PRIDE COMPANIES LP, PRE 14A, 1996-09-25

PRIDE COMPANIES LP
PRE 14A, 1996-09-25
PIPE LINES (NO NATURAL GAS)

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<PAGE> 1

SCHEDULE 14A
(RULE 14A-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12

Pride Companies, L.P.
- - - - --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- - - - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

(1) Title of each class of securities to which transaction applies:

- - - - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

- - - - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):

- - - - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

- - - - --------------------------------------------------------------------------------
(5) Total fee paid:

- - - - --------------------------------------------------------------------------------

/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

- - - - --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

- - - - --------------------------------------------------------------------------------
(3) Filing Party:

- - - - --------------------------------------------------------------------------------
(4) Date Filed:

- - - - --------------------------------------------------------------------------------
<PAGE> 2

NOTICE OF SOLICITATION OF CONSENTS
OF LIMITED PARTNERS

To the Limited Partners of Pride Companies, L.P.:

PRIDE COMPANIES, L.P., a Delaware limited partnership (the "Partnership"),
hereby solicits the consent of limited partners of the Partnership as of
September 19, 1996 to certain amendments (the "Proposed Amendments") to the
Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement").

The primary purpose of the Proposed Amendments is to modify the capital
structure of the Partnership. The Proposed Amendments provide for the
Partnership's convertible preferred units (the "Preferred Units") and the
Partnership's common units ("Common Units") to be treated as a single class of
limited partner units with identical rights and privileges (the "Units"), and
the elimination of certain existing contingent distribution preferences of the
General Partners. These amendments will result in the elimination of the
respective cumulative distribution arrearages of both the currently outstanding
Preferred and Common Units, and the elimination of distribution and liquidation
preferences currently attributable to the Preferred Units. The Proposed
Amendments also provide that the currently outstanding Common Units shall be
subject to a 1 for 21 reverse unit split. Therefore, if the Proposed Amendments
are approved and implemented, upon the effective date of the Proposed
Amendments, the holders of Preferred Units will own in aggregate 4,700,000 Units
or approximately 95% of the Units representing an approximate 93.1% limited
partner interest in the Partnership, and the limited partner interest of the
holders of Common Units will decrease to 250,000 Units or approximately 5% of
the Units representing an approximate 4.9% limited partner interest in the
Partnership. Currently, the holders of Preferred Units own in aggregate an
approximate 46.3% limited partner interest in the Partnership. The General
Partners will continue to own a 2% general partner interest in the Partnership.
The amendments to the Preferred and Common Units are conditioned upon the
approval for listing of the single class of Units on the New York Stock
Exchange.

The Proposed Amendments also include certain other changes to the
Partnership Agreement including the terms of certain new convertible preferred
equity securities which may be issued to the Partnership's bank lenders in lieu
of payment for certain Partnership debt if the Partnership successfully
refinances its existing credit facility with other third party creditors. The
Proposed Amendments and related matters are more fully discussed in the attached
Consent Solicitation Statement, which (together with the appendices thereto)
forms a part of this notice and is incorporated herein by reference.

Adoption of the Proposed Amendments requires the consent of limited
partners holding 66 2/3% in interest of each of the Preferred Units and the
Common Units, as separate classes, and the approval of the special general
partner. The solicitation of limited partner consents is being made upon the
terms and is subject to the conditions in this Consent Solicitation Statement
and the accompanying form of Consent. The special general partner of the
Partnership, Pride SGP, Inc., which is the holder of all currently outstanding
Common Units, has given its approval of the Proposed Amendments in its capacity
as special general partner.

This solicitation will expire at 5:00 p.m., central standard time, on
November 15, 1996, (the "Expiration Date") unless extended for a specified
period or on a daily basis until the requisite consents have been received.
Holders as of the record date may revoke their consents at any time up to the
Expiration Date.

By Order of the Managing General
Partner

Judy Sharrow, Secretary
Pride Refining, Inc.

YOU ARE ASKED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING CONSENT IN THE
ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3

PRIDE COMPANIES, L.P.
---------------------

CONSENT SOLICITATION STATEMENT
---------------------

This Consent Solicitation Statement is furnished by Pride Refining, Inc., a
Texas corporation, as Managing General Partner of Pride Companies, L.P., a
Delaware limited partnership (the "Partnership"), to the holders of the
Partnership's convertible preferred limited partner units (the "Preferred
Units") and holders of the Partnership's common limited partner units (the
"Common Units") as of September 19, 1996 (the "Record Date") in connection with
the solicitation (the "Solicitation") of the consent ("Consent") of the limited
partners of the Partnership to adopt certain amendments (the "Proposed
Amendments") to the Amended and Restated Agreement of Limited Partnership of the
Partnership, as amended to date (the "Partnership Agreement"). The Proposed
Amendments are proposed by Pride Refining, Inc., as Managing General Partner of
the Partnership. The primary purpose of the Proposed Amendments is to modify the
capital structure of the Partnership. The Proposed Amendments provide for the
Preferred Units and the Common Units to be treated as a single class of limited
partner units with identical rights and privileges (the "Units"), and the
elimination of certain existing contingent distribution preferences of the
General Partners. These amendments will result in the elimination of the
respective cumulative distribution arrearages of both the Preferred and Common
Units, and the elimination of distribution and liquidation preferences and
certain other rights currently attributable to the Preferred Units. In return,
the limited partner interest of holders of Preferred Units in the Partnership
will increase from approximately 46.3% to 93.1% immediately after the Proposed
Amendments become effective.

Pride Refining, Inc., a Texas corporation (the "Managing General Partner"),
owns a 1.9% general partner interest in and serves as the managing general
partner of the Partnership. Pride SGP, Inc. (the "Special General Partner" or
"Pride SGP") owns a .1% general partner interest in and serves as the special
general partner of the Partnership. The Special General Partner also currently
holds an approximate 51.7% limited partner interest in the Partnership through
its ownership of all of the currently outstanding Common Units. The Preferred
Units, all of which are publicly held, represent an approximate 46.3% limited
partner interest in the Partnership.

Preferred Units are currently entitled to quarterly, cumulative preferred
distribution of Available Cash (as defined in the Partnership Agreement) from
Partnership operations of $.65 per Unit (the "Base Amount"). Arrearages with
respect to distributions on the Preferred Units are cumulative but do not bear
interest. Beginning with the first quarter of 1992, Available Cash was
insufficient to pay the Base Amount. As a result, the Preferred Units have
accumulated arrearages in the amount of $11.35 per Preferred Unit through the
quarter ended June 30, 1996. The Proposed Amendments will change the Preferred
Units into Units and eliminate the preference with respect to the payment of
distributions (including the accumulated arrearages) and the preference upon
dissolution currently attributable to the Preferred Units.

Common Units are currently entitled to quarterly, cumulative distributions
of Available Cash from Partnership operations of the Base Amount of $.65 per
Unit, following the payment of the Preferred Unit distributions (including
cumulative arrearages). The Common Units have accumulated arrearages in an
amount of $13.00 per Common Unit through the quarter ended June 30, 1996.
Arrearages with respect to distributions on the Common Units are cumulative but
do not bear interest. The Proposed Amendments will change the Common Units into
Units and eliminate the accumulated distribution arrearages to date on the
Common Units.

The Proposed Amendments provide that the currently outstanding Common Units
shall be subject to a 1 for 21 reverse unit split. Subsequent to the reverse
unit split, each Preferred Unit and each Common Unit will change into one Unit.
Therefore, upon effectiveness of the Proposed Amendments, the former holders of
Preferred Units will own in aggregate 4,700,000 Units or approximately 95% of
the Units, representing an approximate 93.1% limited partner interest in the
Partnership, and the Special General Partner's Common

(Cover continued on following page)
<PAGE> 4

Units representing a 51.7% limited partner interest will be reduced to 250,000
Units, approximately 5% of the Units, or an approximate 4.9% limited partner
interest.

The Proposed Amendments will also eliminate certain contingent special
distribution rights represented by Incentive Interests held by the Managing
General Partner and the special redeemable partner unit ("SPU") held by the
Special General Partner. The Managing General Partner and Special General
Partner will continue to own 1.9% and .1% general partner interests,
respectively.

The Proposed Amendments will also decrease the requisite vote for removal
of the Managing General Partner in certain circumstances after March 31, 1998
and limit reimbursement of the Managing General Partner for certain compensation
paid pursuant to employment agreements.

The Partnership has reached an agreement with its lenders to restructure
its existing bank debt. If the Proposed Amendments are approved by November 15,
1996 and other specified closing conditions are met, the banks have agreed to
convert a portion of their term loan into convertible senior secured notes,
lower certain interest rates and credit and loan fees and extend the maturity of
the Partnership's debt. If the Partnership subsequently refinances its credit
facility with other third party creditors, a portion of such convertible senior
secured notes would automatically be converted into a convertible preferred
equity security of the Partnership and a portion of the debt owed to Pride SGP
would be converted to a subordinated convertible preferred equity security. See
"Agreement with Credit Facility Lenders to Restructure Debt" for a description
of the Partnership's agreement with its lenders and the terms of the convertible
preferred equity securities that would be issued to the Partnership's bank
lenders upon refinancing of the Partnership's credit facility. The Proposed
Amendments include the annexation of certificates of designations to the
Partnership Agreement, which establish the terms of such convertible preferred
equity securities when and if they are issued.

SEE "RISK FACTORS AND OTHER CONSIDERATIONS" ON PAGE 12 FOR CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED IN CONNECTION WITH THE PROPOSED AMENDMENTS.

Pursuant to the Partnership Agreement, adoption of the Proposed Amendments
requires the approval of holders of 66 2/3% of the total outstanding Preferred
Units and 66 2/3% of the total outstanding Common Units and the approval of the
Special General Partner. Only Limited Partners or assignees who are record
holders of Preferred or Common Units on the Record Date will be taken into
account for the purpose of determining whether the requisite level of approval
for the Proposed Amendments has been achieved. As of the Record Date, there were
4,700,000 Preferred Units and 5,250,000 Common Units outstanding. The Special
General Partner, the holder of all currently outstanding Common Units has given
its approval of the Proposed Amendments in its capacity as special general
partner. If the Proposed Amendments are adopted by the Partnership, the Managing
General Partner, the Special General Partner, and the Managing General Partner
on behalf of the Limited Partners will execute an amendment to the Partnership
Agreement effecting the Proposed Amendments. Adoption of the Proposed Amendments
will bind all holders of Preferred and Common Units regardless of whether they
withhold or grant consent to the Proposed Amendments.

Application is being made to list the Units on the New York Stock Exchange
and the effectiveness of the Proposed Amendments is conditioned upon the
acceptance of the single class of Units for listing on the New York Stock
Exchange.

---------------------

This Consent Solicitation Statement and the related form of Consent are
first being sent to the holders of Preferred and Common Units on or about
October [ ], 1996.

The date of this Consent Solicitation is October [ ], 1996.

(Cover continued on following page)

ii
<PAGE> 5

THIS SOLICITATION WILL EXPIRE AT 5:00 P.M., CENTRAL STANDARD TIME, ON
NOVEMBER 15, 1996, (THE "EXPIRATION DATE") UNLESS EXTENDED FOR A SPECIFIED
PERIOD OR ON A DAILY BASIS UNTIL THE REQUISITE CONSENTS HAVE BEEN RECEIVED.
HOLDERS AS OF THE RECORD DATE MAY REVOKE THEIR CONSENTS AT ANY TIME UP TO THE
EXPIRATION DATE. SEE "THE SOLICITATION."

THE PARTNERSHIP WILL NOT SOLICIT CONSENTS FROM LIMITED PARTNERS OR
ASSIGNEES IN ANY JURISDICTION IN WHICH SUCH SOLICITATION WOULD NOT BE IN
COMPLIANCE WITH THE APPLICABLE SECURITIES OR BLUE SKY LAWS.

Partnership has engaged Kissel-Blake Inc. to assist in the solicitation of
consents. Other than as discussed above, the Partnership has made no
arrangements and has no understanding with any independent dealer, salesman or
other person regarding the solicitation of consents hereunder, and no person has
been authorized by the Partnership to give any information or to make any
representation in connection with the solicitation of consent to the Proposed
Amendments, other than those contained herein and, if given or made, such other
information or representations must not be relied upon as having been
authorized. The delivery of this Consent Solicitation Statement shall not, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date hereof.

AVAILABLE INFORMATION

The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files (and will file) reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices at 7
World Trade Center, New York, New York 10048, and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies
may be obtained at the prescribed rates from the Public Reference Section of the
SEC at its principal office in Washington, D.C., and may be obtained from the
Website that the SEC maintains at http://www.sec.gov. Such reports, proxy
statements and other information concerning the Partnership can also be
inspected at the office of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, the exchange on which the Preferred Units are listed (and
on which application is being made to list the single class of Units).

iii
<PAGE> 6

TABLE OF CONTENTS

<TABLE>
<S> <C>
CONSENT SOLICITATION STATEMENT........................................................
AVAILABLE INFORMATION.................................................................
SUMMARY...............................................................................
Summary Information About the Partnership...........................................
The Solicitation....................................................................
Partnership Financial Results and Business Considerations...........................
Reasons for Adoption of Proposed Amendments.........................................
The Proposed Amendments.............................................................
Certain Risk Factors related to Proposed Amendments.................................
Summary of Certain Current Partnership Provisions...................................
Comparative Rights of the Preferred Units and the Units.............................
Comparative Rights of the Common Units and the Units................................
Agreement with Credit Facility Lenders to Restructure Debt..........................
Conditions to the Effectiveness of the Proposed Amendments..........................
No Appraisal Rights.................................................................
Consequences if the Proposed Amendments Are Not Adopted.............................
PRO FORMA ILLUSTRATION OF RECAPITALIZATION AND REFINANCING............................
RISK FACTORS AND OTHER CONSIDERATIONS.................................................
Risk Factors........................................................................
Partnership Financial Results.......................................................
Agreement with Credit Facility Lenders to Restructure Debt..........................
Business Considerations and Risk Factors............................................
REASONS FOR ADOPTION OF PROPOSED AMENDMENTS...........................................
Increase in Relative Limited Partner Interest of Preferred Unitholders..............
Opportunities Pursuant to Bank Agreement............................................
Improved Access to Debt and Equity Markets..........................................
CONSEQUENCES IF PROPOSED AMENDMENTS NOT APPROVED....................................
OPINION OF INDEPENDENT INVESTMENT BANKER [FINANCIAL ADVISOR]..........................
RECOMMENDATION OF THE MANAGING GENERAL PARTNER........................................
BUSINESS..............................................................................
General.............................................................................
Other Matters.......................................................................
Financial Condition.................................................................
Capital Expenditures................................................................
Credit Facilities...................................................................
AGREEMENT WITH CREDIT FACILITY LENDERS TO RESTRUCTURE DEBT............................
THE SOLICITATION......................................................................
Voting Securities, Record Date and Outstanding Units................................
Consent and Revocation of Consent...................................................
Required Level of Consent...........................................................
Solicitation of Consents............................................................
No Appraisal Rights.................................................................
</TABLE>

iv
<PAGE> 7

<TABLE>
<S> <C>
CURRENT PARTNERSHIP CASH DISTRIBUTION POLICY..........................................
General.............................................................................
Distributions Prior to the Initial Conversion Date..................................
Distributions After the Initial Conversion Date.....................................
Distributions in Respect of Incentive Interests and SPU.............................
Certain Additional Distributions....................................................
Distributions Upon Liquidation......................................................
Adjustment of Base Amount, Preferred Amount and Target Amounts......................
COMPARISON OF PREFERRED UNITS, COMMON UNITS, AND UNITS................................
THE PROPOSED AMENDMENTS...............................................................
MECHANICS OF PARTNERSHIP CAPITAL STRUCTURE CHANGES CONTEMPLATED BY PROPOSED
AMENDMENTS..........................................................................
MARKET FOR PARTNERSHIP'S PREFERRED UNITS AND STATUS OF DISTRIBUTIONS TO HOLDERS OF
PREFERRED AND COMMON UNITS..........................................................
CONFLICTS OF INTEREST OF THE GENERAL PARTNERS.........................................
UNIT OWNERSHIP........................................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................
Security Ownership of Certain Beneficial Owners as of August 31, 1996...............
Security Ownership of Management....................................................
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................
FEDERAL INCOME TAX CONSEQUENCES.......................................................
</TABLE>

v
<PAGE> 8

SUMMARY

The following summary is not intended to be complete and is qualified in
its entirety by the detailed information contained elsewhere in this Consent
Solicitation Statement. Holders of Preferred and Common Units are urged to read
the more detailed information set forth elsewhere in this Consent Solicitation
Statement and its Annexes.

SUMMARY INFORMATION ABOUT THE PARTNERSHIP

Pride Companies, L.P. (the "Partnership"), a Delaware limited partnership,
owns and operates a modern simplex petroleum refinery facility located near
Abilene, Texas; a crude oil gathering business that gathers, transports, and
resells and redelivers crude oil in the Texas and New Mexico markets; and
certain integrated product pipeline operations. See "Business."

Pride Refining, Inc., a Texas corporation (the "Managing General Partner"),
owns a 1.9% general partner interest in and serves as the managing general
partner of the Partnership. Pride SGP, Inc. (the "Special General Partner" or
"Pride SGP") owns a .1% general partner interest in and serves as the special
general partner of the Partnership. The Special General Partner also holds an
approximate 51.7% limited partner interest in the Partnership through its
ownership of all of the currently outstanding common limited partner units (the
"Common Units"). Certain members of the management of the Managing General
Partner are also members of the management of Pride SGP. The Partnership's
convertible preferred limited partner units (the "Preferred Units"), all of
which are publicly held, represent an approximate 46.3% limited partner interest
in the Partnership.

In accordance with the Amended and Restated Agreement of Limited
Partnership of Pride Companies, L.P., as amended to date (the "Partnership
Agreement"), the Managing General Partner conducts, directs and exercises
control over substantially all of the activities of the Partnership. The
principal executive offices of the General Partners and the Partnership are
located at 1209 North Fourth Street, Abilene, Texas 79601, and the telephone
number of the offices is (915) 674-8000.

THE SOLICITATION

This Consent Solicitation Statement is being furnished to limited partners
and assignees as of the Record Date of September 19, 1996, in connection with
the Solicitation. The Solicitation is being made upon the terms and is subject
to the conditions in this Consent Solicitation Statement and the accompanying
form of Consent. See "The Solicitation".

A copy of the Partnership Agreement as amended and restated to reflect the
Proposed Amendments is attached hereto as Appendix A, and has been marked to
show changes from the current Partnership Agreement. Appendix A also includes
the certificates of designations for two series of convertible preferred equity
securities which may be issued to the Partnership's current bank lenders.

The Proposed Amendments require the approval of holders of 66 2/3% of the
total outstanding Preferred Units and 66 2/3% of the total outstanding Common
Units and approval of the Special General Partner for adoption. Only Limited
Partners or assignees who are record holders of Preferred or Common Units on the
Record Date will be taken into account for the purpose of determining whether
the requisite level of approval for the Proposed Amendments has been achieved.
The Special General Partner, the holder of all currently outstanding Common
Units, has given its approval of the Proposed Amendments in its capacity as
special general partner, and has received instructions allowing it to vote at
least 66 2/3% of the Common Units for the Proposed Amendment.

1
<PAGE> 9

PARTNERSHIP FINANCIAL RESULTS AND BUSINESS CONSIDERATIONS

Industry Condition. The Partnership's operating results are dependent upon
producing and selling quantities of refined products at refinery margins
sufficient to cover fixed and variable expenses. The refining business is highly
competitive, and the Partnership's margins are significantly impacted by general
industry trends. In recent years, crude oil costs and prices of refined products
have fluctuated substantially. Industry margins are determined by a variety of
regional, national and global trends, including oil prices, weather, and
economic conditions.

Losses. The Partnership's operations have generated losses in each of the
last five years and current ratios of less than one to one in each of the last
three years. These financial results are primarily a result of depressed
refining margins, increasing depreciation expense and interest expense and
related fees. Crude gathering volumes also decreased in the first six months of
1996 and in the years ended December 31 of 1995 and 1994. During 1994, the
United States refining industry experienced its worst margins since the
inception of the Partnership in 1990. Although the Partnership has achieved
certain reductions in marketing, general and administrative expenses since 1993,
including cost reduction from the move of the Partnership's corporate offices in
December 1994, the Partnership's interest expense and related fees, as well as
depreciation expense, have continued to increase. The Partnership's return to
profitability and long-term viability is dependent upon restructuring its credit
facility, increased volumes and/or improved profit margins as well as continued
cost control initiatives.

High Level of Debt; July 1997 Maturity. The Partnership is highly
leveraged, with significant funding requirements for near-term obligations. At
September 6, 1996, the Partnership's debt exceeded $52.5 million, of which $44.6
million is scheduled to mature on July 31, 1997. The Partnership must therefore
restructure the terms of its debt facilities or obtain alternative means of
financing prior to July 31, 1997. The Partnership has pledged substantially all
its assets as collateral for its debt. Due to its negative operating results,
the Partnership has been unable to comply with certain provisions of its credit
agreement and as a result, various amendments and restatements of the credit
agreement have been required in the past two years. Certain of these amendments
increased the overall cost of the facilities to the Partnership.

Agreement with Credit Facility Lenders. The Partnership has reached an
agreement with its lenders to restructure the existing bank debt. If the
Proposed Amendments are adopted by November 15, 1996, and other specified
conditions are met, the lenders have agreed to convert a portion of their term
loans into convertible senior secured notes, to lower certain interest rates and
credit and loan fees and to extend the maturity of the debt. The agreement with
the banks also contemplates that the Partnership would refinance with new third
party creditors the letter of credit facility, the revolving credit facility,
the term loan, and possibly a portion of the notes received by the lenders upon
the recapitalization of the Partnership and that a portion of the convertible
senior secured notes would automatically convert into convertible preferred
equity securities of the Partnership. There can be no assurance the Partnership
will be able to obtain the adoption of the Proposed Amendments, or refinance its
credit facility with new lenders.

Consideration of Alternatives to Proposed Amendments. Alternatives to the
adoption of the Proposed Amendments and the refinancing of the bank debt that
the Managing General Partner considered included conversion of the Partnership
to a corporation and the dissolution of the Partnership. After analysis of these
alternatives and consultations with various financial advisors, the Managing
General Partner determined that these options provided lower potential for the
Partners to receive the full value of their investment in the Partnership than
proposing the adoption of the Proposed Amendments to modify the capital
structure of the Partnership and attempting to refinance the Partnership's bank
debt.

2
<PAGE> 10

REASONS FOR ADOPTION OF PROPOSED AMENDMENTS

The Managing General Partner believes that the adoption of the Proposed
Amendments to accomplish the proposed capital restructure of the Partnership is
in the best interest of the Partnership. The principal reasons favoring the
adoption of the Proposed Amendments and the changes to the Preferred and Common
Units include the following:

- Lack of Distributions and Existence of Accumulated Distribution
Obligation. The Managing General Partner does not believe that the
accumulated arrearages on the Preferred and Common Units will be paid in
the foreseeable future. The Managing General Partner believes that the
elimination of these rights and their associated uncertainties will
improve the Partnership's ability to acquire new financing.

- Agreement with Partnership Lenders to Restructure Debt. The Partnership
has reached an agreement with its lenders to restructure its existing
bank debt. If the Proposed Amendments are approved by November 15, 1996
and other specified closing conditions are met, the banks have agreed to
convert a portion of their term loan into convertible senior secured
notes, to lower certain interest rates and credit and loan fees and to
extend the maturity of the Partnership's credit facility to November 30,
1997. If the Partnership subsequently refinances its credit facility with
new creditors, a substantial portion of such convertible senior secured
notes would automatically be converted into convertible preferred equity
securities of the Partnership.

- Improved Access to Debt and Equity Markets. The Partnership's recent
results and current business plan require it to improve its ability to
acquire new financing. The Managing General Partner expects that with the
capital structure changes resulting from the Proposed Amendments, the
Partnership will have improved access to the public and private equity
and debt capital markets, potentially enabling it to raise capital on
more favorable terms than are now available to it. This access may be of
particular benefit if the Partnership proposes to issue equity or debt
securities to reduce or replace existing debt, to seek additional funds
for capital expenditures or otherwise to expand its business.

THE PROPOSED AMENDMENTS

The Proposed Amendments will change the Preferred and Common Units into a
single class of limited partner units with identical rights and privileges (the
"Units") and eliminate the respective cumulative distribution arrearages of the
Preferred and Common Units. The Proposed Amendments will also eliminate the
distribution preference as well as the preferences upon dissolution currently
attributable to the Preferred Units.

The Proposed Amendments provide that immediately prior to the effectiveness
of the changes to the Preferred and Common Units, the currently outstanding
Common Units will be subject to a 1 for 21 reverse unit split. Subsequent to the
reverse unit split, each Preferred and Common Unit will change into one Unit.
Therefore, immediately upon effectiveness of the Proposed Amendments, the former
holders of Preferred Units will own in aggregate an approximate 93.1% limited
partner interest in the Partnership, and the Special General Partner's limited
partner interest will be reduced from an approximate 51.7% interest to a 4.9%
limited partner interest. Currently the holders of Preferred Units own in
aggregate an approximate 46.3% limited partner interest in the Partnership.

