partner and Plains All American Inc. is the general partner, provided that, in
such event, such Affiliate shall expressly assume in writing the obligations of
Plains under this Agreement.
13.2 Notices. All notices, requests, waivers and other communications
required or permitted to be given pursuant to this Agreement, including changing
of the designated recipients of such notices, shall be in writing and shall be
deemed to have been duly given upon receipt by first-class mail, documented
overnight delivery service or by telecopier:
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If to MAP, to:
Marathon Ashland Petroleum LLC
539 S. Main St.
Findlay, OH 45840
Attention: Senior Vice President, Business Development
Telecopier: (419) 421-3509
With copies to: Marathon Ashland Petroleum LLC
539 South Main Street
Findlay, Ohio 45840
Attention: Group Counsel, Marketing & Commercial Services
If to Plains, to:
Plains All American Inc.
500 Dallas, Suite 700
Houston, TX 77002
Attention: President
Telecopier: (713) 652-2730
With copies to:
Plains All American Inc.
500 Dallas, Suite 700
Houston, TX 77002
Attention: General Counsel
Telecopier: (713) 652-2730
13.3 Entire Agreement. This Agreement is the entire agreement, and
supersedes all prior agreements and understandings, written and oral, among the
parties hereto or between any thereof with respect to the subject matter hereof.
13.4 Waivers. The failure of any party at any time to require performance
of any provision hereof shall not affect its right later to require such
performance. No waiver in any one or more instances shall (except as otherwise
stated therein) be deemed to be a further or continuing waiver of any such
condition or breach in other instances or a waiver of any condition or breach of
any other term, covenant, representation or warranty.
13.5 Time Period Calculation. Except as otherwise expressly provided
herein, all time periods hereunder shall be calculated on the basis of calendar
days.
13.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
13.7 Headings. The headings preceding the text of articles and sections of
this Agreement are for convenience only and not part of this Agreement.
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13.8 Applicable Law. This Agreement is governed by and shall be construed
and enforced in accordance with the internal laws of Texas.
13.9 Construction of Agreement. This Agreement constitutes a negotiated
agreement among the parties and the fact that one party or the other shall have
drafted a particular provision or provisions shall not be material in the
construction of any provision. All Exhibits referred to in the Agreement are
attached to and made a part of the Agreement.
13.10 Publicity. None of the parties hereto will, without the written
consent of the other party, make any disclosure with respect to this Agreement
to the news media, except to the extent disclosures may be required by any
applicable securities laws or stock exchange rules.
13.11 No Third Party Beneficiaries. Except as specified in the
indemnification provisions of Article 12, which are also intended to benefit and
to be enforceable by any of the Seller Indemnified Parties or Buyer Indemnified
Parties, as the case may be, nothing in this Agreement, whether express or
implied, is intended to confer any right or remedy under or by reason of this
Agreement on any Person other than the parties, their respective successors and
assigns.
13.12 Severability. If any term or other provision of this Agreement is held
invalid, illegal or incapable of being enforced under any rule of law, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in a materially adverse manner with respect
to either party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
13.13 Further Assurances. Subject to the terms and conditions set forth in
this Agreement, and in addition to other provisions in this Agreement, from time
to time subsequent to the Closing Date, each party at the request of the other
party shall use reasonable efforts to promptly execute and deliver such
additional documents and take such other actions including centralization of
SP's records and SP facilities, as may be reasonably required to carry out the
intent of this Agreement and the transactions contemplated by it.
13.14 Expenses. Except as otherwise expressly provided in this Agreement,
all costs and expenses
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incurred by each party hereto in connection with all things required to be done
by it hereunder, including attorneys' fees, accountants' fees and other
expenses, shall be borne by the party incurring same.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
Marathon Ashland Petroleum LLC
By: /s/ G. R. Heminger
-----------------------------------------
G.R. Heminger
Title: Senior Vice President, Business Development
Plains Marketing, L.P.
By: Plains All American, Inc., its General Partner
By: /s/ Harry N. Pefanis
-----------------------------------------
Harry N. Pefanis
Title: President
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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-80364, 333-01851, 33-84064, 333-42773, 333-
42767, 333-65939) and in 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 April 30, 1999, relating to the financial statements of the Scurlock
Permian Businesses (a division of Marathon Ashland Petroleum LLC) and our report
dated April 30, 1999, relating to the financial statements of Scurlock Permian
Corporation (the predecessor entity to the Scurlock Permian Businesses), which
appear in the Current Report on Form 8-K of Plains Resources Inc. dated May 27,
1999.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
May 27, 1999