The Proposed Amendments will eliminate certain contingent special
distribution rights represented by Incentive Interests held by the Managing
General Partner and the special redeemable partner unit ("SPU") held by the
Special General Partner. See "Conflicts of Interest of the General Partners" for
a description of two plans that have been established in part to provide
incentives to key employees of the Managing General Partner for their activities
on behalf of the Partnership.

The Proposed Amendments will decrease the requisite vote for removal of the
Managing General Partner in certain circumstances after March 31, 1998 and limit
reimbursement of the Managing General Partner for compensation paid to certain
individuals who are also shareholders of the Managing General Partner pursuant
to employment agreements.

3
<PAGE> 11

The Proposed Amendments also include by annexation certificates of
designations containing the terms and conditions of two series of convertible
preferred equity securities which will be issued to the Partnership's bank
lenders in lieu of certain Partnership debt if the Partnership successfully
refinances its credit facility with different third party creditors following
adoption of the Proposed Amendments.

Promptly after the adoption of the Proposed Amendments, the Managing
General Partner, the Special General Partner and the Managing General Partner on
behalf of the Limited Partners will execute the amended and restated partnership
agreement incorporating the Proposed Amendments, which will be effective in
accordance with its terms upon its execution. Thereafter, all current holders of
Preferred and Common Units, including non-consenting holders, will be bound by
the amended and restated partnership agreement incorporating the Proposed
Amendments and all Preferred and Common Units will be converted into Units. See
"The Proposed Amendments" and Appendix A hereto.

CERTAIN RISK FACTORS RELATED TO PROPOSED AMENDMENTS

- Conflicts of Interest. The Managing General Partner may be viewed as
having a conflict of interest with the holders of Preferred and Common
Units with respect to the determination of the number of Units into which
the existing Common Units and Preferred Units will be changed and other
aspects of the capital structure changes because of the differences
between the Managing General Partner's ownership interest and those of
the holders of Preferred and Common Units.

- Loss of Preferred Unit Distribution Preference. The Preferred Units
currently have preference over the Common Units with respect to certain
distributions. If the Proposed Amendments are effected, holders of
Preferred Units will relinquish their preferences with respect to
distributions.

- Loss of Preferred Unit Liquidation Preference. The Preferred Units
currently have certain preferences over the Common Units with respect to
amounts, if any, available for distribution with respect to limited
partner interests upon liquidation of the Partnership after the payment
of creditors, establishment of loss reserves and recognition of partner
capital accounts. If the Proposed Amendments are effected, holders of
Preferred Units will lose this preference.

- Possible Issuance of Convertible Preferred Equity Securities to Lenders.
If the Proposed Amendments are adopted and the recapitalization of the
Partnership is completed, the Partnership will issue its credit facility
lenders certain convertible senior secured notes, two series of which
would be automatically converted into preferred equity securities of the
Partnership if the Partnership subsequently refinances a portion of its
debt with new creditors. These series of preferred units would have
preferential cumulative distribution rights as well as certain
liquidation preferences. In addition, Pride SGP has agreed to convert its
unsecured $2 million note either into Units or into a subordinated
convertible preferred equity security upon the conversion of certain
senior secured notes by the lenders. This preferred equity security also
would automatically convert into Units upon the conversion of certain
convertible securities of the lenders.

- Future Dilution of Units. If the Proposed Amendments are adopted, the
Partnership Agreement will contain no restrictions on the ability of the
Partnership to issue additional units. The issuance of additional limited
partner units, including additional Units or a senior class of limited
partner interests, could adversely affect distributions, market price and
relative voting power of the Units outstanding prior to such issuance.
The convertible preferred equity securities of the Partnership which
would be automatically issued to the Partnership's current lenders if the
Proposed Amendments are adopted and the Partnership successfully
refinances its credit facility would be convertible into Units at the
holder's option after certain dates and redeemable for Units by the
Partnership in certain circumstances. The issuance of Units to the
Partnership's current lenders upon conversion of the various notes and
preferred equity securities and to Pride SGP upon conversion of certain
debt could be significant. See "Pro Forma Illustration of
Recapitalization and Refinancing" and "Risk Factors and other
Considerations -- Future Dilution of Units."

4
<PAGE> 12

- Uncertainty Regarding Future Distributions. The ability of the
Partnership to make distributions depends upon the Partnership's operating
performance, the servicing of Partnership debt, the amount of reserves for
and rate of capital expenditures and other factors. Therefore, there can
be no assurance that cash distributions will be made, or if made, at what
level. In addition, contractual agreements of the Partnership may also
restrict the payment of distributions.

- Uncertainty Regarding Market Price of Units. There is currently no
trading market for the Units. Although application is being made to list
the Units on the NYSE and the effectiveness of the Proposed Amendments is
conditioned upon the acceptance of the single class of Units on the NYSE,
there is no assurance that holders of the Units will be able to sell their
Units at favorable prices or that the per unit trading prices for the
Units will be comparable to the per unit trading prices for the Preferred
Units prior to the changes.

- No Appraisal Rights. If the Proposed Amendments are adopted, all holders
of Preferred and Common Units will be bound by the amended and restated
partnership agreement incorporating the Proposed Amendments even though
they individually may have voted against them. Holders of Preferred and
Common Units will not be entitled to receive cash payment from the
Partnership for the fair value of their Preferred or Common Units if they
dissent and the Proposed Amendments are nevertheless adopted and the
Preferred and Common Units are changed into a single class of Units.

SUMMARY OF CERTAIN CURRENT PARTNERSHIP PROVISIONS

Current Preferred Unit Conversion Provisions. The Partnership Agreement
currently provides for conversion of the Preferred Units to Common Units the
first day of the third calendar quarter following the later to occur of December
31, 1994 and the last day of the calendar quarter in which all arrearages in the
Base Amount in respect of the Preferred Units have been paid (the "Initial
Conversion Date"). As of June 30, 1996, the accumulated arrearages with respect
to the Preferred Units were an aggregate amount of $53,345,000 or $11.35 per
Preferred Unit. The Partnership Agreement provides conversion at the election of
the holder thereof at a conversion rate of one Common Unit for each Preferred
Unit, on the Initial Conversion Date and on each anniversary date thereafter and
under certain other circumstances. The Managing General Partner does not believe
that the cumulative arrearages on the Preferred Units will be distributed in the
foreseeable future.

Current Distribution Provisions. The Partnership Agreement currently
provides for quarterly distributions of Available Cash (as defined in the
Partnership Agreement) from operations of the Partnership. The Partnership
Agreement only provides for distributions to be made to the extent there is
Available Cash for the quarter in question. In general, distributions of
Available Cash are made 2% to the General Partners and 98% to the holders of
limited partner interests (the "Limited Partners"). The determination of
priority in the distribution of the 98% to the Limited Partners pursuant to the
Partnership Agreement as currently in effect is outlined below.

Currently holders of the Preferred Units are entitled to quarterly
cumulative, preferred distribution of Available Cash equal to the Base Amount
($.65 per Unit), and any arrearages from prior quarters, before any Available
Cash may be distributed in respect of the Common Units. Any remaining Available
Cash is then distributed to holders of Common Units until they have been
distributed the Base Amount ($.65 per Unit) and any permitted arrearages. After
the Preferred Units and the Common Units receive the Base Amount (and any
arrearages), the Preferred Units and the Common Units share pro rata (as
determined by the number of Common Units into which the Preferred Units are at
the time convertible) in distributions of additional Available Cash, subject to
certain special distribution rights of the General Partners referenced below.
The distributions to holders of Preferred and Common Units are subject to the
General Partners' 2% distribution and in certain cases, to special distribution
rights of the General Partners referenced below. See "Current Partnership Cash
Distribution Policy -- Distributions Prior to the Initial Conversion Date."

After the Initial Conversion Date, the Partnership Agreement provides that
quarterly distributions to Limited Partners of Available Cash will first be made
to the holders of Preferred Units that have not been converted into Common Units
in the Preferred Amount ($.65 per Unit) and any arrearages from prior

5
<PAGE> 13

quarters. Holders of Common Units then receive distribution of all remaining
Available Cash. The distributions to holders of Preferred and Common Units are
subject to the General Partners' 2% distribution and, in certain cases to the
special distribution rights of the General Partners referenced below. See
"Current Partnership Cash Distribution Policy -- Distributions After the Initial
Conversion Date."

The Partnership Agreement provides that all distributions to holders of
limited partner interests are subject to the right of the Managing General
Partner to receive distributions in respect of the Incentive Interests (the
right to receive certain incentive distributions of Available Cash if cash
distributed for any calendar quarter in respect of the Preferred Units and the
Common Units exceeds specified target levels) and the Special General Partner
with respect to the special redeemable partnership unit ("SPU"). Distributions
with respect to these interests generally only apply in circumstances of higher
levels of Available Cash than the Partnership has experienced to date.

Current Limits on Sales of Additional Units. The Partnership Agreement
currently prohibits the issuance of any Partnership equity interests ranking
senior to the Preferred Units (in priority of distribution prior to, or upon,
liquidation) prior to the Initial Conversion Date without the approval of
holders of at least 66 2/3% of the outstanding Preferred Units. In addition, the
Partnership is currently prohibited from issuing additional Preferred Units or
any other equity securities of the Partnership with a comparable value to and
ranking on a parity with the Preferred Units prior to the Initial Conversion
Date without the requisite approval of 66 2/3% of the outstanding Preferred
Units described above.

Pursuant to the terms of the Partnership Agreement, after the Initial
Conversion Date, the Managing General Partner may cause the Partnership to issue
additional Units or other Partnership Securities ranking junior to, on parity
with, or senior to the Preferred Units in priority of distribution prior to or
upon liquidation without the approval of the holders of the Preferred Units.

Current Preferred Unit Preference on Liquidation. Upon termination of the
Partnership, the Preferred Units are entitled to certain liquidation preferences
over the Common Units with respect to amounts, if any, available for
distribution with respect to limited partner interests after the payment of
creditors and the establishment of loss reserves. Any cash (or other assets) of
the Partnership remaining after the satisfaction of creditors is first
distributed proportionately to partners in amounts up to the partners'
respective capital accounts and then the Preferred Units receive preference with
respect to 98% of further cash (or other assets) available to the extent of the
Preferred Unit Redemption Amount (as defined in the Partnership Agreement). See
"Cash Distribution Policy -- Distributions Upon Liquidation."

Incentive Interest. The Incentive Interests represent the right of the
Managing General Partner to receive cash distributions if distributions with
respect to Preferred Units and the Common Units for any calendar quarter exceed
specified levels.

Special Participating Unit (SPU). The SPU represents the right of the
Special General Partner to receive certain distributions commencing in the
calendar year from and after January 1, 1994 after the Base Amount or Preferred
Amount (as defined in the Partnership Agreement) and any arrearages in respect
to the Preferred Units and Common Units in a quarter have been paid.

6
<PAGE> 14

COMPARATIVE RIGHTS OF THE PREFERRED UNITS AND THE UNITS

If the Proposed Amendments are adopted and the Preferred Units are changed
into Units by adoption of the Proposed Amendments, the rights and limitations to
which holders of Units resulting from the changes in the Preferred Units will be
subject will be similar in some respects and will differ in other respects from
those to which they are subject as holders of Preferred Units. These rights and
limitations include, but are not limited to, the following.

<TABLE>
<CAPTION>
PREFERRED UNITS UNITS
- - - - -------------------------------------------- --------------------------------------------
<S> <C>
- - - - - Holders of Preferred Units are entitled to - Holders of Units will have no preferential
quarterly cumulative, preferred distribution rights. The Managing General
distributions of Available Cash equal to Partner does not believe that the
the Base Amount ($.65 per Unit) and any Partnership will make any distributions on
arrearages from prior Units in the foreseeable future.
quarters before any Available Cash may be
distributed with respect to the Common
Units, subject to the General Partners' 2%
distribution. The Managing General Partner
does not believe that the Partnership will
make these distributions in the
foreseeable future.
- - - - - Upon liquidation of the Partnership, the - The Units will not be entitled to a
Preferred Units are entitled to certain liquidation preference. Instead, they will
liquidation preferences over the Common share in amounts, if any, distributed
Units with respect to amounts, if any, after the payment of creditors and
distributed after the payment of establishment of loss reserves,
creditors, establishment of loss reserves proportionally in accordance with the
and distributions to partners in amounts terms of the Partnership Agreement. After
equal to partner's respective capital a refinancing of the Partnership's credit
accounts. facility, they will share in amounts, if
any, distributed after the payment of
creditors, establishment of loss reserves,
and liquidation of preferred equity,
proportionally in accordance with the
terms of the Partnership Agreement.
- - - - - Preferred Units evidenced by Depositary - The Units evidenced by Depositary Receipts
Receipts are freely transferable and trade resulting from the changes in the
on the New York Stock Exchange (the Preferred Units, will be freely
"NYSE"). transferable. Application has been made to
list the Units on the NYSE and
effectiveness of the Proposed Amendments
is conditioned upon the approval for
listing of the Units on the NYSE.
- - - - - The Partnership files reports required by - The Partnership will continue to file
the Exchange Act and provides holders of reports required under the Exchange Act
Preferred Units reports required under the and provide the holders of Units reports
rules of the SEC and NYSE. required under the rules of the SEC and
the NYSE.
- - - - - Holders of Preferred Units have limited - Holders of Units will have substantially
voting rights on issues such as certain the same voting rights with respect to
amendments of the Partnership Agreement, most of such issues. The holders of Units
dissolution of the Partnership, sale of will generally not be entitled to vote on
substantially all of its assets, removal the issuance of additional Partnership
and replacement of the general partners equity interests, including the possible
and mergers or consolidations. In issuance of certain convertible cumulative
addition, the holders of Preferred Units preferred units contemplated by the
are currently entitled to vote as a Partnership's agreement with its credit
separate class to approve the issuance of facility lenders.
certain additional Partnership equity
interests.
</TABLE>

7
<PAGE> 15

COMPARATIVE RIGHTS OF THE COMMON UNITS AND THE UNITS

If the Proposed Amendments are adopted and the Common Units are changed
into Units by adoption of the Proposed Amendments, the rights and limitations to
which holders of Units resulting from the changes in the Common Units will be
subject will be similar in some respects and will differ in other respects from
those to which they are subject as holders of Common Units. These rights and
limitations include, but are not limited to, the following.

<TABLE>
<CAPTION>
COMMON UNITS UNITS
- - - - -------------------------------------------- --------------------------------------------
<S> <C>
- - - - - Following payment of preferred - Holders of Units will have no preferential
distributions to holders of Preferred distribution right. The Managing General
Units, holders of Common Units are Partner does not believe that the
entitled to quarterly cumulative Partnership will make any distributions in
distributions of Available Cash equal to the foreseeable future.
the Base Amount ($.65 per Unit) and any
arrearages from applicable prior quarters
before the remainder of Available Cash is
distributed between the Preferred and
Common Units, subject to the General
Partners' 2% distribution. The Managing
General Partner does not believe that the
Partnership will make these distributions
in the foreseeable future.
- - - - - Common Units held by the Special General - The Units evidenced by Depositary Receipts
Partner are currently transferable in will generally be freely transferable.
accordance with the terms of the Application has been made to list the
Partnership Agreement in a transaction Units on the NYSE and effectiveness of the
registered under the Securities Act of Proposed Amendments is conditioned upon
1933 or for which an exemption from the approval for listing of the Units on
registration is available. Common Units the NYSE. However, the Units held by the
are not listed on the NYSE. Special General Partner following the
effectiveness of the Proposed Amendments
will be only transferable in transactions
that are either registered pursuant to the
Securities Act of 1933 or for which an
exemption from registration is available.
- - - - - The Partnership files reports required by - The Partnership will continue to file
the Exchange Act and provides holders of reports required under the Exchange Act
Common Units reports required under the and provide the holders of Units reports
rules of the SEC and NYSE. required under the rules of the SEC and
the NYSE.
- - - - - Holders of Common Units have limited - Holders of Units will have substantially
voting rights on issues such as certain the same voting rights with respect to
amendments of the Partnership Agreement such issues.
dissolution of the Partnership, sale of
substantially all of its assets, removal
and replacement of the general partners
and mergers or consolidations.
</TABLE>

AGREEMENT WITH CREDIT FACILITY LENDERS TO RESTRUCTURE DEBT

The Partnership has reached an agreement with its lenders under its credit
facility (the "Banks") to restructure the Partnership's existing bank debt (the
"Bank Agreement"). If the Proposed Amendments are approved by November 15, 1996,
and certain other closing conditions are met, the Banks have agreed to reduce
the balance of the Partnership's term loan from its current outstanding balance
($42,182,000 as of September 6, 1996) to a balance of $25 million in exchange
for the issuance to the Banks of three series of convertible senior secured
notes by the Partnership: Series A Notes in the aggregate principal amount of
$2.5 million, Series B Notes in the aggregate principal amount of not more than
$12.5 million (the amount by which the term note exceeds $32.5 million
immediately prior to issuance of such notes) and Series C Notes in the aggregate
principal amount of $5 million. The Series A, B, and C Notes (collectively, the
"Senior Secured Notes") would be secured by the collateral currently pledged to
the Banks under the credit facility, and would mature on November 30, 1997.

8
<PAGE> 16

Upon the adoption of the Proposed Amendments by November 15, 1996, the
Banks have also agreed to extend the maturity of the Partnership's debt to
November 30, 1997, and to lower certain interest rates and fees associated with
the Partnership's credit facility.

If the Partnership subsequently refinances its credit facility with new
lenders, the Bank Agreement provides that Series B and C of the Senior Secured
Notes would automatically be converted into convertible preferred equity
securities of the Partnership. The Series A Secured Notes, if not included as a
part of the refinanced debt, would automatically convert to unsecured
convertible senior notes.

The Proposed Amendments include the annexation of certificates of
designations establishing the terms of the convertible preferred equity
securities to be issued to the Banks if the Partnership's credit facility is
successfully refinanced after the adoption of the Proposed Amendments. The
convertible preferred units, if issued, will be entitled to preferential
quarterly distributions in an amount equal to 6% per annum in the first three
years after issuance, 12% per annum in the fourth and fifth years after
issuance, and 15% per annum thereafter. In certain circumstances in the initial
three year period, distributions could be paid by the issuance of additional
securities at a rate of 8% per annum.

The convertible preferred units would be mandatorily redeemable by the
Partnership 5 years and 3 months after their issuance or earlier upon the
occurrence of certain default events. They also would be subject to optional
redemption by the Partnership in cash under certain circumstances. One series of
the convertible preferred units would be convertible into Units at the
Partnership's option in certain circumstances. The preferred units would also be
optionally convertible into Units at the holder's option based upon a formula
using the liquidation preference of the convertible preferred units.

In addition, Pride SGP has agreed to convert its unsecured $2 million note
either into Units or into a subordinated convertible preferred equity security
upon the conversion of certain senior secured notes by the lenders. It is
anticipated that this series of subordinated preferred units would have
preferential cumulative distribution rights as well as certain liquidation
preferences. They also would automatically convert into Units upon the
conversion of certain convertible securities of Banks. See "Agreement with
Credit Facility Lenders to Restructure Debt."

CONDITIONS TO THE EFFECTIVENESS OF THE PROPOSED AMENDMENTS

The principal conditions to the effectiveness of the Proposed Amendments
are (i) approval of the Proposed Amendments by the consent of holders of 66 2/3%
of each of the outstanding Preferred Units and Common Units, acting as separate
classes, and the approval of the Special General Partner, and (ii) approval of
the single class of Units for listing on the NYSE.

NO APPRAISAL RIGHTS

Holders of the Preferred and Common Units who withhold consent from the
Proposed Amendments will have no appraisal, dissenters' or similar rights.
Therefore, holders of Preferred or Common Units will not be entitled to receive
cash payments from the Partnership for the fair value of their Preferred or
Common Units if they withhold consent and the Proposed Amendments are
nevertheless adopted. However, they will hold Units as a result of changes to
their Preferred and Common Units.

CONSEQUENCES IF THE PROPOSED AMENDMENTS ARE NOT ADOPTED

If the Proposed Amendments are not adopted, the Partnership currently
intends to continue to operate as an ongoing business in its current form. It is
impossible to predict, however, whether the Partnership will be able to obtain
alternate financing prior to July 31, 1997 (the date that the Partnership's debt
matures) if the Partnership does not accomplish significant changes to its
capital structure such as those contemplated by the Proposed Amendments. The
failure to either refinance the debt or further restructure the debt would have
a material adverse effect on the Partnership. Possible courses of action to be
taken by the Partnership or its lenders in the event of a default by the
Partnership under its credit facility would include the sale of equity and other
interests to raise capital, the sale of assets and a reorganization or
liquidation and resulting dissolution of the Partnership.

9
<PAGE> 17

PRO FORMA ILLUSTRATION OF RECAPITALIZATION AND REFINANCING

The following table illustrates the current levels of bank term debt, Pride
SGP notes, and the equity structure of the Partnership as of September 6, 1996
and the pro forma debt and equity structure of the Partnership as of that date
as adjusted for the adoption of the Proposed Amendments and the subsequent
refinancing of the Partnership's credit facility. This table should be read in
conjunction with the Partnership's financial statements and the related notes
thereto included elsewhere in this Consent Solicitation Statement and the terms
of the Bank Agreement.

<TABLE>
<CAPTION>
SEPTEMBER 6, 1996
---------------------------------------------------------
AS ADJUSTED FOR AS ADJUSTED FOR
ACTUAL RECAPITALIZATION(1) REFINANCING(2)
----------- ------------------- ---------------
<S> <C> <C> <C>
Long-Term Debt (excluding revolving credit facility,
letter of
credit facility and related party debt)................. $42,182,000 $25,000,000 $27,500,000(4)
Convertible Senior Secured Series A Promissory Notes...... -- $ 2,500,000(3) --(4)
Convertible Senior Secured Series B Promissory Notes...... -- $ 9,682,000(3)(5) --
Convertible Senior Secured Series C Promissory Notes...... -- $ 5,000,000(3) --
Unsecured notes to Pride SGP.............................. $ 2,450,000 $ 2,450,000 $ 450,000
----------- ----------- -----------
Total Debt........................................ $44,632,000 $44,632,000 $27,950,000
Pro Forma Illustration of Effect of Restructuring on
Partnership Equity:
Convertible Preferred Units............................. 46.3%(6) -- --
Common Units............................................ 51.7%(6) -- --
Units................................................... -- 98%(7) 65.27%(9)
Series B Cumulative Convertible Preferred Units......... -- -- 19.01%(9)(11)
Series C Cumulative Convertible Preferred Units......... -- -- 9.8%(9)(12)
Subordinated Convertible Preferred Units(8)(10)......... -- -- 3.92%
General partners' interest.............................. 2% 2% 2%
</TABLE>

- - - - ---------------

(1) Assumes that the recapitalization contemplated by the Proposed Amendments
has been effected.

(2) Assumes the refinancing of the Partnership's credit facility (including
revolving credit facility, letter of credit facility and the new $25
million term loan) and the Convertible Senior Secured Series A Promissory
Notes in the aggregate principal amount of $2.5 million.

(3) Amount shown is aggregate principal amount. Each series of Convertible
Senior Secured Promissory Notes is convertible into Units by the holders in
certain circumstances and during certain periods.

(4) If the Convertible Senior Secured Series A Promissory Notes are not paid
off as part of a refinancing, they will convert into Unsecured Series A
Notes, convertible into Units at the election of the holders of the notes.

(5) The aggregate principal amount will be equal to the outstanding amount of
the Partnership's term note minus $32,500,000 at time of adoption of
Proposed Amendments.

(6) Percentage based upon total outstanding Common Units assuming full
conversion of Convertible Preferred Units.

(7) Upon the recapitalization contemplated by the Amendments, former holders of
Convertible Preferred Units will hold approximately 95% of the outstanding
Units and former holders of Common Units will hold approximately 5% of the
total outstanding Units.

(8) Percentage based upon total outstanding Units assuming full conversion of
the Pride SGP Subordinated Convertible Preferred Units at the same time as
conversion of the Series B and C Notes. If the Subordinated Convertible
Preferred Units were to be converted prior to the Series B and Series C
Notes or Units, and thus be subject to dilution thereby, the Subordinated
Convertible Preferred Units would only represent a 2.76% ownership interest
in the Partnership. However, the percentages do not reflect any adjustment
for any accrued and unpaid interest or other arrearage under the Pride SGP
$2 million note at the time of conversion.

(9) Percentage based upon total outstanding Units after conversion of
subordinated convertible preferred units and assuming full conversion of an
approximate $9.7 million and $5 million of Series B and Series C Cumulative
Convertible Preferred Units, respectively, in accordance with their
respective terms.

(10) Subordinated convertible preferred units must convert into Units upon
conversion of the Unsecured Series A Notes or Series B or Series C
Cumulative Convertible Preferred Units.

(11) Series B Cumulative Convertible Preferred Units are convertible into Units
after a certain date by election of the holders.

(12) Series C Cumulative Convertible Preferred Units are convertible into Units
after a certain date by election of the holders or by the Partnership after
the payment of the Series A Notes (or conversion of all Series A Notes into
Units at the election of the holders).

10
<PAGE> 18

RISK FACTORS AND OTHER CONSIDERATIONS

Before completing the enclosed form of Consent, each Limited Partner should
carefully read the entire Consent Solicitation Statement including the
Appendices; the Partnership's Form 10-K for the year ended December 31, 1995 and
the Partnership's Forms 10-Q for the quarters ended March 31, 1996 and June 30,
1996, and should give particular attention to the following considerations:

RISK FACTORS

Conflicts of Interest

The Managing General Partner is proposing the Proposed Amendments including
the changes to the Preferred and Common Units and other changes to the
Partnership's capital structure because it believes that it is in the best
interest of the Partnership and the holders of the Preferred and Common Units.
The Managing General Partner may, however, be viewed as having a conflict of
interest with the holders of Preferred and Common Units with respect to the
determination of the number of Units into which the existing Common Units and
Preferred Units will be changed and other aspects of the capital structure
changes contemplated by the Proposed Amendments because of the difference
between the Managing General Partner's ownership interest and those of the
holders of Preferred and Common Units.

If these potential conflicts of interest did not exist, it is possible that
the terms of the capital structure changes contemplated by the Proposed
Amendments might be different than the terms approved by the Board of Directors
of the Managing General Partner. For additional information concerning the
potential conflicts of interest between the Managing General Partner and the
holders of Preferred and Common Units in the formulation of capital structure
changes contemplated by the Proposed Amendments and the procedures adopted by
the Managing General Partner to prevent these conflicts from having an impact on
the terms of the Proposed Amendments, see "Conflicts of Interest of the General
Partners."

Loss of Distribution Preference and Other Rights of Preferred Units

The Partnership Agreement currently requires the Partnership to make
quarterly cumulative preferred distributions of Available Cash (as defined in
the Partnership Agreement) from Partnership operations of $.65 per Unit, before
making distributions to holders of Common Units. After Preferred Units are
changed into Units, holders of Preferred Units will lose this distribution
preference currently associated with their ownership of Preferred Units ($11.35
per Preferred Unit through the quarter ended June 30, 1996). The payment of
distributions depend upon the Partnership's operating margins, the servicing of
Partnership debt, the amount of reserves for and rate of capital expenditures,
needs of the Partnership for liquidity and other factors. Regardless of whether
the Proposed Amendments are approved, the Managing General Partner does not
believe the Partnership will make any distributions in the foreseeable future.

The Partnership Agreement currently provides that, upon liquidation of the
Partnership, the Preferred Units are entitled to certain liquidation preferences
over the Common Units with respect to amounts, if any, distributed after the
payments of creditors, establishment of loss reserves and distributions to
partners in amounts equal to partners respective capital accounts. If the
Proposed Amendments are effected, holders of Preferred Units will lose this
preference.

If the Proposed Amendments are effected, holders of Preferred Units will
also lose certain other rights currently associated with their ownership of
Preferred Units including the ability to vote as a separate class on certain
matters such as the issuance of other Partnership securities.

Uncertainty Regarding Future Distributions

11
<PAGE> 19

amount of available cash to be distributed by the Partnership, such as the level
of cash reserves, are made at the sole discretion of the Managing General
Partner after considering various factors, including, but not limited to, the
Partnership's current liabilities and the current interest rate on borrowings.
Therefore, there can be no assurance that cash distributions will be made, or if
made, at what level. In addition, contractual agreements of the Partnership may
also restrict the payment of distributions.

Future Dilution of Units

If the Proposed Amendments are adopted, the Partnership Agreement will not
contain restrictions on the ability of the Partnership to issue additional
equity interests. Any increase in the number of limited partner interests
outstanding as the result of the issuance of additional limited partner
interests, including additional Units or classes thereof, would result in a
corresponding decrease in the proportionate ownership interest in the
Partnership represented by Units then outstanding and such issuance may,
therefore, adversely affect the amount of cash distributed with respect to, and
the market price of, and the relative voting power of the Units outstanding
prior to such issuance.

The issuance of senior classes of limited partner interests which have
preferences in distribution prior to or upon liquidation, including the
convertible preferred equity securities of the Partnership which may be issued
to the Partnership's current lenders, including the Special General Partner, may
also adversely affect the amount of cash distributed with respect to, and the
market price of, outstanding Units and may dilute the Unitholders' ability to
approve or disapprove certain actions by the Partnership. Under the current
rules of the NYSE, the Partnership may not issue Units equal to 20% or more of
the then-outstanding limited partner units in connection with any future
transactions without Unitholder approval.

As discussed in "Agreement with Credit Facility Lenders to Restructure
Debt," if the Proposed Amendments are adopted and the recapitalization of the
Partnership is completed, the Partnership will issue its credit facility lenders
certain convertible senior secured notes which would be automatically converted
into preferred equity securities of the Partnership if the Partnership
subsequently refinances its credit facility with different third party
creditors. These series of preferred units would have preferential cumulative
distribution rights as well as certain liquidation preferences. They also would
be convertible into Units at the holder's option after certain dates, and the
Series C Units would be redeemable for Units by the Partnership in certain
circumstances. In addition, Pride SGP has agreed to convert its $2 million note
to the Partnership into either Units or a subordinated convertible preferred
equity in certain circumstances. These issuances of Units to the Partnership's
current lenders could have a significant dilutive effect on existing Units, the
precise extent of which is not currently known.

In addition, the Managing General Partner recognizes the possibility that
the issuance of additional limited partner interests, either ranking on par
with, or senior to, the Units could be part of an overall plan to refinance the
Partnership's indebtedness maturing in 1997, or at some other point in the
future.

No Dissenters', Appraisal or Similar Rights for Nonconsenting Unitholders

If the Proposed Amendments are adopted, all holders of Preferred and Common
Units will be bound by the Proposed Amendments even though they, individually,
may have voted against the Proposed Amendments. Under applicable state law and
the terms of the Partnership Agreement, holders of Preferred and Common Units
will have no dissenters', appraisal or similar rights in connection with the
changes to the Preferred and Commons Units, nor will such rights be voluntarily
accorded to holders of Preferred and Common Units by the Partnership. Therefore,
holders of Preferred and Common Units will not be entitled to receive cash
payment from the Partnership for the fair value of their respective Preferred
and Common Units if they dissent and the Proposed Amendments are nevertheless
effected.

Uncertainty Regarding Market Price of Units

At present there is no trading market for the Units. Application has been
made to list the single class of Units on the NYSE. There can be no assurance
that holders of the Units will be able to sell their Units at favorable prices
or that the per unit trading prices for the Units will be comparable to the per
unit trading

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<PAGE> 20

prices for the Preferred Units. A large number of Units may be traded by former
holders of Preferred Units immediately following the effectiveness of the
changes to the Preferred and Common Units for various reasons. This might tend
to depress the market price of the Units. The Units held by the Special General
Partner following the effectiveness of the Proposed Amendments will only be
transferable in transactions that are either registered pursuant to the
Securities Act of 1933 or for which an exemption from registration is available.

The closing price on the New York Stock Exchange on September 19, 1996 for
Preferred Units was $4.25 per unit. This was above the book value of the
Partnership of $3.59 per Preferred Unit. The Managing General Partner does not
believe that it has any basis for predicting whether or not the Units will trade
above or below book value or historical trading levels of the Preferred Units.
It is possible that the Units, when first issued and trading, will trade at
prices below the Partnership's book value per unit or the historical trading
levels of the Preferred Units.

The actual value and liquidity of the Units in the future will depend upon
the results of operations, financial condition and prospects of the Partnership,
the market capitalization of the Units, the interest of securities firms in
making a market in the Units and other factors.

No Independent Representation

The terms of the Proposed Amendments were evaluated and determined by the
Managing General Partner without independent legal representation of the holders
of Preferred or Common Units. Such separate representation might have caused the
terms of the Proposed Amendments to be different in some respects from those
described herein. However, the adoption of the Proposed Amendments is contingent
upon receipt of the approval of the holders of at least 66 2/3% in interest of
the holders of the Preferred Units as well as the approval of the holders of at
least 66 2/3% in interest of the Common Units and approval of the Special
General Partner.

PARTNERSHIP FINANCIAL RESULTS

Industry Condition

The refining business is highly competitive, and the Partnership's
profitability can be significantly impacted by general industry trends. In
recent years, crude oil costs and prices of refined products have fluctuated
substantially. During 1994, the United States refining industry experienced its
worst overall margins since the inception of the Partnership in 1990. Crude
gathering volumes and margins also decreased in 1994. Industry margins are
determined by a variety of regional, national and global trends, including oil
prices, weather, and economic conditions.

Recent Losses

The Partnership's operations have generated losses in each of the last five
years and current ratios of less than one to one in each of the last three
years. These financial results are primarily a result of depressed refining
margins, increasing depreciation expense and interest expense and related fees.
Crude gathering volumes also decreased in 1995 and 1994. During 1994, the United
States refining industry experienced its worst margins since the inception of
the Partnership in 1990. In addition, although the Partnership has achieved
certain reductions in marketing, general and administrative expenses since 1993,
including cost reduction from the move of the Partnership's corporate offices in
December 1994, the Partnership's interest expense and related fees, as well as
depreciation expense, have continued to increase. See "The Partnership
Business -- Financial Condition -- Credit Facilities" for a detailed discussion
of interest rates and fees on the Partnership's various credit facilities and
loans. The Partnership's return to profitability and long-term viability is
dependent upon restructuring its credit facility, increased volumes and/or
improved profit margins as well as continued cost control initiatives.

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<PAGE> 21

High Level of Debt; July 1997 Maturity

At September 6, 1996, the Partnership's debt exceeded $52.5 million, of
which $44.6 million is scheduled to mature on July 31, 1997. The Partnership and
its subsidiaries have pledged substantially all its assets as collateral for its
debt. The agreement with the Partnership's bank lenders to restructure the
Partnership's debt under its credit facility is conditioned upon the adoption of
the Proposed Amendments and the implementation of the recapitalization of the
Partnership. If the Proposed Amendments are not adopted, the Partnership must
therefore obtain alternative means of financing prior to July 31, 1997. The
Managing General Partner intends to refinance the Partnership's debt with
additional third party lenders. There are no assurances, however, that
refinancing will be successful. The failure to refinance the debt would have a
material adverse effect on the Partnership. In addition, it is unlikely that the
Partnership will be able to obtain new financing to reduce or replace existing
debt upon more favorable terms or to otherwise raise capital on acceptable terms
without capital structure changes such as those proposed by the Proposed
Amendments.

AGREEMENT WITH CREDIT FACILITY LENDERS TO RESTRUCTURE DEBT

The Partnership has reached an agreement with the Banks, its lenders under
its credit facility, to restructure the Partnership's existing bank debt (the
"Bank Agreement"). If the Proposed Amendments are approved by November 15, 1996,
and certain other closing conditions are met, the Banks have agreed to reduce
the balance of the Partnership's term loan from its current outstanding balance
($42,182,000 as of September 6, 1996) to a balance of $25 million in exchange
for the issuance to the Banks of three series of convertible senior secured
notes by the Partnership: Series A Notes in the aggregate principal amount of
$2.5 million, Series B Notes in the aggregate principal amount of not more than
$12.5 million (the amount by which the term note exceeds $32.5 million) and
Series C Notes in the aggregate principal amount of $5 million. The Series A, B,
and C Notes (collectively, the "Senior Secured Notes") would be secured by the
collateral currently pledged to the Banks under the credit facility, and would
mature on November 30, 1997. Upon the adoption of the Proposed Amendments by
November 15, 1996, the Banks have also agreed to extend the maturity of the
Partnership's debt to November 30, 1997, and to lower certain interest rates and
fees associated with the Partnership's credit facility.

If the Partnership subsequently refinances its credit facility with
different third party creditors, pursuant to the terms of the Bank Agreement,
the Series B and Series C of the Senior Secured Notes would automatically be
converted into a convertible preferred equity security of the Partnership. The
Series A Secured Notes, if not included as a part of the refinanced debt, would
automatically convert to unsecured convertible senior notes.

The Proposed Amendments include the annexation of certificates of
designations establishing the terms of the convertible preferred equity
securities to be issued if the Partnership's credit facility is successfully
refinanced after the adoption of the Proposed Amendments. The convertible
preferred units, if issued, will be entitled to preferential quarterly payments
in an amount equal to 6% per annum in the first three years after issuance, 12%
per annum in the fourth and fifth years after issuance, and 15% per annum
thereafter. In certain circumstances in the initial three year period,
distributions could be paid by the issuance of additional securities at a rate
of 8% per annum.

The convertible preferred units would be mandatorily redeemable by the
Partnership 5 years and 3 months after their issuance or earlier upon the
occurrence of certain default events. They also would be subject to optional
redemption by the Partnership in cash and in some cases in Units under certain
circumstances. They would be optionally convertible into Units at the holder's
option based upon a formula using the liquidation preference of the convertible
preferred units. In addition, Pride SGP has agreed to convert its unsecured $2
million note either into Units or into a subordinated convertible preferred
equity security upon the conversion of certain senior secured notes by the
lenders. See "Agreement of Credit Facility Lenders to Restructure Debt" for a
more detailed description of various aspects of the Bank Agreement.

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<PAGE> 22

BUSINESS CONSIDERATIONS AND RISK FACTORS

Supply and Demand for Gasoline, Military Aviation Fuel and Other Products

The Partnership's principal business consists of refining crude oil into
commercial and military aviation fuel, conventional gasoline, low sulfur diesel
fuel, vacuum gas oil, liquified petroleum gas and vacuum residuum. Demand for
gasoline is affected by a number of factors which cannot be controlled by the
Partnership. Population levels, gasoline prices, per capita income and the
availability of alternatives to automobile travel affect consumption of
gasoline. Expansion of fuel refinery capacity in Central or West Texas or a
construction of a pipeline from the Gulf Coast or Dallas-Fort Worth area to
Abilene could have an adverse effect on the Partnership's earnings. The
Partnership is dependent upon obtaining supply contracts for military aviation
fuels to Dyess Air Force Base and Fort Worth Naval Air Station and other
regional military facilities.

Dependence Upon Certain Customers

The United States Government (military aviation fuel contracts) and Diamond
Shamrock (vacuum gas oil purchases) accounted for approximately 10% and 13%;
respectively, of the Partnership's total revenues for the year ended December
31, 1995.

Competition

Markets for refined petroleum products are highly competitive and pricing
is the primary competitive factor. The Partnership both sells and competes with
various oil companies. The Partnership's competitors include major integrated
oil companies which, because of their more diverse operations, larger refineries
and strong capitalization, may be better able than the Partnership to withstand
volatile industry conditions, including shortages or excesses of crude oil or
refined products or intense price competition.

Volatility of Refining Margins

The Partnership's operating results depend in large part upon producing and
selling quantities of refined products at refinery margins sufficient to cover
fixed and variable costs. The Refinery's income and cash flow are derived from
the margin between its cost to obtain and refine crude oil and the price for
which the Partnership can sell military aviation fuel, gasoline and other
products produced in the refining process. The price at which the Partnership
can sell its fuel, gasoline and other products is strongly influenced by the
price of crude oil. In recent years, crude oil costs have fluctuated
substantially. Although an increase or decrease in the price of crude oil
generally results in a corresponding increase or decrease in the prices of
refined products, there is usually a lag in the movement of product prices, both
up and down, in relation to the movement of the crude oil prices. The crude oil
currently processed by the Refinery is WTI crude oil. During the period January
1, 1993 through August 31, 1996, the posting price for WTI crude oil has varied
from approximately $12.25 to $23.75 per barrel.

The general level of crude oil prices can also have a significant effect on
the margins in the crude gathering business. The Partnership's crude oil
requirements are supplied from sources which include major oil companies, large
independent producers and smaller local producers. Crude oil supply contracts
are generally relatively short-term contracts with market-responsive pricing
provisions. Margins in the Crude Gathering System generally tend to be
influenced by competition and the general level of crude oil. When prices are
higher, crude oil can generally be resold at higher margins. Additionally,
transportation charges are slightly less competitive when higher crude oil
prices result in increased exploration and development. Conversely, when crude
oil prices decrease, margins on the resale of crude oil and transportation
charges generally tend to decrease.

Crude Oil Supply

The Refinery's primary feedstock is a locally produced, high quality crude
oil known as WTI crude oil, which is delivered to the Refinery primarily through
the Comyn pipeline system. Local supply is primarily

15
<PAGE> 23

dependent on the level and success of exploration and drilling activity in the
Austin Chalk and West Central Texas areas. While historically the results of
local exploration and drilling activity have caused production to exceed local
crude oil demand, there is no assurance that this situation will continue in the
future. Any significant long-term interruption in crude oil supply or the crude
oil transportation system would have an adverse effect on the Partnership's
operations.

Seasonality and Weather

Gasoline consumption is typically highest in the United States in the
summer months and lowest in the winter months. As a result, margins for gasoline
tend to be higher in the summer months. Diesel consumption in the southern
United States is generally higher just prior to and during the winter months
when commercial trucking is routed on southern highways to avoid severe weather
conditions further north. Additionally, diesel fuel prices tend to increase
during the winter months when refiners divert heating fuels to northern areas.
During unseasonably warm winters, diesel prices do not increase as in colder,
longer winters. The Refinery's prices for military aviation fuel JP-8 are also
influenced by these trends since the pricing for JP-8 is based on Jet A, a
kerosene based product, and the price of diesel and heating fuels affect the
price of kerosene.

Government Regulation, Environmental Risks

The Partnership's operations are subject to a variety of federal, state and
local laws and regulations governing product specifications and the generation,
treatment, storage, transportation and disposal of solid and hazardous waste and
materials. In recent years, environmental laws and regulations which affect the
Partnership's operations, processes and margins have become increasingly
stringent. Examples are the Clean Air Act Proposed Amendments and the related
implementing regulations.

Although the Refinery is capable of processing currently utilized
feedstocks [AT FULL CAPACITY] in substantial compliance with existing
environmental regulations, the Partnership cannot predict the nature, scope or
effect of legislation or regulatory requirements that could be imposed or how
existing or future laws or regulations will be administered or interpreted with
respect to products or activities to which they have not been previously
applied. Compliance with more stringent laws or regulations, as well as more
vigorous enforcement policies of the regulatory agencies, could adversely affect
the financial position and the results of operations of the Partnership and
could require substantial expenditures by the Partnership.

In addition, the Partnership's operations are inherently subject to
accidental spills, discharges or other releases of petroleum or hazardous
substances which may occur and may give rise to liability to governmental
entities or private parties under federal, state or local environmental laws, as
well as under common law. Accidental discharges of contaminants have occurred
from time to time during the normal course of the Partnership's operations,
including discharges associated with the Refinery, pipeline and trucking
operations. The Partnership has undertaken, intends to undertake or has
completed all investigative or remedial work thus far requested by governmental
agencies to address potential contamination by the Partnership. Although the
Partnership has invested substantial resources to prevent and minimize
accidental discharges and to remediate contamination resulting from prior
discharges, there can be no assurance that future action will not be taken in
connection with past discharges, that governmental agencies will not assess
penalties against the Partnership in connection with any past or future
contamination or that third parties will not assert claims against the
Partnership for damages allegedly arising out of any past or future
contamination. The Managing General Partner believes the Partnership is
adequately insured against such accidental discharge. See "Business -- Other
Matters.

Damage to Refinery on Pipelines; Natural Hazards

All of the Partnership's refining activities currently are conducted at the
Refinery's single location. The Refinery is the Partnership's principal
operating asset. As a result, the operations of the Partnership would be subject
to significant interruption if the Refinery were to experience a major accident,
be damaged by severe weather or other natural disaster, or otherwise forced to
shut down. Significant damage to the Partnership's pipelines could also
interrupt or otherwise materially affect operations. Although the Partnership
currently

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<PAGE> 24

maintains business interruption insurance against some types of risks in amounts
which the Managing General Partner believes to be reasonable, if the Refinery
were to experience an interruption in supply or operations, the Partnership's
business could be materially adversely affected.

REASONS FOR ADOPTION OF PROPOSED AMENDMENTS

The Managing General Partner believes that the adoption of the Proposed
Amendments to accomplish the proposed capital restructure of the Partnership is
in the best interest of the Partnership.

INCREASE IN RELATIVE LIMITED PARTNER INTEREST OF PREFERRED UNITHOLDERS

Although the Proposed Amendments include the elimination of distribution
arrearages and distribution and liquidation preferences of the Preferred Units,
the adoption of the Proposed Amendments will result in an increase, upon such
adoption, in the aggregate limited partner interest of the holders of the
Preferred Units from an approximate 46.3% to an approximate 93.1% limited
partner interest. This increase would result from the 1 for 21 reverse unit
split of the currently outstanding Common Units immediately prior to the change
of the Preferred and Common Units into the single class of Units. As discussed
in "Risk Factors and Other Considerations -- Future Dilution of Units", the
relative limited partner interest of holders of Units would be proportionately
reduced by any issuance of additional limited partner interests, including,
without limitation, Units issued with respect to the convertible preferred
equity securities to be issued to the Partnership's bank lenders and Pride SGP
in certain circumstances after the adoption of the Proposed Amendments.

OPPORTUNITIES PURSUANT TO BANK AGREEMENT

The Bank Agreement provides the opportunity for the Partnership to reduce
certain interest rates and bank fees otherwise owed by the Partnership if the
Proposed Amendments are adopted by November 15, 1996, and to realize further
potential savings if the Partnership is successful in refinancing its remaining
debt with new third party lenders.

If the Proposed Amendments are approved by November 15, 1996, and certain
other closing conditions are met, the Banks have agreed to reduce the balance of
the Partnership's term loan from its current outstanding balance ($42,182,000 as
of September 6, 1996) to a balance of $25 million in exchange for the issuance
to the Banks of three series of convertible senior secured notes by the
Partnership: Series A Notes in the aggregate principal amount of $2.5 million,
Series B Notes in the aggregate principal amount of not more than $12.5 million
(the amount by which the term note exceeds $32.5 million immediately prior to
issuance of such notes) and Series C Notes in the aggregate principal amount of
$5 million. Upon the adoption of the Proposed Amendments by November 15, 1996,
the Banks have also agreed to extend the maturity of the Partnership's debt to
November 30, 1997.

Currently, the Partnership's term loan is subject to a facility fee of
approximately 5% per annum commencing January 1, 1996 and payable at maturity
which is July 31, 1997. At June 30, 1996, the Partnership had accrued $1 million
in facility fees which was subsequently reduced by an amendment fee of $400,000
paid to the Banks. If the Proposed Amendments are adopted by November 15, the
facility fee will be discontinued and the amount accrued will be forgiven. The
Partnership's current advances under its revolver and term loan are bearing
interest at the prime rate plus 2% and 3%, respectively. (The prime rate was
8.25% as of June 30, 1996). The Senior Secured Notes would bear interest at the
prime rate plus 100 basis points per annum. The fixed quarterly payments which
would be due on the convertible preferred units issued upon conversion of the
Senior Secured Notes is fixed at a per annum cash rate of 6% during the first
three years or 8% per annum if distributions are paid by the issuance of
additional securities.

The conversion of two series of the Senior Secured Notes into convertible
preferred equity securities of the Partnership could reduce the overall debt
level of the Partnership. In addition, one series of the convertible preferred
equity securities would be convertible into Units at the Partnership's option
after the Series A notes were either repaid in full and/or converted into Units
by their holders. If the Partnership subsequently refinances its credit facility
with new third party creditors, the Bank Agreement provides that Series B and C

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<PAGE> 25

of the Senior Secured Notes would automatically be converted into convertible
preferred equity securities of the Partnership. The Series A Secured Notes, if
not included as a part of the refinanced debt, would automatically convert to
unsecured convertible senior notes.

IMPROVED ACCESS TO DEBT AND EQUITY MARKETS

The Proposed Amendments and the changes to the Preferred and Common Units
and the other capital structure changes to be effected thereby are intended,
among other things, to increase the equity capitalization of the Partnership,
improve the balance sheet and creditworthiness of the Partnership and enhance
the Partnership's financial flexibility. Although the Partnership has not sought
to raise additional capital to date, if the Proposed Amendments are adopted, the
Partnership intends to attempt to refinance its credit facility with different
third party lenders. The Partnership believes that absent capital structure
changes including the elimination of cumulative distribution arrearages and the
existing distribution preference of the Preferred Units it is unlikely that the
Partnership will be able to raise equity or other capital on reasonable terms,
thereby negatively affecting the Partnership's ability to achieve its business
plan.

CONSEQUENCES IF PROPOSED AMENDMENTS NOT APPROVED

If the Proposed Amendments are not approved by the holders of Preferred and
Common Units, or if the Proposed Amendments are not effected for any other
reason, the Partnership currently intends to continue operating as an ongoing
business in its current form. It is unlikely that the Partnership will be able
to restructure the terms of its debt facilities or obtain alternate financing
with acceptable terms prior to July 31, 1997 (the date of maturity of the
Partnership's debt) if the Partnership does not accomplish significant changes
to its capital structure such as those contemplated by the Proposed Amendments.
Although no other transaction is currently being considered by the Partnership
as an alternative to the capital structure changes contemplated by the Proposed
Amendments, the Partnership may from time to time explore other alternatives.
The failure to refinance the debt would have a material adverse effect on the
Partnership. Possible courses of action to be taken by the Partnership or its
lenders in the event of a default by the Partnership would include the sale of
equity and other interests to raise capital, the sale of assets and a
reorganization or liquidation and resulting dissolution of the Partnership.

OPINION OF INDEPENDENT FINANCIAL ADVISOR

The Board of Directors of the Managing General Partner has retained
Stephens Inc. to evaluate the fairness to the disinterested holders of Preferred
Units from a financial point of view of the adoption of the Proposed Amendments.
The Board of Directors of the Managing General Partner has received an opinion
from Stephens Inc. dated September 25, 1996, to the effect that, as of the date
of the opinion, the consideration to be received by the disinterested holders of
Preferred Units is fair to them from a financial point of view. This opinion is
subject to certain limitations and assumptions stated therein. Stephens Inc.'s
opinion is set forth in full as Appendix B to this Consent Solicitation
Statement, and should be read in its entirety. Any description of or reference
to Stephen Inc.'s opinion is subject to, and qualified in its entirety by
reference to, the full text of such fairness opinion as set forth in such
Appendix B.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In its
analyses, Stephens Inc. made numerous assumptions with respect to general
business and economic conditions and other matters, many of which are beyond the
control of the Partnership or Stephens Inc. Any projections or estimates
contained in its analyses are not necessarily indicative of future results,
prices or values, which may be significantly more or less favorable than as set
forth in such analyses.

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RECOMMENDATION OF THE MANAGING GENERAL PARTNER

After considering the advantages and disadvantages of changing the capital
structure of the Partnership, the Managing General Partner has concluded that
implementing the changes contemplated by the Proposed Amendments is desirable
and the changes are fair to the holders of Preferred and Common Units. THE
MANAGING GENERAL PARTNER RECOMMENDS THAT HOLDERS OF PREFERRED AND COMMON UNITS
VOTE FOR THE PROPOSED AMENDMENTS. The Managing General Partner further believes
that the allocation of Units upon the effectiveness of the Proposed Amendments
between the current holders of Preferred Units and the Special General Partner,
the current sole holder of Common Units is fair, from a financial point of view,
to holders of both Preferred and Common Units.

The Managing General Partner's recommendation and conclusions are based, in
part, on the opinions of independent investment banking firm discussed above and
the conclusions of the Conflicts and Audit Committee of the Board of Directors
of the Managing General Partner. No special committee or other entity was formed
or engaged to negotiate on behalf of the holders of Preferred and Common Units
or either class thereof.

BUSINESS

GENERAL

The Partnership owns and operates a modern simplex petroleum refinery
facility located near Abilene, Texas (the "Refinery"); a crude oil gathering
business (the "Crude Gathering System") that gathers, transports, and resells
and redelivers crude oil in the Texas and New Mexico markets; and certain
integrated product pipeline operations.

The Partnership's principal business consists of refining crude oil into
commercial and military aviation fuel, conventional gasoline, low sulfur diesel
fuel, vacuum gas oil, liquefied petroleum gas and vacuum residuum. The Refinery
is approximately ten miles north of Abilene, Texas and consists of processing
equipment newly constructed or modernized since 1981. The Refinery has a
permitted capacity of 44,500 barrels per day ("BPD"). The Refinery includes a
34,500 BPD basic atmospheric crude oil distillation unit and a 15,000 BPD
auxiliary atmospheric crude oil distillation unit. These units effect the
primary separation of crude oil into its constituent products. The Refinery
includes a 13,500 BPD vacuum distillation unit to fractionate residuum remaining
after distillation of lighter products into vacuum gas oil. The Refinery is
augmented with a catalytic reformer unit ("CRU") which allows heavy naphtha to
be converted into a high octane unleaded gasoline blend stock. The Refinery is
also equipped with a 12,000 BPD distillate desulfurization unit ("DDU") to
produce diesel fuel that complies with federal environmental regulations. For
the year ended December 31, 1995, the Refinery processed crude oil into refined
products at an average rate of approximately 29,800 BPD. In the first six months
of 1996, refinery throughput averaged approximately 30,500 BPD.

The Partnership owns two common carrier pipeline systems. The Partnership's
primary product delivery facilities consist of a pipeline that connects the
Refinery to the Partnership's Aledo terminal and the Fort Worth Naval Air
Station (formerly Carswell Air Force Base) located northwest of Fort Worth,
Texas (the "Aledo Pipeline") and a pipeline that connects the Refinery to
Conoco, Inc.'s products terminal near Abilene, Dyess Air Force Base in Abilene,
Texas, and the Partnership's product terminal at San Angelo, Texas (the "San
Angelo Pipeline").

The Partnership delivers military aviation fuel through both the Aledo
Pipeline and the San Angelo Pipeline. Conventional gasoline is delivered through
the Aledo Pipeline to the Partnership's Aledo terminal and through the San
Angelo Pipeline to the Partnership's San Angelo terminal for sales to
non-military customers in the communities west of the Dallas-Fort Worth ("DFW")
metropolitan area along Interstate 20 and in the San Angelo area. Diesel fuel is
also delivered to the Aledo and San Angelo terminals for sales to non-military
customers in the DFW metropolitan area and the San Angelo area. Additional
products are delivered by truck and rail throughout the Partnership's market
area. The Partnership completed construction, in early 1992, of storage tanks,
pumping facilities, and a vacuum gas oil pipeline system connecting the

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<PAGE> 27

Refinery to two major pipelines which enable the Partnership to transport its
vacuum gas oil to the Gulf Coast and Midwest.

The Partnership also owns and operates a crude oil gathering system
connected by pipeline into the Refinery. For the year ended December 31, 1995,
the volume of crude oil gathered by the crude oil gathering system was
approximately 66,900 BPD, and 63,200 BPD during the first six months of 1996.
The Partnership's Crude Gathering System is divided into two distinct areas: (i)
truck-based crude oil gathering and (ii) pipeline operations. The trucking
operations comprise six district offices located in the Abilene, Dallas, Graham,
Lubbock, Midland, and San Angelo, Texas areas. These districts use a truck fleet
to transport crude oil from individual leases or small gathering systems to
injection stations owned and operated by the Partnership along common carrier
pipeline systems. At July 31, 1996, the Crude Gathering System operated 49 crude
oil injection stations located on various common carrier pipeline systems
including the Amoco, Arco, Chevron, Comyn, Conoco, Texas Plains, EOTT, Exxon,
Mobil, Koch, Sun, and other Texas-New Mexico pipeline systems.

At July 31, 1996, the pipeline assets used in the Crude Gathering System
consisted of in excess of 901 miles of active pipeline, the major portion of
which is the Comyn pipeline system with approximately 416 miles of trunkline and
190 miles of gathering lines, and the additional 242 miles of trunkline and 29
miles of gathering line in the Texas Plains System discussed below. Pride SGP
owns trunkline segments of the Comyn pipeline system totaling 270 miles and
certain related pumping facilities. For the six months ended June 30, 1996 and
the year ended December 31, 1995, the crude oil transported through the active
segment of the Comyn pipeline system which is owned by Pride SGP accounted for
approximately 64% and 72% respectively of the total crude oil received by the
Refinery. The Partnership and Pride SGP have a lease agreement wherein the
Partnership has the right to use the segments of the Comyn pipeline owned by
Pride SGP, in exchange for the Partnership's provision of maintenance and repair
and in the case of the 143-mile section from Hearne to Comyn, the payment of
$.20 per barrel of crude oil transported. For the six months ended June 30, 1996
and the year ended December 31, 1995, the Partnership paid or accrued payments
to Pride SGP of approximately $500,000 and $873,000 respectively and provided
maintenance and repair services valued at approximately $85,000 and $250,000,
respectively. On December 1, 1994, the Partnership acquired from Diamond
Shamrock Refining and Marketing Company ("Diamond Shamrock") a 50% interest in
the Texas Plains System which owns a 271 mile crude oil and vacuum gas oil
pipeline extending from the Partnership's refinery to Borger, Texas, which is
connected to a pipeline that carries product to Diamond Shamrock's refinery in
McKee, Texas. On March 1, 1996, the Partnership exchanged its two New Mexico
pipeline systems for the remaining 50% interest in the Texas Plains System which
was owned by Scurlock Permian Corporation.

The Partnership primarily sells to other branded product companies and
branded Pride dealers. A number of major petroleum product marketers in West
Texas do not have local refinery facilities or sales terminals. Accordingly,
such marketers supplement their local needs by purchases or product exchanges
with local suppliers, such as the Partnership. The Partnership currently sells
its vacuum gas oil production to refiners that operate catalytic cracking
facilities, and sells or exchanges diesel, conventional gasoline, and other
products depending on local market needs throughout the region. The Partnership
has five exchange agreements and three sales agreements with various companies
for products supplied out of the San Angelo terminal and one exchange agreement
and two sales agreements with various companies for product supplied out of the
Aledo terminal and one exchange agreement and one sales agreement for product
supplied out of the Refinery. These exchange agreements have enabled the
Partnership to expand its marketing area to Amarillo, Texas, Lubbock, Texas,
Midland/Odessa, Texas, El Paso, Texas and Wichita Falls, Texas without incurring
transportation costs to these cities.

OTHER MATTERS

Increasing public and governmental concern about air quality is expected to
result in continued regulation of air emissions. Regulations relating to carbon
monoxide and regulations on oxygen content in gasoline and sulfur content in
diesel fuel are expected to be increasingly important as a means of improving
air quality in urban areas. In response to environmental regulations which
became effective generally in October 1993, the

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Partnership constructed a DDU at the refinery that permits the Refinery to
reduce the sulfur content of highway use diesel fuel. In addition, the
Partnership plans to spend a total of approximately $675,000 in 1996, 1997 and
1998 on several projects to comply with various other environment requirements
including $400,000 for a sewer system upgrade.

Effective January 1, 1995, the Clean Air Act Amendment of 1990 requires
that certain areas of the country use reformulated gasoline ("RFG"). The Abilene
and San Angelo market areas do not require RFG. Collin, Dallas, Denton, and
Tarrant Counties, which comprise the Dallas-Fort Worth metroplex area, do
require RFG; however, Pride's Aledo terminal lies outside this area and is
allowed to supply conventional gasoline that is not destined for sale in these
four counties. In addition to the requirement for RFG in certain areas, new but
much less restrictive regulations take effect that impose new quality standards
for conventional gasoline in the rest of the country.

In early 1993, the United States Environmental Protection Agency ("EPA")
filed an administrative complaint and compliance order against the Partnership.
The complaint proposed an assessment of $553,000 in penalties and fulfillment of
a compliance order at an unspecified cost against the Partnership. The principal
violations alleged by the EPA include the failure to monitor ground water
properly and to implement a ground water monitoring program. Management believes
that it has complied or is complying with the matter specified by the EPA and
has filed an answer to the complaint. On February 8, 1996, the Partnership
received a letter from the EPA offering to settle the complaint for $405,000 in
penalties plus fulfillment of the compliance order. The Partnership will
continue to contest the matter vigorously until a more favorable settlement can
be reached with the EPA.

The Partnership is also subject to the rules and regulations of
Occupational Safety and Health Administration, Texas Air Control Board, Texas
Railroad Commission, and Texas Water Commission.

The Partnership has filed a substantial claim against the Defense Fuel
Supply Center relating to erroneous pricing of fuel purchased over a period of
several years from the Partnership and its predecessors. The ultimate outcome of
this matter cannot presently be determined.

FINANCIAL CONDITION

Financial Resources and Liquidity

Cash flows have been and will continue to be significantly affected by
fluctuations in the cost and volume of crude oil and refined products held in
inventory and the timing of accounts receivable collections. Cash flows are also
affected by refining margins and crude oil gathering margins. For the six months
ended June 30, 1996, cash was provided by the reduction in accounts receivable
and increase in accounts payable. For the year ended December 31, 1995, cash was
provided by the reduction in inventories (resulting from the liquidation of
volumes on hand), decrease in accounts receivable and increase in accounts
payable.

The Partnership's operations have generated losses in each of the last five
years and current ratios of less than one to one in each of the last three
years. These financial results are primarily a result of depressed refining
margins, increasing depreciation expense and interest expense and related fees.
Crude gathering volumes also decreased in 1995 and 1994. During 1994, the United
States refining industry experienced its worst margins since the inception of
the Partnership in 1990. Although the Partnership has achieved certain
reductions in marketing, general and administrative expenses since 1993,
including cost reduction from the move of the Partnership's corporate offices in
December 1994, the Partnership's interest expense and related fees, as well as
depreciation expense, have continued to increase. The Partnership's return to
profitability and long-term viability is dependent upon restructuring its credit
facility, increased volumes and/or improved profit margins as well as continued
cost control initiatives.

At September 6, 1996, the Partnership's debt exceeded $52.5 million, of
which $44.6 million is scheduled to mature on July 31, 1997; thus the
Partnership must restructure the terms of its debt facilities or obtain
alternative means of financing prior to this date.

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<PAGE> 29

CAPITAL EXPENDITURES

For the first six months of 1996, the Partnership incurred approximately
$964,000 of maintenance capital expenditures. Maintenance capital expenditures
for 1995 totaled $1.2 million.

CREDIT FACILITIES

Under the amended credit facility, the Partnership also has available to it
a revolving line of credit of $8.0 million (the "Revolver") and a $45 million
term loan (the "Term Loan"). The amount available under the Revolver is subject
to a borrowing base which includes a reduction by the amount of letters of
credit issued under the Facility A. Advances under the Revolver and Term Loan
bear interest at prime plus 2% and 3%, respectively, payable monthly. The prime
rate was 8.25% as of June 30, 1996. The Term Loan is subject to a facility fee
of approximately 5% per annum commencing January 1, 1996 and payable at maturity
which is July 31, 1997. At June 30, 1996, the Partnership had accrued $1 million
in facility fees which was subsequently reduced by an amendment fee of $400,000
paid to the banks. This fee will be discontinued upon the adoption of the
Proposed Amendments and the amount accrued will be forgiven. The Partnership has
pledged substantially all its assets and the assets of its subsidiaries as
collateral. In addition, the General Partners guaranteed the facility and Pride
SGP as guarantor has pledged its assets at no cost to the Partnership as
collateral for such loans. The Partnership may elect to prepay the credit
facilities without any prepayment penalty. The fee for the unused portion of the
Revolver is one-half of 1% per annum. At June 30, 1996, the balances outstanding
under on the Revolver and Term Loan were $0 and $42.9 million respectively. The
Partnership is required to make scheduled principal payments on the Term Loan in
the amount of $120,000 each month beginning September 5, 1996 plus quarterly
principal payments in the amount of 80% of adjusted income of the Partnership
("excess cash," as defined in the credit agreement), for the preceding quarter.
The Partnership has classified $1.8 million of the Term Loan as current as of
June 30, 1996. Advances under the Revolver are subject to repayment on a daily
basis. Subject to the Borrowing Base, the Partnership may borrow any amounts
previously repaid.

The credit facility also includes a $2.5 million uncommitted line of credit
("Uncommitted Line"). Advances under the Uncommitted Line are made solely at the
lenders' discretion and bear interest at the prime rate plus 4%. The Uncommitted
Line must be completely paid off for fifteen consecutive days each month. There
were no advances under the Uncommitted Line at June 30, 1996.

The amended credit agreement also requires the Partnership to pay a monthly
monitoring fee of $10,000 and restricts the payment of distributions to
Preferred and Common Unitholders throughout the term of the amended credit
agreement.

The amended and restated credit agreement contains certain restrictive
covenants which, among other things, impose limitations with respect to
incurrence of additional indebtedness or liens, distributions, guarantees,
mergers, consolidation and specified sales of assets. The Partnership is also
required to satisfy certain financial tests including net worth, working
capital, fixed charge coverage and limitations on capital expenditures.

The Partnership has two outstanding financing agreements to fund working
capital with Pride SGP, the Special General Partner, entered into on March 26,
1993 and September 7, 1995. Pride SGP has made

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<PAGE> 30

unsecured loans to the Partnership in the principal amount of $2.5 million,
bearing interest at prime plus 2%, and the Partnership is required to pay
interest only during the term of such loan. The prime rate was 8.25% at June 30,
1996. The loans mature July 31, 1997. Upon completion of refinancing, $2 million
of the $2.5 million will convert to either Units or a subordinated convertible
preferred equity. See "Agreement with Credit Facility Lenders to Restructure
Debt -- Conversion of SGP Notes."

The Partnership also has a nonrecourse loan from Diamond Shamrock with an
outstanding balance of $5.8 million at June 30, 1996, bearing interest at 8% per
annum with monthly interest payments. The assets of Pride Borger, Inc., which
owns 50% of the Texas Plains System, are pledged as collateral. Pride Borger,
Inc. has also guaranteed the note. Monthly principal payments are made to
Diamond Shamrock based on the number of throughput barrels for the prior month
in the Texas Plains System. Current maturities are estimated to be $158,000 at
June 30, 1996.

During 1995, the Partnership converted non-interest bearing accounts
payable to the United States Government related to pricing adjustments which had
been accrued since 1993 to a $2.4 million installment loan. The principal
balance was $1.8 million at June 30, 1996. The note bears interest based on the
rate set by the Secretary of the Treasury. This rate was 5.875% as of June 30,
1996. The note requires monthly payments of $84,000. The note matures June 1,
1998. The Partnership has classified $922,000 of the note as current as of June
30, 1996.

On January 9, 1995, the Partnership executed a note to a local bank related
to the renovation and refinancing of its administrative offices in Abilene.
Prior to this, the Partnership had to lease additional office space from a third
party. The note bears interest at prime plus one-half of 1% and had an
outstanding principal balance of $381,000 at June 30, 1996. The note matures
January 9, 2000. The Partnership has classified $16,000 of the note as current
as of June 30, 1996.

At September 6, 1996, the Partnership's debt exceeded $52.5 million, of
which $44.6 million is due on July 31, 1997; thus the Partnership must
restructure the terms of its debt facilities or obtain alternative means of
financing prior to this date. The Partnership is considering alternatives to
refinance the debt, however, there are no assurances any refinancing will be
successful and the failure to refinance such debt could have a material adverse
effect on the Partnership.

If the Partnership is not able to consummate a refinancing of its debt, the
required principal payments on the amended credit facility and other loans would
total approximately $44.6 million by July 31, 1997. If the Partnership is not
able to consummate a refinancing or extension of its indebtedness prior to its
maturity, the Partnership would be in default under its amended credit
agreement, which default, if not waived, could be materially adverse to the
Partnership. The Partnership would not be able to meet the obligations with its
cash and securities and cash flows from operations. It is not possible to
determine what actions, if any, would be taken by the Partnership's bank lenders
in the event of a default by the Partnership under its credit facility, or what
effect such actions would have on the Partnership, or what actions the
Partnership might take in such circumstances. Such actions might include the
sale of equity and other interests in order to raise capital, the sale of assets
or a reorganization or liquidation and resulting dissolution of the Partnership.
For a description of the relative preferences of holders of Preferred Units and
Common Units in the event of dissolution of the Partnership, see "Current
Partnership Cash Distribution Policy -- Distributions Upon Liquidation" and
"Comparison of Preferred Units, Common Units, and Units." The Managing General
Partner believes that, if the Proposed Amendments are not adopted, it will be
difficult, if not impossible, for the Partnership to raise new capital or debt.

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<PAGE> 31

AGREEMENT WITH CREDIT FACILITY LENDERS TO RESTRUCTURE DEBT

Background and Summary of Bank Agreement

The Partnership has reached an agreement with the lenders under its credit
facility (the "Banks") to restructure the Partnership's existing bank debt (the
"Bank Agreement"). On August 13, 1996, the Partnership and the Banks executed
several documents that together constitute the Bank Agreement as discussed
herein. The Amended and Restated Credit Facility was effective upon execution.
Certain aspects of the Bank Agreement are conditioned upon the Proposed
Amendments being adopted by November 15, 1996, and other aspects of the Bank
Agreement are conditioned upon there being a subsequent refinancing of the
Partnership's credit facility with different third party lenders. Although there
is no guarantee that these conditions will be met, the Bank Agreement commits
the Banks and the Partnership to take certain actions with respect to the
restructure of the Partnership's credit facility and overall capitalization of
the Partnership if certain other steps are accomplished.

If the Proposed Amendments are approved by November 15, 1996 and other
specified conditions are met, the Banks have agreed to reduce the balance of the
Partnership's term loan from its current outstanding balance ($42,182,000 as of
September 6, 1996) to a balance of $25 million in exchange for the issuance to
the Banks of three series of convertible senior secured notes issued by the
Partnership which will be secured by the collateral currently pledged to the
Banks under the credit facility and mature on November 30, 1997. Upon the
adoption of the Proposed Amendments by November 15, 1996 and the satisfaction of
the other closing conditions, the Banks have also agreed to extend the maturity
of the Partnership's debt to November 30, 1997, and to lower certain interest
rates and fees associated with the Partnership's credit facility.

If the Partnership subsequently refinances its credit facility with
different third party creditors, pursuant to the terms of the Bank Agreement,
two of the three series of the convertible senior secured notes will
automatically convert into convertible preferred equity securities of the
Partnership. The series of senior secured notes that does not automatically
convert into preferred equity securities will automatically convert into
convertible senior notes if not included as a part of the refinanced debt. The
payment under such notes would be guaranteed by Pride SGP and secured by the
assets of Pride SGP.

The Proposed Amendments include the annexation of certificates of
designations establishing the terms of the convertible preferred equity
securities to be issued to the Partnership's current lenders if the
Partnership's credit facility is successfully refinanced after the adoption of
the Proposed Amendments. The convertible preferred units, if issued, will be
entitled to preferential quarterly payments beginning at a cash rate of 6% per
annum for the first three years and increasing periodically. The convertible
preferred units will be subject to mandatory redemption by the Partnership 5
years and 3 months after their issuance, or earlier in certain default
situations. They also will be subject to optional redemption by the Partnership
in cash and in some case in Units in certain circumstances. The convertible
preferred units will also be optionally convertible into Units at the holder's
option based upon a formula using the liquidation preference of the convertible
preferred units.

Series A, B and C Convertible Notes

As discussed above, if the Proposed Amendments are approved by November 15,
1996 and other specified closing conditions are met, the Banks will receive
three series of convertible senior secured notes issued by the Partnership
pursuant to the terms of a Note Agreement dated August 13, 1996: Series A Notes
in the aggregate principal amount of $2.5 million, Series B Notes in the
aggregate principal amount of not more than $12.5 million (the amount by which
the term note exceeds $32.5 million) and Series C Notes in the aggregate
principal amount of $5 million. The Series A, B, and C notes (collectively, the
"Senior Secured Notes") will be secured by the collateral currently pledged to
the Banks under the credit facility. Upon issuance, each Senior Secured Note
will mature on November 30, 1997, bear interest at the prime rate plus 100 basis
points per annum ("BPPA") payable monthly in cash only, and rank pari passu in
seniority with other bank credit facilities.

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<PAGE> 32

Prior to refinancing of the Partnership's credit facility, the Senior
Secured Notes may be prepaid in cash in whole at the option of the Partnership
at 100% of the principal amount plus interest thereon to the prepayment date.
After the refinancing of the Partnership's credit facility, the Series A Notes
can be prepaid in cash either in whole or in part at the option of the
Partnership.

The Series A Notes will be subject to optional conversion by holder's
election after December 31, 1997 into Units at a ratio of 2% of all outstanding
Units per $1 million liquidation preference. The Series B Notes will be subject
to optional conversion by holder's election after the earlier of (i) March 31,
1998, or (ii) 18 months from the adoption of the Proposed Amendments, into Units
at a ratio of 2% of all outstanding Units per $1 million liquidation preference.
The Series C Notes will be subject to optional conversion by holder's election
after the earlier to occur of the repayment and/or conversion of all Series A
Notes or December 31, 1997 into Units at a ratio of 2% of all outstanding Units
per $1 million liquidation preference. The Bank Agreement contains various
anti-dilution provisions which also affect the number of Units into which the
Senior Secured Notes are convertible. See "-- Anti-Dilution Provisions" below.
The Bank Agreement also provides that if the Partnership makes pro rata
distributions of warrants or other rights to purchase Units to its Unitholders,
the Senior Secured Notes will be treated for the purpose of such distribution as
if fully converted into Series B and C Units.

Series B and C Convertible Preferred Units

If the Partnership refinances its credit facility after the adoption of the
Proposed Amendments, pursuant to the terms of the Bank Agreement, the Series B
and C Senior Secured Notes will automatically convert into convertible preferred
equity securities of the Partnership. The Series A Senior Secured Notes, if not
included as a part of the refinanced debt, will automatically convert into
convertible senior notes that are not secured by the Partnership's assets but
that are guaranteed by Pride SGP.

The Proposed Amendments include the annexation of certificates of
designations establishing the terms of the convertible preferred equity
securities to be issued if the Series B and C Senior Secured Notes automatically
convert into convertible preferred equity securities of the Partnership. The
certificates of designations provide for a series of newly created Series B
Cumulative Convertible Preferred Units (the "Series B Units") and a series of
newly created Series C Cumulative Convertible Preferred Units (the "Series C
Units"). Each Series B and Series C Unit will have an initial stated value of
$1,000 per unit. The certificates of designations are included at the end of
Appendix A hereto.

The Series B and C Units, if issued, will be entitled to preferential
quarterly payments in an amount equal to 6% per annum in the first three years
after issuance, 12% per annum in the fourth and fifth years after issuance, and
15% per annum thereafter. In certain circumstances in the initial three year
period, the Partnership may elect to make distributions by the issuance of
additional securities at a rate of 8% per annum.

The Series B and C Units will be mandatorily redeemable by the Partnership
5 years and 3 months after their issuance or earlier upon the occurrence of
certain default events. The Series C Units will be callable in whole or in part
by the Partnership for Units at a ratio of 2% of all outstanding Units per $1
million liquidation preference, after the Series A Notes are repaid in full
(and/or converted into Units by their holders). In addition, the Series C Units
will be callable in whole or in part after the Series A Notes are repaid in full
(and/or converted into Units by their holders) for cash payment in the amount of
par plus accrued interest. Notwithstanding the foregoing, the Partnership will
not have a right to convert Series C Units into Units if the Series A Notes or
the Series B Units are in default. The Series B Units will be callable in whole
or in part after the Series A Notes are repaid in full (and/or converted into
Units by their holders) for cash payment in the amount of par plus accrued
interest. The Series B Units are not callable for Units by the Partnership at
any time. Any call for redemption of Series B or Series C Units in cash by the
Partnership will trigger an option, whether or not otherwise existing, for the
holders to convert the Series B or Series C Units into Units.

The Series B Units will be subject to optional conversion into Units at the
holder's election no later than one year from their issuance at a ratio of 2% of
all outstanding Units per $1 million liquidation preference. The Series C Units
will be subject to optional conversion into Units by the holder's election no
earlier than the date

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<PAGE> 33

of the full repayment and/or conversion of all Series A Notes or the date the
Series A notes become convertible, into Units at a ratio of 2% of all
outstanding Units per $1 million liquidation preference.

The Bank Agreement provides that conversions of Senior Secured Notes,
Series A unsecured notes, and Series B and Series C Units will be limited in
number as long as the Partnership is required to incur material expense for
partnership accounting and asset valuation in connection with conversions into
Units. With certain exceptions for proposed public sales and the payment of
accounting costs by holders, a maximum of approximately eight conversions could
occur at holders' options during any twelve month period.

Anti-Dilution Provisions

The certificates of designations for the Series B and Series C Units
contain provisions providing for the adjustment of the number of Units into
which the Series B and Series C Units are convertible upon the occurrence of
certain events, including any Unit split or distribution of additional Units by
the Partnership; the issuance of additional Units (or securities convertible
into or exchangeable for Units) by the Partnership at a price below the
then-current market price of the Units or below the conversion price of the
Series B or Series C Units, or the consummation by the Partnership of certain
significant transactions, such as a merger, consolidation, asset sale,
liquidation or recapitalization.

The certificates of designations also provide that the number of Units into
which the Series B and Series C Units are convertible will be adjusted upon the
issuance of any additional Units to the Special General Partner in the same
manner as for a distribution of additional Units by the Partnership without
consideration, whether or not the Partnership receives any consideration for the
issuance of the Units to the Special General Partner.

The Bank Agreement contains anti-dilution provisions substantially
identical to the ones described above providing for the adjustment of the number
of Units into which the Senior Secured Notes are convertible.

The holders of the Series B and Series C Units and Senior Secured Notes
will have the benefit of anti-dilution provisions that holders of Units will not
have. Therefore, upon the issuance of additional Units by the Partnership or the
occurrence of other dilutive events, the dilution of the ownership interests of
holders of Units will be greater than it would be in the absence of such
provisions.

Conversion of SGP Notes

The Partnership may convert the $2 million Pride SGP note and the $450,000
Pride SGP note into Units. Pursuant to the Bank Agreement, upon refinancing of
the Partnership's credit facility the Pride SGP $2 million note, if not
previously converted, will be converted into Units or subordinated convertible
preferred units of the Partnership. Any such subordinated preferred units will
convert into Units if the Series B or Series C Units or the unsecured Series A
Note convert into Units. The Bank Agreement prohibits the payment of principal
or interest to the Special General Partner pursuant to the SGP Notes or any
distributions with respect to such subordinated preferred units while any Senior
Secured Notes or Series B or C Units are outstanding.

Warrants Related to Pipeline Sale

The Bank Agreement provides for the issuance of warrants to purchase Units
if Pride SGP sells its pipeline system to the Partnership for Units. The
warrants will be automatically exercised for Units based on a formula using the
number of Units outstanding before and after such sale. Any Units received by
Pride SGP will be pledged to secure Pride SGP's guarantee of amounts due under
the credit facility or pursuant to the Senior Secured Notes or Series B or C
Units.

The purpose of the warrants is, in effect, to extend to the holders of any
Units into which the Senior Secured Notes or Series B and Series C Units shall
have been converted the anti-dilution protections provided to the holders of
such securities in the Bank Agreement and the certificates of designations in
connection with such a sale of the pipeline system.

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<PAGE> 34

Registration Rights Agreements

As part of the Bank Agreement, the Partnership has agreed to make up to two
registrations of Units with the Securities and Exchange Commission under the
Securities Act, upon the request of holders of Units originally acquired
pursuant to conversion of Senior Secured Notes or Series B or Series C Units or
acquired in certain other circumstances by the initial holders of such
securities. In addition, such holders will have certain preferential rights to
participate in over-allotment options and have piggyback registration rights in
other public offerings of Units by the Partnership.

Rights Offering Limitations

The Partnership has agreed to limit rights offerings to its Unitholders
while any Series B or C Units are outstanding to no more than two rights
offering in any four-year period and no more than one rights offering in any
12-month period. The exercise price for any rights cannot be less than
two-thirds of the conversion price of the Series B and C Units, and aggregate
cash proceeds to the Partnership cannot exceed $7.5 million per offering.

In connection with any rights offering, holders of Series B and Series C
Units and Senior Secured Notes will be entitled to receive such number of rights
that they would have been entitled to receive if they had previously converted
their Series B or Series C Units or Senior Secured Notes into Units, whether or
not they have the right to effect such conversion at the time of the rights
offering.

Other Provisions

As a part of the terms of the Bank Agreement, the Partnership will continue
to be subject to restrictions on its use of available funds as long as any
Senior Secured Notes or the Series B and Series C Units are outstanding. These
terms apply differently to the application of all funds received outside the
ordinary course of business generally, as a result of litigation proceeds, and
from offerings of Partnership securities.

THE SOLICITATION

VOTING SECURITIES, RECORD DATE AND OUTSTANDING UNITS

The Solicitation is being made on the terms and is subject to the
conditions in this Consent Solicitation Statement and the accompanying form of
Consent. Only Limited Partners or Assignees who are record holders of Preferred
or Common Units on the Record Date shall be taken into account for the purpose
of determining whether the requisite level of approval for the Proposed
Amendments has been achieved. With respect to voting rights attributable to
Preferred Units that are owned by Assignees who have not yet been admitted as
Limited Partners, the Managing General Partner shall be deemed to be the Limited
Partner with respect thereto and shall grant or withhold consent on behalf of
such Preferred Units in accordance with the written direction of such record
holder or absent direction of such record holder, shall withhold such Consent.
Each record holder of a Preferred Unit has a vote according to his percentage
interest in the Partnership.

The Common and Preferred Units are comprised of units of Partnership
interests of Limited Partners and Assignees. On the Record Date, there were 505
holders of record of the Partnership's Preferred Units with a total of 4,700,000
Preferred Units outstanding, and one holder of record of the Partnership's
Common Units which is Pride SGP with a total of 5,250,000 Common Units
outstanding. Currently all of the Preferred Units are deposited with
ChaseMellon, as depositary units.

CONSENT AND REVOCATION OF CONSENT

The Partnership will accept forms of Consent at any time before the
Expiration Date, which is November 15, 1996. The enclosed form of Consent, when
properly completed and returned, will constitute a Unitholder's consent or the
withholding of such consent to the approval of the Proposed Amendments in
accordance with the instructions contained therein. If a Unitholder executes and
returns a form of Consent

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<PAGE> 35

and does not specify otherwise, the Units represented by such form of Consent
will be voted "for" approval of the Proposed Amendments in accordance with the
recommendation of the Managing General Partner.

A Unitholder who has executed and returned a form of Consent may revoke it
at any time before the Expiration Date by (x) executing and returning a form of
Consent bearing a later date, or (y) filing written notice of such revocation
with the Secretary of the Managing General Partner stating that the form of
Consent is revoked. Any such written notice or later dated form of Consent
should be sent to the principal executive offices of the Partnership at 1209
North Fourth Street, Abilene, Texas 79601, Attention: Judy Sharrow.

REQUIRED LEVEL OF CONSENT

Pursuant to the Partnership Agreement, the Proposed Amendments require the
approval of holders of 66 2/3% of the outstanding Preferred Units and the
approval of the holders of 66 2/3% of the outstanding Common Units, in each case
as of the close of business on the Record Date, and the approval of the Special
General Partner for adoption.

Because the approval of holders of 66 2/3% of the total outstanding Common
and Preferred Units, including holders of 66 2/3% of each of the Preferred Units
and the Common Units as a class is required to approve the Proposed Amendments,
withholding Consent will have the same effect as a vote against the Proposed
Amendments.

The executive officers and directors of the Managing General Partner own
73,635 Preferred Units (approximately 1.6% of the total Preferred Units
outstanding), and they have advised the Partnership that they each intend to
Consent, as to their Preferred Units, to the Proposed Amendments. The Special
General Partner owns 100% of the currently outstanding Common Units, and it has
given its approval to the Proposed Amendments in its capacity as Special General
Partner, and has received instructions allowing it to vote at least 66 2/3% of
the Common Units for the Proposed Amendments. For further information concerning
the ownership of Common and Preferred Units by the Managing General Partner's
affiliates, executive officers and directors, see "Principal Unitholders."

SOLICITATION OF CONSENTS

The cost of soliciting consents will be borne by the Partnership. To assist
in the solicitation of consents, the Partnership has engaged Kissel-Blake Inc.
for a fee of $6,000, plus reasonable out-of-pocket expenses. In addition, the
Partnership will reimburse brokers, banks and other persons holding Preferred
Units in their names, or in the names of nominees, for their expenses in sending
these consent solicitation materials to beneficial owners.

Other than as discussed above, the Partnership has made no arrangements and
has no understanding with any independent dealer, salesman or other person
regarding the solicitation of tenders or consents hereunder, and no person has
been authorized by the Partnership to give any information or to make any
representation in connection with the solicitation of consent to the Proposed
Amendments, other than those contained herein and, if given or made, such other
information or representations must not be relied upon as having been
authorized. Consents may be solicited by directors, officers and other employees
of the Managing General Partner, who will receive no additional compensation
therefor. The delivery of this Consent Solicitation Statement shall not, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date hereof.

NO APPRAISAL RIGHTS

Holders of Preferred and Common Units who object to the Proposed Amendments
and the resulting capital structure changes including changes to the Preferred
and Common Units will have no appraisal, dissenters' or similar rights (i.e.,
the right, instead of receiving Units, to seek a judicial determination of the
"fair value" of their Preferred or Common Units and to compel the purchase of
their Preferred or Common Units for cash in that amount) under state law or the
Partnership Agreement, nor will such rights be voluntarily accorded to holders
of Preferred and Common Units by the Partnership. Thus, approval of the

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<PAGE> 36

Proposed Amendments by the requisite Consent of holders of Preferred Units and
Common Units will bind all holders of Preferred and Common Units, and objecting
holders of Preferred and Common Units will have no alternative to receipt of
Units other than selling their Preferred or Common Units prior to the
effectiveness of the Proposed Amendments.

CURRENT PARTNERSHIP CASH DISTRIBUTION POLICY

GENERAL

The following section sets forth the current cash distribution policy of
the Partnership as prescribed by the Partnership Agreement. If the Proposed
Amendments are adopted, the cash distribution provisions of the Partnership
Agreement will be materially changed. However, please note that the Managing
General Partner does not believe that the Partnership will make any cash
distribution to Unitholders in the foreseeable future. See "Risk Factors and
Other Considerations -- Uncertainty Regarding Future Distributions."

The Partnership Agreement provides for quarterly distributions of available
cash from operations ("Available Cash"). Available Cash for any calendar quarter
consists generally of the Partnership's net income for such quarter, as
determined in accordance with generally accepted accounting principles
(excluding gain and loss on the sale of capital assets),

<TABLE>
<S> <C> <C> <C>
(a) plus (i) Depreciation, amortization and other noncash charges (less noncash
credits) for such quarter,
(ii) the amount of any reduction in reserves of the Partnership of the types
referred to in (b)(iv) below during such quarter,
(iii) at the option of the Managing General Partner, a cumulative amount (the
"Special Amount") not to exceed $10 million in the aggregate for such
quarter and all previous quarters prior to the Initial Conversion Date,
to the extent Available Cash in such quarter is otherwise insufficient to
distribute the Base Amount in respect of the Preferred Units, and
(b) minus (i) all payments of principal on Partnership indebtedness made during such
quarter by the Partnership (other than principal payments made with the
proceeds from bank borrowings, sales of debt or equity securities or
sales of capital assets),
(ii) capital expenditures made by the Partnership during such quarters (other
than capital expenditures financed or anticipated to be refinanced with
the proceeds from bank borrowings, sales of debt or equity securities or
sales of capital assets),
(iii) investments for such quarter in any entity to the extent that such
investments are not otherwise included under clauses (b)(i) or (ii)
(other than investments financed or anticipated to be refinanced with the
proceeds from bank borrowings, sales of debt or equity securities or
sales of capital assets), and
(iv) the amount of reserves established by the Managing General Partner during
such quarter that are necessary or appropriate (A) to provide funds for
the future payment of items of the types specified in clauses (b)(i) and
(b)(ii) above, (B) to provide for additional working capital, (C) to
provide funds for cash distributions with respect to any one or more of
the next four quarters or (D) to provide funds for the future payment of
interest.
</TABLE>

Each distribution of Available Cash is generally made 2% to the General
Partners and 98% to the Unitholders, in the manner specified below, subject to
distributions with respect to the Incentive Interests and the SPU.

DISTRIBUTIONS PRIOR TO THE INITIAL CONVERSION DATE

For each calendar quarter ending prior to the Initial Conversion Date,
holders of the Preferred Units are entitled to a quarterly, cumulative,
preferred distribution of Available Cash of $.65 per Unit (the "Base Amount")
($2.60 per Unit on an annualized basis) plus the amount of any cumulative
arrearages in the Base

29
<PAGE> 37

Amount with respect to all prior quarterly periods before any Available Cash may
be distributed in respect of the Common Units. Concurrently with any
distribution to the holders of Units (including the quarterly, cumulative,
preferred distribution to holders of Preferred Units), the General Partners will
receive a distribution equal to 2% of the total amount being distributed. The
"Initial Conversion Date" is the first day of the third calendar quarter
following the period that ends on the later of (i) December 31, 1994 and (ii)
the last day of the quarter in which all arrearages in the Base Amount in
respect of the Preferred Units have been paid (the "Initial Period"). Prior to
the Initial Conversion Date, distributions by the Partnership of any Available
Cash remaining after distribution of the Base Amount in respect of the Preferred
Units plus all arrearages in the Base Amount with respect to such Preferred
Units are to be distributed first 2% to the General Partners and 98% to all
holders of Common Units, pro rata, until there has been distributed in respect
of each outstanding Common Unit the Base Amount for such quarter and any
permitted arrearages. If, for any quarter ending prior to the Initial Conversion
Date, Available Cash is sufficient to make additional distributions, the holders
of the Preferred Units and the Common Units are to share, pro rata, in such
distributions subject to the right of the General Partners to receive 2% of all
distributions and certain distributions in respect of the Incentive Interests
and SPU. See " -- Distributions in Respect of Incentive Interests and SPU."
Beginning in the calendar quarter following substantial completion of the
expansion of the Refinery as determined by an independent engineering firm, the
Common Units began to accrue arrearages in distributions not paid to the extent
of the Base Amount with respect to such Common Units. These arrearages are to be
paid out of Available Cash in excess of the Base Amount in respect of the
Preferred Units (including all arrearages) and the Base Amount in respect of the
Common Units. No Common Unit arrearages are to be paid or will accrue after the
Initial Conversion Date and any accumulated Common Unit arrearages then existing
are to be canceled. Arrearages with respect to distributions on the Units are
cumulative but do not bear interest. Distributions with respect to the Preferred
Units in excess of the Base Amount in any quarter will not affect the right of
the Preferred Units to receive the Base Amount plus any arrearages with respect
thereto for any subsequent quarter.

DISTRIBUTIONS AFTER THE INITIAL CONVERSION DATE

Preferred Units that are not converted on or after the Initial Conversion
Date continue to be entitled to receive a quarterly distribution equal to the
Base Amount (the "Preferred Amount") plus any arrearages therein before any
distributions are made in respect of the Common Units. Accordingly,
distributions by the Partnership of Available Cash with respect to each calendar
quarter after the Initial Conversion Date are first made 2% to the General
Partners and 98% to the holders of the outstanding Preferred Units until there
has been distributed in respect of each outstanding Preferred Unit (i) the
Preferred Amount plus (ii) the amount of any cumulative arrearages in the Base
Amount and (iii) the amount of any cumulative arrearages in the Preferred Amount
with respect to all prior quarterly periods. Thereafter, distributions by the
Partnership of any remaining Available Cash for each calendar quarter ending
after the Initial Conversion Date will be distributed 2% to the General Partners
and 98% to all holders of Common Units subject to distributions in respect of
Incentive Interests and the SPU. See " -- Distributions in Respect of Incentive
Interests and SPU."

For information concerning the convertibility of the Preferred Units into
Common Units after the Initial Conversion Date and upon certain other
circumstances and the rights of the Partnership, in certain instances, to redeem
the Preferred Units. See "Description of the Units -- Conversion and Redemption
of Preferred Units."

DISTRIBUTIONS IN RESPECT OF INCENTIVE INTERESTS AND SPU

In consideration for managing the Partnership, the Managing General Partner
has received Incentive Interests representing the right to receive cash
distributions if distributions in respect of the Preferred Units and the Common
Units exceed specified levels. The Incentive Interests are exclusive to and
non-assignable by the Managing General Partner except that such interest will be
assigned to any successor managing general partner. For any calendar quarter
ending prior to the Initial Conversion Date, with respect to which Available
Cash is distributed in respect of the Preferred Units and the Common Units in an
amount equal to the Base

30
<PAGE> 38

Amount plus any cumulative arrearages in the Base Amount plus certain additional
distributions, and for any calendar quarter ending after the Initial Conversion
Date with respect to which Available Cash is distributed in respect of the
Preferred Units in an amount equal to the Preferred Amount plus any cumulative
arrearages in the Preferred Amount with respect to all prior quarterly periods,
and in respect of the Common Units in an amount equal to the Base Amount plus
certain additional distributions, the Managing General Partner will be entitled
to receive, in addition to distributions in respect of its 1.9% general partner
interest, certain distributions in respect of the Incentive Interests. The
amount of these distributions are determined based upon the level of quarterly
distribution of Available Cash per Unit and the Annual Percentage Yield to
Unitholders as calculated in accordance with the terms of the Partnership
Agreement, and certain "Target Amounts."

The Special General Partner was allocated certain taxable income for 1990
otherwise allocable to Unitholders ("Special Capital"), including approximately
$5 million of taxable income for 1990 otherwise allocable to the holders of
Preferred Units, for which it was issued a special redeemable partner unit
("SPU"). The SPU represents the right to receive a quarterly distribution,
commencing from and after January 1, 1994 and ending when the Special Capital
(plus the cumulative yield thereon) has been fully repaid, of (i) an amount
equal to a cumulative annual 10% yield, from and after January 1, 1994, on the
remaining Special Capital and (ii) an amount equal to 15% annually of the
initial Special Capital; provided that no distribution shall be made in respect
of the SPU unless and until the Base Amount or Preferred Amount (as the case may
be) and any accrued and unpaid arrearages in respect of the Preferred Units and
the Common Units for each such quarter have been paid.

CERTAIN ADDITIONAL DISTRIBUTIONS

The Partnership Agreement also contains provisions governing certain
preferences and priorities upon the distribution of certain distributable assets
including debt securities or other property or assets of the Partnership, net
proceeds to the Partnership from borrowings, sales of debt or equity securities,
and sales or other voluntary or involuntary dispositions or capital assets.

DISTRIBUTIONS UPON LIQUIDATION

Upon dissolution and liquidation of the Partnership, Partnership cash (or
other assets) is applied first to the payment of creditors of the Partnership in
the order of priority provided by law and to the creation of a reserve of cash
or other assets of the Partnership for contingent liabilities in an amount, if
any, determined by the liquidator to be appropriate for such purposes. Any
remaining cash (or other assets) will be distributed to the partners in
proportion to their adjusted capital account balances. Immediately prior to
liquidation, capital accounts will be adjusted to take into account any net
unrealized gain or loss in the Partnership's assets. To the extent that there is
net unrealized gain in the Partnership's assets, such gain will be allocated
first 98% to holders of Preferred Units (in proportion to their Preferred Unit
ownership) until their capital accounts equal, on a per-unit basis, the
Preferred Unit Redemption Amount. To the extent there is a net unrealized loss
(and the per unit capital account balance for the Preferred Units is less than
the Preferred Unit Redemption Amount), such loss will be allocated first to the
Common Units to the extent of their positive capital account balances.

"Preferred Unit Redemption Amount" means, at any time with respect to any
Preferred Unit, the initial public offering price per Preferred Unit less any
amounts previously distributed in respect of a Preferred Unit other than from
Available Cash (but not including amounts previously distributed in respect of
arrearages) plus the amount of any accrued and unpaid arrearages in the Base
Amount or Preferred Amount. As of June 30, 1996, the Preferred Unit Redemption
Amount was $30.85.

ADJUSTMENT OF BASE AMOUNT, PREFERRED AMOUNT AND TARGET AMOUNTS

The Base Amount, the Preferred Amount, the Target Amounts and the Capital
Target Amount are to be proportionately adjusted in the event of any combination
or subdivision (whether effected by a distribution payable in Units or
otherwise) of Units. The Base Amount, the Preferred Amount, the Target Amounts
and

31
<PAGE> 39

the Capital Target Amount are also to be adjusted (but not prior to the end of
the Initial Period) if legislation is enacted which causes the Partnership to
become taxable as a corporation or as an association taxable as a corporation
for federal income tax purposes.

COMPARISON OF PREFERRED UNITS, COMMON UNITS, AND UNITS

If the Proposed Amendments are adopted and the Preferred Units and Common
Units are changed into Units, the rights and limitations to which holders of
Units will be subject will be similar in some respects and will differ in other
respects from those to which they are subject as holders of Preferred and Common
Units.

Distributions. Holders of Preferred Units are currently entitled to
quarterly cumulative, preferred distribution and special distribution rights of
the General Partners of Available Cash equal to the Base Amount ($.65 per Unit)
and any arrearages from prior quarters before any Available Cash may be
distributed with respect to the Common Units, subject to the General Partners'
2% distribution. Following payment of preferred distributions to holders of
Preferred Units, holders of Common Units are currently entitled to quarterly
cumulative distributions of Available Cash equal to the Base Amount ($.65 per
Unit) and any arrearages from applicable prior quarters before the remainder of
Available Cash is allocated pro rata between the Preferred and Common Units,
subject to the General Partners' 2% distribution and special distribution rights
of the General Partners. The Partnership Agreement currently provides that all
Unitholder distributions are subject to the right of the Managing General
Partner to receive distributions in respect of the Incentive Interests (the
right to receive certain incentive distributions of Available Cash in the event
cash distributed for any calendar quarter in respect of the Preferred Units and
the Common Units exceeds specified target levels) and the Special General
Partner with respect to the special redeemable partnership unit ("SPU").

Following the effectiveness of the Proposed Amendments, holders of Units
will be entitled to pro rata quarterly distributions of Available Cash, subject
only to the General Partners' 2% distribution. The Units will not provide for
any base amount distribution per quarter or for the cumulation of any such
distribution amount per quarter.

The ability of the Partnership to make distributions depends upon the
Partnership's operating performance. Historically, the Partnership's operating
results have varied on a seasonal basis, and such variations have resulted in
significant changes in the cash flow generated by the Partnership from quarter
to quarter. The Partnership's businesses have also historically been cyclical,
with significant changes in the cash flow generated at the different stages of
its business cycle. In addition, certain determinations that affect the amount
of Available Cash to be distributed by the Partnership, such as the level of
cash reserves, are made at the sole discretion of the Managing General Partner
after considering various factors, including, but not limited to, the
Partnership's current liabilities and the current interest rate on borrowings.
Therefore, there can be no assurance that cash distributions will be made, or if
made, at what level. In addition, contractual agreements of the Partnership may
also restrict the payment of distributions.

Current Preferred Unit Preference on Liquidation. Any cash (or other
assets) of the Partnership remaining after the satisfaction of creditors will be
distributed to the partners in proportion to their adjusted capital account
balances. Immediately prior to liquidation, capital accounts will be adjusted to
take into account any net unrealized gain or loss in the Partnership's assets.
To the extent that there is net unrealized gain in the Partnership's assets,
such gain will be allocated first 98% to holders of Preferred Units (in
proportion to their Preferred Unit ownership) until their capital accounts
equal, on a per-unit basis, the Preferred Unit Redemption Amount. To the extent
there is a net unrealized loss (and the per unit capital account balance for the
Preferred Units is less than the Preferred Unit Redemption Amount), such loss
will be allocated first to the Common Units to the extent of their positive
capital account balances. See "Current Partnership Cash Distribution
Policy -- Distributions Upon Liquidation."

Transferability. Preferred Units evidenced by Depositary Receipts are
freely transferable and trade on the New York Stock Exchange (the "NYSE"). The
Common Units held by the Special General Partner are currently transferable in
accordance with the terms of the Partnership Agreement if the transaction is
registered under the Securities Act or an exemption is available.

32
<PAGE> 40

The Units are not listed on the NYSE, but application is being made to list
the single class of Units on the NYSE and effectiveness of the Proposed
Amendments is conditioned upon the approval for listing of the Units on the
NYSE. The Units evidenced by Depositary Receipts that result from the changes to
the Preferred Units will be freely transferable. The Units held by the Special
General Partner as a result of the changes to the Common Units will be freely
transferable in a transaction registered under the Securities Act or for which
an exemption from such registration is available.

Partnership Reports. The Partnership files reports required by the Exchange
Act and provides holders of both Preferred and Common Units reports required
under the rules of the SEC and NYSE. The Partnership will continue to file
reports required under the Exchange Act and provide the holders of Units reports
required under the rules of the SEC and the NYSE.

Voting Rights. Holders of Preferred and Common Units generally have voting
rights on issues such as certain amendments of the Partnership Agreement,
dissolution of the Partnership, sale of substantially all of the Partnership's
assets, removal and replacement of the General Partners and mergers or
consolidations. Holders of Units will have substantially the same voting rights
with respect to such issues.

The Partnership Agreement currently prohibits the issuance of any
Partnership equity interests ranking senior to the Preferred Units (in priority
of distribution prior to, or upon, liquidation) prior to the Initial Conversion
Date without the approval of holders of at least 66 2/3% of the outstanding
Preferred Units. In addition, the Partnership is currently prohibited from
issuing additional Preferred Units or any other equity securities of the
Partnership with a comparable value to and ranking on a parity with the
Preferred Units prior to the Initial Conversion Date without the requisite
approval of 66 2/3% of the outstanding Preferred Units described above. If the
Proposed Amendments are adopted, the Partnership Agreement will no longer
contain restrictions on the ability of the Partnership to issue Partnership
equity interests, whether or not ranking senior to the Units.

THE PROPOSED AMENDMENTS

The Proposed Amendments will change the Preferred and Common Units into
Units, a single class of limited partner units with identical rights and
privileges, and eliminate the respective cumulative distribution arrearages of
the Preferred and Common Units. The Proposed Amendments will also eliminate the
distribution preference as well as the preferences upon dissolution currently
attributable to the Preferred Units.

The Proposed Amendments provide that immediately prior to the effectiveness
of the changes to the Preferred and Common Units, the Common Units shall be
subject to a 1 for 21 reverse unit split. Subsequent to the reverse unit split,
each Preferred Unit and each Common Unit will change into one Unit. Therefore,
immediately following the effectiveness of the Proposed Amendments, the former
holders of Preferred Units will own in aggregate 4,700,000 Units or an
approximate 93.1% limited partner interest in the Partnership, and the Special
General Partner's limited partner interest will be reduced from 5,250,000 Common
Units or an approximate 51.7% limited partner interest to 250,000 Units or an
approximate 4.9% interest. Currently the holders of Preferred Units only own in
aggregate an approximate 46.3% limited partner interest in the Partnership.

The Proposed Amendments will also eliminate certain contingent special
distribution rights represented by Incentive Interests held by the Managing
General Partner and the special redeemable partner unit ("SPU") held by the
Special General Partner. As a result, if the Proposed Amendments are approved,
all holders of Units will share, pro rata, in future Partnership distributions
to holders of Units, subject only to the right of the General Partners to
receive 2% of all distributions. The ability of the Partnership to make
distributions depends upon the Partnership's operating performance, the
servicing of Partnership debt, the amount of reserves for and rate of capital
expenditures and other factors. Therefore, there can be no assurance that cash
distributions will be made, or if made, at what level. In addition, contractual
agreements of the Partnership may also restrict the payment of distributions.
See "Conflicts of Interest of the General Partners"

33
<PAGE> 41

for a description of two plans that have been established in part to provide
incentives to key employees of the Managing General Partner for their activities
on behalf of the Partnership.

The Proposed Amendments also include by annexation certificates of
designations containing the terms and conditions of certain convertible
preferred equity securities which may be issued to the Partnership's bank
lenders in lieu of certain Partnership debt if the Partnership successfully
refinances its credit facility with different third party creditors following
the adoption of the Proposed Amendments. The certificates of designations
provide for Series B Units, a series of newly created Series B Cumulative
Convertible Preferred Units, and Series C Units, a newly created Series C
Cumulative Convertible Preferred Units. The Series B and C Units, if issued,
will be entitled to preferential quarterly payments in an amount equal to 6% per
annum in the first three years after issuance, 12% per annum in the fourth and
fifth years after issuance, and 15% per annum. In certain circumstances in the
initial three year period, distributions could be paid by the issuance of
additional securities at a rate of 8% per annum.

The Series B and C Units would be mandatorily redeemable by the Partnership
5 years and 3 months after their issuance or earlier upon the occurrence of
certain default events. They also would be subject to optional redemption by the
Partnership in cash under certain circumstances. In certain circumstances, the
Partnership will be able to call the Series C Units for Units at a ratio of 2%
of all outstanding Units per $1 million liquidation preference. See "Agreement
with Credit Facility Lenders to Restructure Debt -- Series B and C Convertible
Preferred Units and -- Anti-Dilution Provisions" for a more detailed description
of the terms of the Series B and C Units.

The Proposed Amendments provide that if the Partnership issues additional
Partnership securities, other than Units, after the adoption of the Proposed
Amendments, the terms of such additional Partnership securities may be set forth
in a certificate of designations. In such case, the Managing General Partner
would attach the certificate of designations to the Partnership Agreement as an
annex and it would be incorporated into the Partnership Agreement. Certificates
of designations may be amended by the approval of a majority in interest of
holders of the Partnership security issued pursuant to the terms of such
certificate of designations, together with the approval of the Managing General
Partner.

The Proposed Amendments also will decrease the requisite vote for removal
of the Managing General Partner if, after March 31, 1998, the Series B and
Series C Units have not become issuable by the Partnership pursuant to the terms
of the Bank Agreement. The Proposed Amendments also prohibit reimbursement of
the Managing General Partner by the Partnership for compensation paid by the
Managing General Partner to certain individuals who are also shareholders of the
Managing General Partner pursuant to employment agreements.

The principal conditions to the effectiveness of the Proposed Amendments
are (i) approval of the Proposed Amendments by the consent of holders of 66 2/3%
of each of the outstanding Preferred Units and Common Units, acting as separate
classes, and the approval of the Special General Partner and (ii) approval of
the single class of Units for listing on the NYSE.

Promptly after the adoption of the Proposed Amendments, the Managing
General Partner, the Special General Partner and the Managing General Partner on
behalf of the Limited Partners will execute the amended and restated partnership
agreement incorporating the Proposed Amendments, which will be effective in
accordance with its terms upon its execution. Thereafter, all current holders of
Preferred and Common Units, including non-consenting holders, and all subsequent
Unitholders will be bound by the Proposed Amendments and all Preferred and
Common Units will be converted into Units.

The Proposed Amendments also include a number of technical amendments to
the current Partnership Agreement, designed to facilitate the amendments
described above. Such technical amendments are set forth in full in Appendix A
hereof, which is a copy of the Partnership Agreement, as amended to reflect the
Proposed Amendments, and marked to show all changes from the Partnership
Agreement as currently in effect. All text of the current Partnership Agreement
which will not be included in the Partnership Agreement as amended is shown with
a line through it. Any new text has been underlined. Text which will not be
changed by the Proposed Amendments is unmarked.

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<PAGE> 42

MECHANICS OF PARTNERSHIP CAPITAL STRUCTURE CHANGES
CONTEMPLATED BY PROPOSED AMENDMENTS

If the Proposed Amendments are adopted and the other conditions to the
effectiveness of the Proposed Amendments are met, the changes contemplated by
the Proposed Amendments will be effected as follows:

- Immediately prior to the effectiveness of the changes to the Preferred
and Common Units, the currently outstanding Common Units shall be subject
to a 1 for 21 reverse unit split.

- Immediately after the reverse unit split, each Preferred Unit will change
into one Unit, and each Common Unit will change into one Unit. Therefore,
upon immediately following the effectiveness of the Proposed Amendments,
the former holders of Preferred Units will own in aggregate 4,700,000
Units or an approximate 93.1% limited partner interest in the
Partnership, and the Special General Partner's limited partner interest
will be reduced from 5,250,000 Common Units, an approximate 51.7% limited
partner interest, to 250,000 Units, an approximate 4.9% limited partner
interest.

- The Special General Partner's SPU will be eliminated. (The Special
General Partner will retain its 0.1% special general partner interest.)

- The Managing General Partner's Incentive Interest will be eliminated.
(The Managing General Partner will retain its 1.9% managing general
partner interest.)

Upon the effectiveness of the Amendment, Depositary Receipts evidencing
Preferred Units, certificates representing limited partner interests of holders
of Preferred Units, and the certificates representing limited partner interests
of the Special General Partner with respect to Common Units shall, without
further action on the part of the Partnership or the holder, evidence Units.

[ADD MECHANICS OF ISSUANCE OF SUBSTITUTE UNIT CERTIFICATES IF REQUIRED BY NYSE,
HOW CHANGES WILL BE HANDLED WITH DEPOSITARY]

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<PAGE> 43

MARKET FOR PARTNERSHIP'S PREFERRED UNITS AND STATUS OF
DISTRIBUTIONS TO HOLDERS OF PREFERRED AND COMMON UNITS

The Preferred Units of the Partnership are listed on the New York Stock
Exchange under the symbol "PRF." The following table sets forth, for the periods
indicated, the high and low closing prices of the Preferred Units as reported on
the New York Stock Exchange Composite Tape, and any arrearages with respect to
each quarter for the two most recent years.

<TABLE>
<CAPTION>
HIGH LOW ARREARAGES
---- --- ----------
<S> <C> <C> <C>
1994
First Quarter............................................ $8 3/8 $6 7/8 $ 0.65
Second Quarter........................................... 8 5/8 6 5/8 0.65
Third Quarter............................................ 7 4 3/4 0.65
Fourth Quarter........................................... 5 3/8 3 5/8 0.65
1995
First Quarter............................................ $5 5/8 $3 5/8 $ 0.65
Second Quarter........................................... 6 3 7/8 0.65
Third Quarter............................................ 4 1/4 3 1/2 0.65
Fourth Quarter........................................... 3 3/4 1 7/8 0.65
1996
First Quarter............................................ $3 1/2 $2 1/8 $ 0.65
Second Quarter........................................... 5 1/8 2 3/4 0.65
</TABLE>

Based on information received from its transfer agent, the Partnership
estimates the number of beneficial holders of Preferred Units of the Partnership
as of September 19, 1996 to be approximately 5,000.

Since the initial public offering on March 30, 1990, the Partnership has
declared and paid cash distributions of its Available Cash (as defined in the
Partnership Agreement, but generally cash derived from the Partnership's
operations) in an aggregate amount of $19,817,000 or $4.91 per Preferred Unit.
Beginning with the first quarter of 1992, Available Cash derived from operations
was insufficient to pay the Base Amount of $0.65 per Preferred Unit. As a
result, the Preferred Units have accumulated arrearages in an aggregate amount
of $53,345,000 or $11.35 per Preferred Unit through the quarter ended June 30,
1996.

The holders of the Common Units have received cash distributions from March
30, 1990 of $6,776,000 in the aggregate or approximately $1.29 per Common Unit.
No distributions were declared in respect of the Common Units for the years
ended December 31, 1991 through the date hereof. As a result, the Common Units
have accumulated arrearages in an aggregate amount of $68,250,000 or $13.00 per
Common Unit through the quarter ended June 30, 1996. Pursuant to the current
terms of the Partnership agreement, such arrearages would be paid only if there
were Available Cash in excess of the Base Amount in respect of the Preferred
Units (including all arrearages therein) and the Base Amount in respect of the
Common Units in any quarter ending prior to the Initial Conversion Date (as
defined below). No Common Unit arrearages would be paid after the Initial
Conversion Date and any accumulated common arrearages then existing would be
canceled. The Common Units were not entitled to and did not accumulate any
arrearages in cash distributions during the period from March 30, 1990 through
June 30, 1991.

The Base Amount is $0.65 per Unit quarterly or $2.60 per Unit on an
annualized basis. The Initial Conversion Date as defined in the Partnership
Agreement means the first day of the third calendar quarter following the later
to occur of December 31, 1994 and the last day of the calendar quarter in which
all arrearages in the Base Amount in respect of the Preferred Units have been
paid.

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<PAGE> 44

CONFLICTS OF INTEREST OF THE GENERAL PARTNERS

The Managing General Partner has certain potential conflicts of interest in
connection with the adoption of the Proposed Amendments. Certain conflicts of
interest could arise as a result of the General Partners' relationships with
their stockholders, on the one hand, and the Partnership, on the other hand. The
board of directors of each General Partner has a duty to manage such General
Partner in the best interests of its shareholders. As general partners of the
Partnership, the General Partners have a duty to manage the Partnership in the
best interests of its Unitholders and, consequently, are required to exercise
good faith and integrity in handling the assets and affairs of the Partnership
and other obligations assumed under the Partnership Agreement. As detailed in
"Certain Relationships and Related Transactions," the Managing General Partner
and the Special General Partner are owned to some extent by the same
individuals. A majority of the capital stock of the Special General Partner is
held by certain prior officers and directors of the General Partners and the
heirs of certain prior officers and directors of Pride SGP.

The Special General Partner is the sole holder of currently outstanding
Common Units, has certain contingent rights related to its SPU and owns a .1%
general partner interest. The Managing General Partner owns a 1.9% general
partner interest and owns Incentive Interests entitling it to certain contingent
distributions. By virtue of the ownership of the various interests by the
General Partners and the differences between their ownership interests and those
of the holders of Preferred Units, the Managing General Partner has a potential
conflict of interest in determining the terms of the Proposed Amendments as they
related to the capital restructuring of the Partnership. The Proposed Amendments
would eliminate both the Incentive Interests and the SPU.

The Partnership provides incentives for key executives and middle managers
employed by the Partnership through an Annual Incentive Plan. The Plan provides
for certain key executives to share in a bonus pool which varies in size with
the Partnership's operating income plus depreciation, calculated after bonus
accrual, after payments under the Partnership's unit appreciation plan, and
after proceeds of litigation, to the extent not otherwise included in operating
income ("Cash Flow"). Provided that Cash Flow exceeds $10 million, the key
executive bonus pool includes 8% of an amount equal to the Partnership's first
$2 million of Cash Flow in excess of $10 million, plus 12% of the next $4
million of Cash Flow, plus 15% of any Cash Flow in excess of $16 million. The
bonus pool for middle managers consists of up to 4% of Cash Flow, provided that
Cash Flow exceeds $8 million.

The Managing General Partner believes that these conflicts of interest are
mitigated by (i) the condition that the Proposed Amendments be approved by the
holders of 66 2/3% of the outstanding Common Units and holders of 66 2/3% of the
outstanding Preferred Units, voting as separate classes; (ii) the issuance of a
fairness opinion by an independent investment banking firm with respect to the
fairness from a financial viewpoint of the consideration to be received by the
disinterested holders of Preferred Units; and (iii) the review of certain
decisions of the Managing General Partner by the Conflicts and Audit Committee
of the Board of Directors of the Managing General Partner. The Managing General
Partner did not retain, and did not consider it necessary to retain, any person
to represent the holders of Preferred and Common Units or either class thereof
in negotiating the terms of the Proposed Amendments and resulting changes to the
Preferred and Common Units. The Managing General Partner believes the procedural
factors listed in clauses (i) through (iii) above are sufficient to ensure the
procedural fairness of the Transaction. The terms of the Proposed Amendments
might have been different had such a person or persons been retained.

The Conflicts and Audit Committee is a standing committee of the Board of
Directors of the Managing General Partner that is composed of persons who are
not officers, employees or owners of more than 5% of the voting securities of
the Managing General Partner, or its affiliates.

The Managing General Partner has also implemented a unit appreciation plan
under which certain key employees of the Partnership receive unit appreciation
rights, which entitle such key employees, upon exercise of such rights, to
receive cash equal to the difference in the market price of the Units on the
exercise date and the market price of the Units on the date on which such unit
appreciation rights were granted. It is anticipated that unit appreciation
rights aggregating approximately 8% of the total Units will be reserved for
issuance to key employees. However, no Units will actually be issued under this
plan.

37
<PAGE> 45

UNIT OWNERSHIP

As of the date of this Consent Solicitation Statement, 5,250,000 Preferred
Units were issued and outstanding, and 4,700,000 Common Units were issued and
outstanding. Of these issued and outstanding units, affiliates of the General
Partners owned approximately 1.6% of the Preferred Units and the Special General
Partner owned 100% of the Common Units, in addition to their combined 2% general
partner interest.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AS OF AUGUST 31, 1996.

The following table sets forth certain information with respect to each
person known by the Partnership to own beneficially 5% or more of the Preferred
Units and the Common Units as of August 31, 1996:

<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS AMOUNT PERCENT OF CLASS
------------------------------------ ------------------------- --------- ----------------
<S> <C> <C> <C>
Preferred Units James B. Stovell 930,000 19.8%
Mountain Lake
Lake Wales, FL 33859
Common Units Pride SGP, Inc. 5,250,000 100%
1209 North Fourth Street
Abilene, Texas 79601
</TABLE>

SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth certain information as of August 31, 1996,
concerning the beneficial ownership of Preferred Units by each director of the
Managing General Partner and by all directors and officers of the Managing
General Partner as a group.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME PREFERRED UNITS(1) OF CLASS
--------------------------------------------------------- ------------------ ----------
<S> <C> <C>
E. Peter Corcoran........................................ 64,100 1.4%
Brad Stephens............................................ 1,100 (2)
D. Wayne Malone.......................................... 4,135 (2)
Douglas Y. Bech.......................................... 300 (2)
Clark Johnson............................................ -- --
Robert Rice.............................................. 3,000 (2)
Craig Sincock............................................ -- --
Dave Caddell............................................. 1,000 (2)
Robert Cagle............................................. -- --
George Percival.......................................... -- --
All directors and officers as a group (10 persons)....... 73,635 1.6%
</TABLE>

- - - - ---------------

(1) Unless otherwise indicated, the persons named above have sole voting and
investment power over the Preferred Units reported.

(2) Each of these directors of the Managing General Partners owned beneficially,
as of August 31, 1996, less than 1% of the Preferred Units outstanding on
such date.

38
<PAGE> 46

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Partnership is managed by the Managing General Partner pursuant to the
Partnership Agreement. The Special General Partner, Pride SGP, is beneficially
owned approximately 18% by Mr. Schumacher (a past officer and director of the
Managing General Partner), 10% by Mr. W. E. Rector (a business partner of Mr.
Schumacher), 9% by Mr. Malone, 7% by Mr. Stephens, 5% by Mr. T. M. Broyles (a
past officer of the Managing General Partner), 4% by Mr. Corcoran, 2% by Mr.
Caddell, 21% by trusts established for the relatives of certain deceased members
of management, and 24% by relatives of certain deceased members of management.
The Managing General Partner is beneficially owned approximately 39% by Mr.
Malone, 39% by Mr. Stephens, 16% by Mr. Caddell, and 6% by Mr. Corcoran. Mr.
Schumacher retired as Chairman of the Managing General Partner as of March,
1994.

Effective March 30, 1990, the Partnership entered into an agreement with
Pride SGP to lease certain pipeline segments of the Crude Gathering System. As
consideration for this lease, the Partnership has agreed to perform all routine
and emergency maintenance and repair operations to the pipelines. The value of
such services is currently estimated to be approximately $200,000 annually. The
Partnership pays Pride SGP $0.20 per barrel rental on the Hearne to Comyn
segment of the pipeline which was activated in August 1992. For the six months
ended June 30, 1996 and for the year ended December 31, 1995, the Partnership
transported 16,222 BPD and 11,900 BPD, respectively, of high quality crude oil
to the Refinery. For the six months ended June 30, 1996 and for the years ended
December 31, 1995, 1994, and 1993, the Partnership paid, or accrued payments to,
Pride SGP of approximately $500,000, $873,000, $1.1 million and $1.1 million,
respectively, for the lease of the pipeline. Beginning in August 1995, payments
to Pride SGP were suspended pursuant to an amendment to the terms of the credit
agreement. Approximately $850,000, $351,000 and $88,000 are included in accounts
payable at June 30, 1996, December 31, 1995 and December 31, 1994 respectively,
for the lease of the pipeline. The lease agreement with Pride SGP was not
entered into on an arm's-length basis. The rent under the lease was determined
based on the revenue generated from an expected throughput of 20,000 BPD. While
management is not able to determine whether the terms of the agreement are
comparable to those which could have been obtained by unaffiliated parties,
management believes such terms are fair and reasonable given the importance to
the Partnership of the Hearne to Comyn pipeline segment which currently enables
the Partnership to gather and transport a greater supply of high quality crude
oil to the Refinery. In addition, management believes the value of the leased
segment of the Comyn pipeline system has increased with the development of the
Austin Chalk formation in South Central Texas and the increasing need for crude
oil transportation in that area.

The Partnership's right to use the leased segment of the pipeline
originally extended until 2000. During 1992, the lease was amended, whereby at
the Partnership's option, the lease may be extended through March 2013 as long
as certain minimum throughput levels are maintained. If such throughput levels
are not maintained during the extended term, the lease is cancelable by Pride
SGP with ninety days notice. The lease agreement was amended in early 1993 to
provide that any time during the lease, the Partnership may, upon 30 days'
notice to Pride SGP, purchase the Comyn pipeline for $10 million instead of the
original $15 million purchase price.

During the six months ended June 30, 1996 and the years ended December 31,
1995, 1994 and 1993, the Partnership sold approximately $3.4 million, $4.0
million, $2.8 million and $1.4 million, respectively, of refined product to
Dunigan Fuels. Mike Dunigan is a minority shareholder in Dunigan Fuels and is
also a beneficiary of two trusts that own stock in Pride SGP. The Partnership
had an accounts receivable balance from Dunigan Fuels of $370,000, $267,000,
$178,000, and $138,000 for the six months ended June 30, 1996 and the years
ended December 31, 1995, 1994, and 1993, respectively.

The Partnership leased an aircraft from the Managing General Partner for
$143,000 through June, 1993. In addition, the Partnership paid pilot salaries,
fuel, maintenance, and insurance on the plane and incurred costs of
approximately $207,000 associated with the lease cancellation. The Partnership
now utilizes a smaller plane from time to time, as needed, on a per hour market
rate basis from an entity controlled by Messrs. Malone and Stephens, officers of
the Managing General Partner. Payments to this entity totaled

39
<PAGE> 47

approximately $34,000, $72,000, $84,000 and $28,000 during the six months ended
June 30, 1996 and years ended 1995, 1994 and 1993, respectively.

Through November 1994, the Partnership leased truck tractors from a company
owned by the estate of Jimmy Morris, a stockholder of Pride SGP, for
approximately $6,000 to $8,000 per month. Lease payments related to this
property were approximately $36,000 in 1995, 1994, and 1993.

Law firms with which Mr. Bech, a current director of the Managing General
Partner, was or is a partner were paid $80,000, $155,000, $17,000 and $24,000
for legal services during the six months ended June 30, 1996 and years ended
1995, 1994 and 1993, respectively. Akin, Gump, Strauss, Hauer & Feld, L.L.P., of
which Mr. Bech is a partner, is representing the Partnership in connection with
the transactions described in this Consent Solicitation Statement.

At December 31, 1994, the Partnership had a $94,000 receivable from the
Managing General Partner and a $126,000 payable to Pride SGP. These amounts were
settled in January, 1995. The Managing General Partner has a 1.9% interest in
the income and cash distributions of the Partnership, subject to certain
adjustments. Certain members of the management of the Managing General Partner
are also members of the management of Pride SGP, which has a 0.1% general
partner interest and an approximate 51.7% limited partner interest in the
Partnership.

The Partnership also has outstanding two financing agreements with Pride
SGP entered into on March 26, 1993 and September 7, 1995. Pride SGP made
unsecured loans to the Partnership in the principal amount of $2.5 million, and
they require the Partnership to pay interest only during the term of such loans.
Such loans bear interest at prime plus 2%. The prime rate was 8.25% at June 30,
1996. The loans mature January 1, 1997 and were used to fund working capital.
Beginning in the latter part of 1995, the Partnership ceased making interest
payments on its notes payable to Pride SGP in accordance with an amendment to
the credit agreement. Accrued interest payable at June 30, 1996 and December 31,
1995 amounted to $194,000 and $68,000, respectively.

The Partnership previously purchased crude oil from Texland Petroleum,
Inc., a corporation owned 50% by each of Messrs. Schumacher and Rector. The
Partnership's purchases of crude oil were made pursuant to division orders which
did not require the Partnership to purchase or Texland to sell any specified
amounts of crude oil. Such crude oil purchases for the year ended December 31,
1993, which include amounts paid to Texland for the account of other parties,
amounted to approximately $4.5 million, which was less than 10% of the
Partnership's aggregate crude oil first purchases for each such period.

Because of the potential conflicts of interests involved with crude oil
purchased by the Partnership from Texland and, at the request of certain
affiliates of Pride SGP, Inc., the Audit and Conflicts Committee reviewed the
terms of these purchases. As a result of such review and although the prices
paid by the Partnership to Texland for both sour and sweet crude oil were
comparable to prices paid to Texland by unaffiliated third party crude oil
purchasers, the Committee believes that the Partnership paid higher prices for
sour crude oil to Texland than it may have paid if it had purchased sour crude
oil from unaffiliated third parties. All sweet crude oil purchased by the
Partnership from Texland was purchased at the posted price, which the
Partnership believes was no less favorable than could have been obtained from
third parties. During 1993, Texland refunded approximately $750,000 to the
Partnership. In addition, to minimize future conflicts of interest, the
Partnership discontinued the purchase of crude oil from Texland after April 1,
1993. The Partnership does not believe that the loss of Texland as a crude oil
supplier had any adverse effect on its ability to purchase crude oil necessary
for its operations.

In December, 1994, the General Partners and certain of Pride SGP's
shareholders settled litigation with respect to Pride SGP's Shareholders
Agreement between them and Mr. Robert J. Schumacher, the Managing General
Partner's former Chairman of the Board. In return for settling all claims
against him in such litigation, Mr. Schumacher was required to: (i) cancel
promissory notes receivable from the Managing General Partner and the
Partnership in the amounts of $106,000 and $300,000, respectively, and (ii)
honor certain agreements made with respect to Pride SGP's Shareholders Agreement
in 1993.

40
<PAGE> 48

The acquisition of a 50% interest in the Texas Plains Pipeline System from
Diamond Shamrock by the Partnership was effected by a newly formed limited
partnership, Pride Texas Plains, L.P. ("PTP") in which a wholly-owned subsidiary
of the Partnership, Pride Borger, Inc., owns a 98% limited partner interest. The
general partners of PTP, which have an aggregate 2% interest in PTP, are the
Partnership's Managing General Partner which will act as the managing general
partner of PTP and an affiliate of the Managing General Partner which will serve
as the special general partner. Pursuant to the Partnership's existing loan and
credit agreement, all distributions of net operating cash of PTP will be
distributed to the Partnership. On August 1, 1996, PTP was liquidated into Pride
Borger.

FEDERAL INCOME TAX CONSEQUENCES

The Managing General Partner does not believe that the adoption of the
Proposed Amendments will have any significant federal income tax impact on the
Partnership or its partners. Upon the change of a Preferred Unit into a Unit, a
holder of a Preferred Unit will recognize no gain or loss and will have a basis
and holding period in the Unit received which is equal to the basis and holding
period of the Preferred Unit so changed. In accordance with the Partnership
Agreement, in connection with the adoption of the Proposed Amendments, the
Partnership will obtain an opinion of Andrews & Kurth, L.L.P., special tax
counsel to the Partnership, to the effect that the adoption of the Proposed
Amendments will not cause the Partnership to be treated as an association
taxable as a corporation for federal income tax purposes.

41
<PAGE> 49

SECOND AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

PRIDE COMPANIES, L.P.

A-i
<PAGE> 50
TABLE OF CONTENTS

<TABLE>
<S> <C>
ARTICLE I

ORGANIZATIONAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 Formation and Continuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Registered Office; Principal Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Possible Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE II

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE III

PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

3.1 Purpose and Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.2 Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ARTICLE IV

CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.1 Partnership Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Issuances of Additional Units and Other Securities . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 No Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.4 Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.5 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.6 No Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.7 Loans from Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.8 No Fractional Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.9 Splits and Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ARTICLE V

ALLOCATIONS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

5.1 Allocations for Capital Account Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2 Allocations for Tax Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.3 Requirement and Characterization of Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.5 [placeholder section] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.6 Distributions of Proceeds from Capital Transactions . . . . . . . . . . . . . . . . . . . . . . . . 26
5.7 Distributions Upon Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.8 Other Capital Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>

A-ii
<PAGE> 51
<TABLE>
<S> <C>
ARTICLE VI

MANAGEMENT AND OPERATION OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

6.1 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Certificate of Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.3 Restrictions on the General Partners' Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.4 Reimbursement of the General Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.5 Outside Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.6 Contracts with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.8 Liability of Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.9 Resolution of Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.10 Other Matters Concerning General Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.11 Title to Partnership Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.12 Reliance by Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.13 Covenants and Representations of General Partners . . . . . . . . . . . . . . . . . . . . . . . . . 36

ARTICLE VII

RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

7.1 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.2 Management of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.3 Outside Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.4 Return of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.5 Rights of Limited Partners Relating to the Partnership . . . . . . . . . . . . . . . . . . . . . . . 37

ARTICLE VIII

BOOKS, RECORDS, ACCOUNTING AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

8.1 Records and Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.2 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.3 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

ARTICLE IX

TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

9.1 Preparation of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.2 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.3 Tax Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.4 Organizational Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.5 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.6 [placeholder] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.7 Entity-Level Deficiency Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.8 Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

ARTICLE X

CERTIFICATES AND DEPOSITARY RECEIPTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

10.1 Certificates and Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.2 Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.3 Mutilated, Destroyed, Lost or Stolen Depositary Receipts . . . . . . . . . . . . . . . . . . . . . . 41
10.4 Registered Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.5 Withdrawal of Units from and Redeposit of Units in Depositary Account . . . . . . . . . . . . . . . 42
10.6 Amendment of Deposit Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>

A-iii
<PAGE> 52
<TABLE>
<S> <C>
ARTICLE XI

TRANSFER OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

11.1 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.2 Transfer of a General Partner's Partnership Interest . . . . . . . . . . . . . . . . . . . . . . . . 43
11.3 Transfer of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.4 Restrictions on Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.5 Citizenship Certification; Non-citizen Assignees . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.6 Redemption of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
11.7 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

ARTICLE XII

ADMISSION OF PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

12.1 [Placeholder] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
12.2 Admission of Substituted Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
12.3 Admission of Successor Managing General Partner and Special General Partner . . . . . . . . . . . . 46
12.4 Admission of Additional Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.5 Amendment of Agreement and Certificate of Limited Partnership . . . . . . . . . . . . . . . . . . . 47

ARTICLE XIII

WITHDRAWAL OR REMOVAL OF PARTNERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

13.1 Withdrawal of the Managing General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13.2 Removal of the Managing General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
13.3 Interest of Departing Managing General Partner and Successor Managing General Partner . . . . . . . 50
13.4 Withdrawal or Removal of Special General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.5 Withdrawal of Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

ARTICLE XIV

DISSOLUTION AND LIQUIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

14.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.2 Continuation of the Business of the Partnership after Dissolution . . . . . . . . . . . . . . . . . 53
14.3 Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.4 Distributions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14.5 Cancellation of Certificate of Limited Partnership . . . . . . . . . . . . . . . . . . . . . . . . . 55
14.6 Reasonable Time for Winding-Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
14.7 Return of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
14.8 No Capital Account Restoration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
14.9 Waiver of Partition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>

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<TABLE>
<S> <C>
ARTICLE XV

AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

15.1 Amendment to be Adopted Solely by Managing General Partner . . . . . . . . . . . . . . . . . . . . . 55
15.2 Amendment Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
15.3 Amendment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
15.4 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
15.5 Notice of a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
15.6 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
15.7 Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes . . . . . . . . . . . . . . . . . . . . . 58
15.9 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
15.10 Conduct of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
15.11 Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
15.12 Voting and Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

ARTICLE XVI

MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

16.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
16.2 Procedure for Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
16.3 Approval by Limited Partners of Merger or Consolidation . . . . . . . . . . . . . . . . . . . . . . 61
16.4 Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
16.5 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

ARTICLE XVII

RIGHT TO ACQUIRE COMMON UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

17.1 Right to Acquire Common Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

ARTICLE XVIII

CHANGES TO PREVIOUS CAPITALIZATION OF THE PARTNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

18.1 Changes in Capitalization Effective Upon the Effective Date . . . . . . . . . . . . . . . . . . . . 63
18.2 Elimination of Cumulative Distribution Arrearages . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>

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<TABLE>
<S> <C>
ARTICLE XIX

GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

19.1 Addresses and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.2 Titles and Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.3 Pronouns and Plurals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.4 Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.6 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.7 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.9 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.10 Invalidity of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>

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SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PRIDE COMPANIES, L.P.

THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
amends, replaces and restates, as of the Effective Date, the Amended and
Restated Agreement of Limited Partnership, effective as of March 29, 1990, and
as further amended by the First Amendment to the Amended and Restated Agreement
of Limited Partnership, effective as of September 25, 1991 (as amended, the
"Prior Agreement"). This Agreement of Limited Partnership is entered into by
and among Pride Refining, Inc., a Texas corporation, as the Managing General
Partner, Pride SGP, Inc., a Texas corporation, as the Special General Partner
and the Limited Partners, together with any other Persons who become Partners
in the Partnership as provided herein. In consideration of the covenants,
conditions and agreements contained herein, the parties hereto hereby agree as
follows:

ARTICLE I

ORGANIZATIONAL MATTERS

1.1 Formation and Continuation. The Partnership has previously
been formed and is currently in existence as a limited partnership pursuant to
the provisions of the Delaware Act. The Partnership is hereby expressly
continued as a limited partnership pursuant to the Delaware Act, subject to the
provisions of this Agreement, which replaces, amends, and restates the Prior
Agreement. Except as expressly provided herein to the contrary, the rights and
obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Delaware Act. The Partnership Interest of
each Partner shall be personal property for all purposes.

1.2 Name. The name of the Partnership shall be "Pride Companies,
L.P." The Partnership's business may be conducted under any other name or
names deemed advisable by the Managing General Partner, including the name of
the Managing General Partner or any Affiliate thereof. The words "Limited
Partnership," "L.P.," "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purposes of complying with the
laws of any jurisdiction that so requires. The Managing General Partner in its
sole discretion may change the name of the Partnership at any time and from
time to time and shall notify the Limited Partners of such change in the next
regular communication to the Limited Partners.

1.3 Registered Office; Principal Office. The address of the
registered office of the Partnership in the State of Delaware shall be located
at The Corporation Trust Center, 1209 Orange Street, New Castle County,
Wilmington, Delaware 19801, and the registered agent for service of process on
the Partnership in the State of Delaware at such registered office shall be The
Corporation Trust Company. The principal office of the Partnership shall be
1209 North Fourth Street, Abilene, Texas 79601 or such other place as the
Managing General Partner may from time to time designate by notice to the
Limited Partners. The Partnership may maintain offices at such other places
within or outside the State of Delaware as the Managing General Partner deems
advisable.

1.4 Power of Attorney. (a) Each Limited Partner and each
Assignee hereby constitutes and appoints each of the Managing General Partner
and, if a Liquidator shall have been selected pursuant to Section 14.3 hereof,
the Liquidator severally (and any successor to either thereof by merger,
transfer, assignment, election or otherwise) and authorized officers and
attorneys-in-fact of each, with full power of substitution, as its true and
lawful agent and attorney-in-fact, with full power and authority in its name,
place and stead, to:

(i) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (A) all certificates,
documents and other instruments (including, without limitation, this
Agreement and the

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<PAGE> 56
Certificate of Limited Partnership and all amendments or restatements
thereof) that the Managing General Partner or the Liquidator deems
appropriate or necessary to form, qualify or continue the existence or
qualification of, the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) in
the State of Delaware and in all other jurisdictions in which the
Partnership may conduct business or own property; (B) all instruments
that the Managing General Partner or the Liquidator deems appropriate
or necessary to reflect any amendment, change, modification or
restatement of this Agreement or the Deposit Agreement in accordance
with their respective terms; (C) all conveyances and other instruments
or documents that the Managing General Partner or the Liquidator deems
appropriate or necessary to reflect the dissolution and liquidation of
the Partnership pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation; (D) all instruments
relating to the admission, withdrawal, removal or substitution of any
Partner pursuant to, or other events described in, Article XI, XII,
XIII or XIV hereof or the Capital Contribution of any Partner; (E) all
certificates, documents and other instruments relating to the
determination of the rights, preferences and privileges of any class
or series of Units or other securities issued pursuant to Section 4.2
hereof; and (F) all agreements and other instruments (including,
without limitation, a certificate of merger) relating to a merger or
consolidation of the Partnership pursuant to Article XVI hereof:

(ii) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole discretion of the Managing
General Partner or the Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is
made or given by the Partners hereunder or is consistent with the
terms of this Agreement or appropriate or necessary, in the sole
discretion of the Managing General Partner or the Liquidator, to
effectuate the terms or intent of this Agreement; provided, that when
required by Section 15.3 hereof or any other provision of this
Agreement which establishes a percentage of the Limited Partners or of
the Limited Partners of any class or series required to take any
action, the Managing General Partner or the Liquidator may exercise
the power of attorney made in this subsection (ii) only after the
necessary vote, consent or approval of the Limited Partners or of the
Limited Partners of such class or series; and

(iii) on behalf of the Limited Partners and the Assignees,
enter into the Deposit Agreement and to deposit Certificates in the
Deposit Account pursuant to the Deposit Agreement.

Nothing contained herein shall be construed as authorizing the Managing General
Partner to amend this Agreement except in accordance with Article XV hereof or
as may be otherwise expressly provided for in this Agreement.

(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and not
be affected by the subsequent death, incompetency, disability, incapacity,
dissolution, bankruptcy or termination of any Limited Partner or Assignee and
the transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Interest and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
Managing General Partner or the Liquidator, acting in good faith pursuant to
such power of attorney; and each such Limited Partner or Assignee hereby waives
any and all defenses which may be available to contest, negate or disaffirm the
action of the Managing General Partner or the Liquidator, taken in good faith
under such power of attorney. Each Limited Partner or Assignee shall execute
and deliver to the Managing General Partner or the Liquidator, within 15 days
after receipt of the Managing General Partner's or the Liquidator's request
therefor, such further designation, powers of attorney and other instruments as
the Managing General Partner or the Liquidator deems necessary to effectuate
this Agreement and the purposes of the Partnership.

1.5 Term. The Partnership commenced upon the filing of the
Certificate of Limited Partnership in accordance with the Delaware Act on
January 17, 1990 and shall continue in existence until the close of Partnership
business on December 31, 2090, or until the earlier termination of the
Partnership in accordance with the provisions of Article XIV hereof.

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1.6 Possible Restrictions on Transfer. Notwithstanding anything
to the contrary contained herein, in the event of (i) the enactment (or
imminent enactment) of any legislation, (ii) the publication of any temporary
or final regulation by the Treasury Department, (iii) any ruling by the
Internal Revenue Service or (iv) any judicial decision, that, in any such case,
in the Opinion of Counsel, would result in the taxation of the Partnership for
federal income tax purposes as a corporation or as an association taxable as a
corporation, then, either (a) the Managing General Partner may impose such
restrictions on the transfer of Partnership Interests as may be required, in
the Opinion of Counsel, to prevent the taxation of the Partnership for federal
income tax purposes as a corporation or as an association taxable as a
corporation, including making any amendments to this Agreement as the Managing
General Partner in its sole discretion may determine to be necessary or
appropriate in order to impose such restrictions; provided, that any such
amendment to this Agreement which would result in the delisting or suspension
of trading of any class of Units on any National Securities Exchange on which
such class of Units is then traded must be approved by the holders of at least
66-2/3% of the Outstanding Units of such class (excluding for purposes of such
determination any Units of such class owned by the General Partners and their
Affiliates) or (b) upon the recommendation of the Managing General Partner and
the approval by the holders of at least 66-2/3% of the Outstanding Units
(excluding for purposes of such determination any Units owned by the General
Partners and their Affiliates), the Partnership may be converted into and
reconstituted as a trust or any other type of legal entity (the "New Entity")
in the manner and on other terms so recommended and approved. In such event,
the business of the Partnership shall be continued by the New Entity and the
Units shall be converted into equity interests of the New Entity in the manner
and on the terms so recommended and approved.

ARTICLE II

DEFINITIONS

The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.

"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.4 hereof.

"Adjusted Capital Account" shall mean the Capital Account maintained
for each Partner as of the end of each taxable year of the Partnership (a)
increased by any amounts which such Partner is obligated to restore under the
standards set by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed
obligated to restore under Treasury Regulation Sections 1.704-2(g) and
1.704-2(i)(5) and (b) decreased by (i) the amount of all losses and deductions
that, as of the end of such taxable year, are reasonably expected to be
allocated to such Partner in subsequent years under Sections 704(e)(2) and
706(d) of the Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii)
the amount of all distributions that, as of the end of such taxable year, are
reasonably expected to be made to such Partner in subsequent years in
accordance with the terms of this Agreement or otherwise to the extent they
exceed offsetting increases to such Partner's Capital Account that are
reasonably expected to occur during (or prior to) the year in which such
distributions are reasonably expected to be made (other than increases pursuant
to a minimum gain chargeback pursuant to Sections 5.1(e)(i) or 5.1(e)(ii)
hereof). The foregoing definition of Adjusted Capital Account is intended to
comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith. A Partner who has more than
one interest in the Partnership shall have a single "Adjusted Capital Account"
that reflects all such interests, regardless of the class of interests and the
time and manner in which such interests were acquired.

"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.4(d)(i) or 4.4(d)(ii) hereof. Once an
Adjusted Property is deemed distributed by, and recontributed to, the
Partnership for federal income tax purposes upon a termination thereof pursuant
to Section 708 of the Code, such property shall thereafter constitute a
Contributed Property

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until the Carrying Value of such property is further adjusted pursuant to
Section 4.4(d)(i) or 4.4(d)(ii) hereof.

"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, the Person in question. As used herein, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.

"Agreed Allocation" shall mean allocation made pursuant to Section
5.1(a), (b), (c) or (d) hereof.

"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the Managing General Partner using such reasonable method of
valuation as it may adopt. The Managing General Partner shall, in its sole
discretion, use such method as it deems reasonable and appropriate to allocate
the aggregate Agreed Value of Contributed Properties contributed to the
Partnership in a single or integrated transaction among such properties on a
basis proportional to their fair market values.

"Agreement" means this Second Amended and Restated Agreement of
Limited Partnership, as it may be amended, supplemented or restated from time
to time.

"Assignee" means a Non-citizen Assignee or a Person to whom one or
more Units have been transferred in a manner permitted under this Agreement and
who has executed and delivered a Transfer Application as required by this
Agreement, but who has not become a Substituted Limited Partner.

"Available Cash" means, with respect to any calendar quarter, (i) the
sum of:

(A) the Partnership's net income for such quarter as
determined in accordance with generally accepted accounting principles
(excluding gain and loss on the sale of capital assets).

(B) depreciation, amortization and other noncash charges
(less noncash credits) of the Partnership for such quarter.

(C) the amount of any reduction in reserves of the
Partnership of the types referred to in (ii)(DD) below during such
quarter:

(ii) less the sum of:

(AA) all principal debt payments, preference payments
accrued on Series B Preferred Units or Series C Preferred Units (if
not already included in the computation of net income), or redemptions
of Series B or C Preferred Units, if any, made during such quarter by
the Partnership (other than principal debt payments made with Proceeds
from Capital Transactions),

(BB) capital expenditures made by the Partnership during
such quarter (excluding for such purpose capital expenditures financed
or anticipated to be refinanced with Proceeds from Capital
Transactions),

(CC) investments for such quarter in any entity to the
extent that such investments are not otherwise included under clauses
(ii) (AA) or (BB) (excluding investments financed or anticipated to be
refinanced with Proceeds from Capital Transactions), and

(DD) the amount of Partnership reserves established by the
Managing General Partner during such quarter which are necessary or
appropriate (1) to provide funds for the future payment of items of
the types specified in clauses (ii) (AA) and (ii) (BB) above, (2) to
provide for additional working capital, (3) to provide funds for cash
distributions with respect to any one or more of the next four
calendar quarters or (4) to provide funds for the future payment of
interest.

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Notwithstanding the foregoing, Available Cash shall not include any
cash receipts or reductions in reserves or take into account any disbursements
made or reserves established after commencement of the dissolution and
liquidation of the Partnership.

"Book-Tax Disparity" shall mean, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax
purposes as of such date. A Partner's share of the Partnership's Book-Tax
Disparities in all of its Contributed Property and Adjusted Property will be
reflected by the difference between such Partner's Capital Account balance as
maintained pursuant to Section 4.4 hereof and the hypothetical balance of such
Partner's Capital Account computed as if it had been maintained strictly in
accordance with federal income tax accounting principles.

"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or the
States of New York or Texas shall not be regarded as a Business Day.

"Capital Account" means the capital account maintained pursuant to
Section 4.4 hereof.

"Capital Contribution" means any cash, cash equivalents, or the Net
Agreed Value of Contributed Property which a Partner contributes to the
Partnership pursuant to Sections 4.1, 4.2, 4.4(c) or 13.3(c) hereof, or the
outstanding principal balance of debt, amount of accrued interest, or amount of
cumulative distribution arrearages cancelled by a Limited Partner in exchange
for a Series B Preferred Unit or Series C Preferred Unit.

"Capital Transactions" means (a) borrowings and sales of debt
securities (other than working capital borrowings, borrowings representing
items purchased on open account in the ordinary course of business by the
Partnership, (b) sales of equity interests by the Partnership (other than the
conversion of certain indebtedness of the Partnership into Common Units, Series
B Preferred Units, or Series C Preferred Units as described in Section 4.1
hereof) and (c) sales or other voluntary or involuntary dispositions of any
assets of the Partnership (other than (x) sales or other dispositions of
inventory in the ordinary course of business, (y) sales or other dispositions
of other current assets including receivables and accounts and (z) sales or
other dispositions of assets as a part of normal retirements or replacements),
in each case prior to the commencement of the dissolution and liquidation of
the Partnership.

"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' Capital
Accounts and (b) with respect to any other Partnership property, the adjusted
basis of such property for federal income tax purposes. The Carrying Value of
any property shall be adjusted from time to time in accordance with Sections
4.4(d)(i) and 4.4(d)(ii) hereof and shall thereafter be reduced (but not below
zero) by all depreciation, amortization, and cost recovery deductions charged
to the Partners' Capital Accounts.

"Certificate" means a certificate issued by the Partnership evidencing
ownership of one or more Partnership Interests.

"Certificate of Designations" means the Certificates of Designations
pursuant to which the Partnership issues Series B Preferred Units, Series C
Preferred Units, and any other certificate of designations pursuant to which
the Partnership issues Partnership Securities pursuant to Section 4.2.

"Certificate of Limited Partnership" means the Certificate of Limited
Partnership filed with the Secretary of State of the State of Delaware as
referenced in Section 6.2 hereof, as such Certificate may be amended and/or
restated from time to time.

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"Citizenship Certification" means a properly completed certificate in
such form as may be specified by the Managing General Partner by which an
Assignee or a Limited Partner certifies that he (and if he is a nominee holding
for the account of another Person, that to the best of his knowledge such other
Person) is an Eligible Citizen.

"Closing Price" for any day means the last sale price on such day,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices on such day, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Units of a class are not listed or admitted to trading on
the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
National Securities Exchange on which the Units of such class are listed or
admitted to trading or, if the Units of a class are not listed or admitted to
trading on any National Securities Exchange, the last quoted price on such day
or, if not so quoted, the average of the high bid and low asked prices on such
day in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or such other system then
in use, or, if on any such day the Units of a class are not quoted by any such
organization, the average of the closing bid and asked prices on such day as
furnished by a professional market maker making a market in the Units of such
class selected by the Board of Directors of the Managing General Partner, or,
if on any such day no market maker is making a market in the Units of such
class, the fair value of such Units on such day as determined reasonably and in
good faith by the Board of Directors of the Managing General Partner using any
reasonable method of valuation.

"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.

"Common Unit" means a Unit representing a fractional part of the
Partnership Interests of the Limited Partners and Assignees thereof and having
the rights and obligations specified with respect to Common Units in this
Agreement.

"Conflicts and Audit Committee" means a committee of the Board of
Directors of the Managing General Partner composed entirely of directors who
are neither officers or employees of, nor direct or indirect owners of more
than 5% of the voting securities of, the General Partners or their Affiliates.

"Consent Solicitation Statement" means the consent solicitation
statement dated [_____________], 1996 sent to the Partners in connection with
the adoption of this Agreement and the approval of other matters described in
the Consent Solicitation Statement.

"Contributed Property" means each property or other asset, in such
form as may be permitted by the Delaware Act, but excluding cash, contributed
to the Partnership (or deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code). Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 4.4(d) hereof,
such property shall no longer constitute a Contributed Property for purposes of
Section 5.1 hereof, but shall be deemed an Adjusted Property for such purposes.

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"Current Market Price" shall have the meaning assigned to such term in
Section 17.1(a) hereof.

"Debt" means, as to any Person, as of any date of determination, (a)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (b) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (c) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (d) lease obligations of such Person
which, in accordance with generally accepted accounting principles, should be
capitalized.

"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C.17-101, et seq., as it may be amended from time to time, and any
successor to such statute.

"Deposit Account" means the account established by the Depositary
pursuant to the Deposit Agreement.

"Deposit Agreement" means the Deposit Agreement among the Managing
General Partner, in its capacity both as Managing General Partner and as
attorney-in-fact for the Limited Partners, the Partnership and the Depositary,
as it may be amended or restated from time to time.

"Depositary" means the bank or other institution appointed by the
Managing General Partner in its sole discretion to act as depositary for the
Depositary Units pursuant to the Deposit Agreement, or any successor to it as
depositary.

"Depositary Receipt" means a depositary receipt, issued by the
Depositary or agents appointed by the Depositary in accordance with the Deposit
Agreement, evidencing ownership of one or more Depositary Units.

"Depositary Unit" means a depositary unit representing a Unit on
deposit with the Depositary pursuant to the Deposit Agreement.

"Discretionary Allocation" shall mean any allocation of an item of
income, gain, deduction, or loss pursuant to the provisions of Section
5.1(d)(iii) hereof.

"Economic Risk of Loss" shall have the meaning set forth in Treasury
Regulation Section 1.752-2(a).

"Effective Date" means the later to occur of (i) the date upon which
the Partners have approved this Agreement as an amendment and restatement of
the Prior Agreement in accordance with the terms of the Prior Agreement, (ii)
the date all legal requirements related to the solicitation of consents have
been met, and (iii) the date that is the last day of the month immediately
succeeding the later of (i) or (ii); upon which date this Agreement shall
become effective as the Partnership Agreement of the Partnership.

"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which the Partnership does business or proposes to
do business from time to time, and whose status as a Limited Partner or
Assignee does not or would not subject the Partnership to a substantial risk of
cancellation or forfeiture of any of their property or any interest therein.

"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor to such statute.

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"General Partner" means either the Managing General Partner or the
Special General Partner and "General Partners" means the Managing General
Partner and the Special General Partner.

"General Partner Equity Value" means, as of any date of determination,
the fair market value of a General Partner's Partnership Interest, as a General
Partner, as determined by the Managing General Partner using whatever
reasonable method of valuation it may adopt.

"Indemnitee" means any General Partner, any departing General Partner,
any Person who is or was an Affiliate of any General Partner or any departing
General Partner, any Person who is or was an officer, director, employee, agent
or trustee of any General Partner or any departing General Partner or any
Affiliate of any General Partner or departing General Partner, or any Person
who is or was serving at the request of any General Partner or any departing
General Partner or any Affiliate of any General Partner or any departing
General Partner as a director, officer, employee, agent or trustee of another
Person.

"Initial Offering" means the initial offering of Depositary Units to
the public, as described in the Registration Statement.

"Issue Price" means the price at which a Unit is purchased from the
Partnership, less any sales commission or underwriting discount charged to the
Partnership; provided that the Issue Price of Series B Preferred Units and
Series C Preferred Units shall equal the outstanding principal balance and any
accrued interest cancelled by a Partner in exchange for such Unit.

"Limited Partner" means each Person who is a Limited Partner of the
Partnership upon the Effective Date, each Substituted Limited Partner, each
Additional Limited Partner and any departing General Partner upon the change of
its status from General Partner to Limited Partner pursuant to Article XIII
hereof and, solely for purposes of Articles IV, V and VI hereof and Sections
14.3 and 14.4 hereof, shall include an Assignee thereof.

"Limited Partner Equity Value" means, as of any date of determination,
the total value of all classes of Units, with the value of each class being an
amount equal to the product of (a) the total number of Outstanding Units of
such class (immediately prior to an issuance of Units or distribution of cash
or Partnership property), multiplied by (b) (i) in the case of a valuation
required by Section 4.4(d)(i) hereof (other than valuations caused by sales of
a de minimis quantity of Units) the Issue Price or (ii) in the case of a
valuation required by Section 4.4(d)(ii) hereof (or a valuation required by
Section 4.4(d)(i) hereof caused by sales of a de minimis quantity of Units) the
Closing Price.

"Liquidator" means the Managing General Partner or other Person
approved pursuant to Section 14.3 hereof who performs the functions described
therein.

"Managing General Partner" means Pride Refining Inc., a Texas
corporation, or any successor in its capacity as managing general partner of
the Partnership.

"Merger Agreement" has the meaning assigned to such term in Section
16.1 hereof.

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"Minimum Gain Attributable to Partner Nonrecourse Debt" means that
amount determined in accordance with the principles of Treasury Regulation
Section 1.704-2(i).

"National Securities Exchange" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Exchange Act.

"Net Agreed Value" means (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed by
the Partnership upon such contribution or to which such property is subject
when contributed and (b) in the case of any property distributed to a Partner
or Assignee by the Partnership, the Partnership's Carrying Value of such
property at the time such property is distributed, reduced by any indebtedness
either assumed by such Partner or Assignee upon such distribution or to which
such property is subject at the time of distribution as determined under
Section 752 of the Code.

"Net Income" shall mean, for any taxable period, the excess, if any,
of the Partnership's items of income and gain (other than those items
attributable to dispositions constituting Terminating Capital Transactions) for
such taxable period over the Partnership's items of loss and deduction (other
than those items attributable to dispositions constituting Terminating Capital
Transactions) for such taxable period. The items included in the calculation
of Net Income shall be determined in accordance with Section 4.4(b) hereof and
shall not include any items specially allocated under Section 5.1(d) or 5.1(e)
hereof. Once an item of income, gain, loss or deduction that has been included
in the initial computation of Net Income is subjected to a Required Allocation
or a Discretionary Allocation, Net Income or the resulting Net Loss, whichever
the case may be, shall be recomputed without regard to such item.

"Net Loss" shall mean, for any taxable period, the excess, if any, of
the Partnership's items of loss and deduction (other than those items
attributable to dispositions constituting Terminating Capital Transactions) for
such taxable period over the Partnership's items of income and gain (other than
those items attributable to dispositions constituting Terminating Capital
Transactions) for such taxable period. The items included in the calculation
of Net Loss shall be determined in accordance with Section 4.4(b) hereof and
shall not include any items specially allocated under Section 5.1(d) or 5.1(e)
hereof. Once an item of income, gain, loss or deduction that has been included
in the initial computation of Net Loss is subjected to a Required Allocation or
a Discretionary Allocation, Net Loss or the resulting Net Income, whichever the
case may be, shall be recomputed without regard to such item.

"Net Termination Gain" means, for each Partnership Year or shorter
period, the sum, if positive, of all items of gain or loss recognized by the
Partnership from Terminating Capital Transactions and all items of income,
gain, loss and deduction (as determined in accordance with Section 4.4(b)
hereof) recognized by the Partnership as a result of a dissolution of the
Partnership for the purpose of liquidation.

"Net Termination Loss" means, for each Partnership Year or shorter
period, the sum, if negative, of all items of gain or loss recognized by the
Partnership from Terminating Capital Transactions and all items of income,
gain, loss and deduction (as determined in accordance with Section 4.4(b)
hereof) recognized by the Partnership as a result of a dissolution of the
Partnership for the purpose of liquidation.

"Non-citizen Assignee" means a Person who the Managing General Partner
has determined in its sole discretion does not meet the requirements of the
definition of an Eligible Citizen and as to whose Partnership Interest the
Managing General Partner has become the Substituted Limited Partner, pursuant
to Section 11.5 hereof.

"Nonrecourse Built-in Gain" shall mean, with respect to any
Contributed Properties or Adjusted Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability, the amount of any taxable
gain that would be allocated to the Partners pursuant to Sections 5.2(b)(i)(A),
5.2(b)(ii)(A) or

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5.2(b)(iii) hereof if such properties were disposed of in a taxable transaction
in full satisfaction of such liabilities and for no other consideration.

"Nonrecourse Deductions" shall mean any and all items of loss,
deduction or expenditures (described in Section 705(a)(2)(B) of the Code) that,
in accordance with the principles of Treasury Regulation Section 1.704-2(b),
are attributable to a Nonrecourse Liability.

"Nonrecourse Liability" shall have the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).

"Note Agreement" means that certain Note Agreement dated as of August
13, 1996 among the Partnership, the Managing General Partner, the Special
General Partner and the purchasers of certain convertible notes, as such
agreement may be amended from time to time.

"Notice of Election to Purchase" has the meaning assigned to such term
in Section 17.1(b) hereof.

"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the Managing General Partner) in form and
substance acceptable to the Managing General Partner.

"Outstanding" means all Units or other Partnership Securities that are
issued by the Partnership and reflected as outstanding on the Partnership's
books and records as of the date of determination.

"Partner" means a General Partner or a Limited Partner and Assignees
thereof, if applicable.

"Partner Nonrecourse Debt" shall have the meaning set forth in
Treasury Regulation Section 1.704-2(b)(4).

"Partner Nonrecourse Deductions" shall mean any and all items of loss,
deduction or expenditure (described in Section 705(a)(2)(B) of the Code) that,
in accordance with the principles of Treasury Regulation Section 1.704-2(i),
are attributable to a Partner Nonrecourse Debt and to a net increase in Minimum
Gain Attributable to Partner Nonrecourse Debt.

"Partnership" means the limited partnership heretofore formed and
continued pursuant to this Agreement, and any successor thereto.

"Partnership Debt Securities" has the meaning assigned to such term in
Section 4.2(a) hereof.

"Partnership Equity Securities" has the meaning assigned to such term
in Section 4.2(a) hereof.

"Partnership Interest" means the interest of a Partner in the
Partnership which, in the case of a Limited Partner or Assignee, shall include
Units.

"Partnership Minimum Gain" shall mean that amount determined in
accordance with the principles of Treasury Regulation Section 1.704-2(d).

"Partnership Securities" has the meaning assigned to such term in
Section 4.2(a) hereof.

"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.

"Percentage Interest" means, as of the date of such determination, (a)
as to the Managing General Partner in its capacity as such, 1.9%, (b) as to the
Special General Partner in its capacity as such, 0.1%, (c) as to any Limited
Partner or Assignee holding Units, the product of (i) 98% multiplied by (ii)
the quotient of the number of Units held by such Limited Partner or Assignee
divided by the total number of all Units then outstanding; provided, however,
that following any issuance of additional Units by the Partnership pursuant to
Section 4.2 hereof, proper adjustment shall be made to the Percentage Interest
represented by each Unit to reflect such issuance.

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"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.

"Prior Agreement" shall have the meaning assigned to it in the
preamble hereof.

"Proceeds from Capital Transactions" means, at any date, such amounts
of cash, debt securities or other property as are determined by the Managing
General Partner to be made available to the Partnership from or by reason of a
Capital Transaction.

"Purchase Date" means the date determined by the Managing General
Partner as the date for purchase of all Outstanding Units (other than Units
owned by the General Partners and their Affiliates) pursuant to Section 17.1(b)
hereof.

"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or 743 of
the Code) upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or
asset.

"Record Date" means the date established by the Managing General
Partner for determining (a) the identify of Limited Partners (or Assignees, if
applicable) entitled to notice of, or to vote at, any meeting of Limited
Partners or entitled to vote by ballot or give approval of Partnership action
in writing without a meeting or entitled to exercise rights in respect of any
other lawful action of Limited Partners, or (b) the identify of Record Holders
entitled to receive any report or distribution.

"Record Holder" means the Person in whose name a Unit is registered on
the books of the Transfer Agent, as of the opening of business on a particular
Business Day.

"Redeemable Units" means any Units for which a redemption notice has
been given and has not been withdrawn, under Section 11.6 hereof.

"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 33-33099), as it has been or as it may be amended from time
to time, filed by the Partnership with the Securities and Exchange Commission
under the Securities Act to register the offering and sale of Units in the
Initial Offering.

"Required Allocation" shall mean any allocation (or limitation imposed
on any allocation) of an item of income, gain, deduction or loss pursuant to
(a) the proviso-clause of Section 5.1(b)(ii) hereof or (b) Section 5.1(e)
hereof, such allocations (or limitations thereon) being directly or indirectly
required by the Treasury Regulations promulgated under Section 704(b) of the
Code.

"Residual Gain" or "Residual Loss" shall mean any item of gain or
loss, as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Sections 5.2(b)(i)(A) or 5.2(b)(ii)(A) hereof to
eliminate Book-Tax Disparities.

"Securities Act" means the Securities Act of 1933, as amended, and any
successor to such statute.

"Series B Preferred Units" means the Series B Cumulative Convertible
Preferred Units issued pursuant to the Certificate of Designations of Series B
Cumulative Convertible Preferred Units of the Partnership set forth in Annex
One to this Agreement.

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"Series C Preferred Units" means the Series C Cumulative Convertible
Preferred Units issued pursuant to the Certificate of Designations of Series C
Cumulative Convertible Preferred Units of the Partnership set forth in Annex
Two to this Agreement.

"Special Approval" means approval by (i) a majority of the members of
the Board of Directors of the Managing General Partner and (ii) a majority of
the members of the Conflicts and Audit Committee.

"Special General Partner" means Pride SGP, Inc., a Texas corporation,
or any successor in its capacity as special general partner of the Partnership.

"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.

"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 12.2 hereof in place of
and with all the rights of a Limited Partner and who is shown as a Limited
Partner on the books and records of the Partnership.

"Surviving Business Entity" has the meaning assigned to such term in
Section 16.2(b) hereof.

"Terminating Capital Transactions" means any sales or other
dispositions of assets of the Partnership as a result of a dissolution of the
Partnership for the purpose of liquidation.

"Trading Day" has the meaning assigned to such term in Section 17.1(a)
hereof.

"Transfer Agent" means the Depositary or any bank, trust company or
other Person appointed by the Partnership to act as transfer agent for the
Units.

"Transfer Application" means an application and agreement for transfer
of Depositary Units in the form set forth on the back of a Depositary Receipt
or in a form substantially to the same effect in a separate instrument.

"Unit" means a Partnership Interest of a Limited Partner or Assignee
in the Partnership representing a fractional part of the Partnership Interests
of all Limited Partners and Assignees; provided, however, that in the event any
class or series of Units issued pursuant to Section 4.2 hereof shall have
designations, preferences or special rights such that a Unit of such class or
series shall represent a greater or lesser part of the Partnership Interests of
all Limited Partners or Assignees than a Unit of any other class or series of
Units, the Partnership Interest represented by such class or series of Units
shall be determined in accordance with such designations, preferences or
special rights. Unless otherwise specifically indicated to the contrary, Units
includes Depositary Units.

"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property as of such date, over (b) the Carrying Value of
such property as of such date (prior to any adjustment to be made pursuant to
Section 4.4(d) hereof) as of such date. In determining such Unrealized Gain,
the aggregate cash amount and fair

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market value of all Partnership assets (including cash or cash equivalents)
shall be determined by the Managing General Partner using such reasonable
method of valuation as it may adopt; provided, however, the Managing General
Partner, in arriving at such valuation, must take fully into account (to the
extent appropriate under the regulations promulgated under Section 704(b) of
the Code) the Limited Partner Equity Value and the General Partner Equity Value
at such time. The Managing General Partner shall allocate such aggregate value
among the assets of the Partnership (in such manner as it determines in its
sole discretion to be reasonable) to arrive at a fair market value for
individual properties.

"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 4.4(d) hereof) as of such date, over (b) the fair market
value of such property as of such date. In determining such Unrealized Loss,
the aggregate cash amount and fair market value of all Partnership assets
(including cash or cash equivalents) shall be determined by the Managing
General Partner using such reasonable method of valuation as it may adopt:
provided, however, the Managing General Partner, in arriving at such valuation,
must take fully into account (to the extent appropriate under the regulations
promulgated under Section 704(b) of the Code) the Limited Partner Equity Value
and the General Partner Equity Value at such time. The Managing General
Partner shall allocate such aggregate value among the assets of the Partnership
(in such manner as it determines in its sole discretion to be reasonable) to
arrive at a fair market value for individual properties.

ARTICLE III

PURPOSE

3.1 Purpose and Business. The purpose and nature of the business
to be conducted by the Partnership shall be (i) to conduct any business that
may be lawfully conducted by a limited partnership organized pursuant to the
Delaware Act, including, without limitation, the refining, transport, gathering
and sale of hydrocarbon-based products, (ii) to enter into any partnership,
joint venture or other similar arrangement to engage in any of the foregoing or
the ownership of interests in any entity engaged in any of the foregoing, and
(iii) to do anything necessary or incidental to the foregoing.

3.2 Powers. The Partnership shall be empowered to do any and all
acts and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership.

ARTICLE IV

CAPITAL CONTRIBUTIONS

4.1 Partnership Equity Securities. Upon the Effective Date, the
Partnership Equity Securities of the Partnership consist of 4,950,000 Common
Units, and the 1.9% and .1% Percentage Interests held by the Managing General
Partner and the Special General Partner, respectively, which general partner
interests are not denominated in Units. The Partnership has established the
terms of Series B Preferred Units and Series C Preferred Units, none of which
have been issued as of the Effective Date. The Certificates of Designations of
the Series B Preferred Units and the Series C Preferred Units are attached
hereto as Annex One and Annex Two, which Annexes are incorporated herein and
are made a part of this Agreement. Notwithstanding the foregoing, the terms of
any Certificate of Designations attached hereto as an Annex and incorporated by
reference herein may be amended with the approval of a majority in interest of
the holders of the Partnership Securities issued pursuant to the terms of such
Certificate of Designations and the approval of the Managing General Partner.
The Series B Preferred Units and Series C Preferred Units shall automatically
be issued, without further action necessary on the part of the Managing General
Partner or of the Partnership in the number described in, and in accordance
with, the terms and conditions, of the Note Agreement. Notwithstanding
anything to the contrary in this Agreement, in the event that any conflict
exists between this Agreement on the one hand and a Certificate of Designations
on the other, the terms of the Certificate of Designations shall control.

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4.2 Issuances of Additional Units and Other Securities. (a) The
Managing General Partner is hereby authorized to cause the Partnership to issue
such additional Units, or classes or series thereof, or options, rights,
warrants or appreciation rights relating thereto, or any other type of equity
security that the Partnership may lawfully issue ("Partnership Equity
Securities"), any unsecured or secured debt obligations of the Partnership or
debt obligations of the Partnership convertible into any class or series of
equity securities of the Partnership ("Partnership Debt Securities")
(collectively, "Partnership Securities"), for any Partnership purpose at any
time or from time to time, to the Partners or to other Persons for such
consideration and on such terms and conditions as shall be established by the
Managing General Partner in its sole discretion, all without the approval of
any Limited Partners. The Managing General Partner shall have sole discretion,
subject to the guidelines set forth in this Section 4.2 and the requirements of
the Delaware Act, in determining the consideration and terms and conditions
with respect to any future issuance of Partnership Securities. The Managing
General Partner may evidence terms and conditions of any Partnership Securities
to be issued by the Partnership by a Certificate of Designations to be
incorporated herein and made a part hereof by attaching the Certificate of
Designations as an annex to this Agreement.

(b) Additional Partnership Securities to be issued by the
Partnership pursuant to this Section 4.2 shall be issuable from time to time in
one or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other
special rights, powers and duties, including rights, powers and duties senior
to existing classes and series of Partnership Securities, unless any such
senior securities are otherwise prohibited by the terms of this Agreement, all
as shall be fixed by the Managing General Partner in the exercise of its sole
and complete discretion, subject to Delaware law, including, without
limitation, (i) the allocations of items of Partnership income, gain, loss, and
deduction to each such class or series of Partnership Securities; (ii) the
right of each such class or series of Partnership Securities to share in
Partnership distributions; (iii) the rights of each such class or series of
Partnership Securities upon dissolution and liquidation of the Partnership;
(iv) whether such class or series of additional Partnership Securities is
redeemable by the Partnership and, if so, the price at which, and the terms and
conditions upon which, such class or series of additional Partnership
Securities may be redeemed by the Partnership; (v) whether such class or series
of additional Partnership Securities is issued with the privilege of conversion
and, if so, the rate at which, and the terms and conditions upon which, such
class or series of Partnership Securities may be converted into any other class
or series of Partnership Securities; (vi) the terms and conditions upon which
each such class or series of Partnership Securities will be issued, deposited
with the Depositary, evidenced by Depositary Receipts and assigned or
transferred; and (vii) the right, if any, of each such class or series of
Partnership Securities to vote on Partnership matters, including matters
relating to the relative rights, preferences and privileges of each such class
or series.

(c) The Managing General Partner is hereby authorized and directed
to take all actions which it deems appropriate or necessary in connection with
each issuance of Units or other Partnership Securities pursuant to Section
4.2(a) hereof and to amend this Agreement in any manner which it deems
appropriate or necessary to provide for each such issuance, to admit Additional
Limited Partners in connection therewith and to specify the relative rights,
powers and duties of the holders of the Partnership Securities being so issued.
Without limiting the foregoing, the Managing General Partner may prepare a
Certificate of Designations with respect to such Partnership Securities and
attach such Certificate of Designations as an additional annex to this
Agreement.

(d) The Managing General Partner shall do all things necessary to
comply with the Delaware Act and is authorized and directed to do all things it
deems to be necessary or advisable in connection with any future issuance of
Partnership Securities, including compliance with any statute, rule, regulation
or guideline of any federal, state or other governmental agency or any National
Securities Exchange on which the Depositary Units or other Partnership
Securities are listed for trading.

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4.3 No Preemptive Rights. Unless otherwise granted pursuant to a
Certificate of Designations, no Person shall have any preemptive, preferential
or other similar right with respect to (a) additional Capital Contributions;
(b) issuance or sale of any class or series of Units or other Partnership
Securities, whether unissued, held in the treasury or hereafter created; (c)
issuance of any obligations, evidences of indebtedness or other securities of
the Partnership convertible into or exchangeable for, or carrying or
accompanied by any rights to receive, purchase or subscribe to, any such Units
or Partnership Securities; (d) issuance of any right of subscription to or
right to receive, or any warrant or option for the purchase of, any such Units
or Partnership Securities; or (e) issuance or sale of any other securities that
may be issued or sold by the Partnership.

4.4 Capital Accounts. (a) The Partnership shall maintain for
each Partner (or a beneficial owner of Units held by a nominee in any case in
which the nominee has furnished the identity of such owner to the Partnership
in accordance with Section 6031 (c) of the Code or any other method acceptable
to the Managing General Partner in its sole discretion) a separate Capital
Account in accordance with the rules of Treasury Regulation Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount
of all Capital Contributions made by such Partner to the Partnership pursuant
to this Agreement and (ii) all items of Partnership income and gain (including
income and gain exempt from tax) computed in accordance with Section 4.4(b)
hereof and allocated to such Partner pursuant to Article V hereof, and
decreased by (x) the amount of cash or Net Agreed Value of all distributions of
cash or property made to such Partner pursuant to this Agreement and (y) all
items of Partnership deduction and loss computed in accordance with Section
4.4(b) hereof and allocated to such Partner pursuant to Article V hereof.

(b) For purposes of computing the amount of any item of income,
gain, deduction or loss to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of any such item shall be the
same as its determination, recognition and classification for federal income
tax purposes (including any method of depreciation, cost recovery or
amortization used for that purpose), provided, that:

(i) All fees and other expenses incurred by the
Partnership to promote the sale of (or to sell) a Partnership Interest
that can neither be deducted nor amortized under Section 709 of the
Code, if any, shall, for purposes of Capital Account maintenance, be
treated as an item of deduction at the time such fees and other
expenses are incurred.

(ii) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any election
under Section 754 of the Code which may be made by the Partnership
and, as to those items described in Section 705(a)(1)(B) or
705(a)(2)(B) of the Code, without regard to the fact that such items
are not includable in gross income or are neither currently deductible
nor capitalized for federal income tax purposes.

(iii) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.

(iv) In accordance with the requirements of Section 704(b)
of the Code, any deductions for depreciation, cost recovery, or
amortization attributable to any Contributed Property shall be
determined as if the adjusted basis of such property as of the date it
was acquired by the Partnership was equal to the Agreed Value of such
property. Upon an adjustment pursuant to Section 4.4(d) hereof to the
Carrying Value of any Partnership property subject to depreciation,
cost recovery or amortization, any further deductions for such
depreciation, cost recovery or amortization attributable to such
property shall be determined (A) as if the adjusted basis of such
property were equal to the Carrying Value of such property immediately
following such adjustment and (B) using a rate of depreciation, cost
recovery or amortization derived from the same method and useful life
(or, if applicable, the remaining useful life) as is applied for
federal income tax purposes; provided, however, that, if the asset has
a zero adjusted basis for federal income tax purposes, depreciation,
cost recovery, or amortization deductions shall be determined using
any reasonable method that the Managing General Partner may adopt.

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(c) A transferee of a Partnership Interest shall succeed to the
Capital Account of the transferor attributable to the Partnership Interest so
transferred: provided, however, that, if the transfer causes a termination of
the Partnership under Section 708(b)(1)(B) of the Code, the Partnership's
properties shall be deemed to have been distributed in liquidation of the
Partnership to the Partners (including the transferee of a Partnership
Interest) pursuant to Sections 14.3 and 14.4 hereof and recontributed by such
Partners in reconstitution of the Partnership. Any such deemed distribution
shall be treated as an actual distribution for purposes of this Section 4.4. In
such event, the Carrying Values of the Partnership properties shall be adjusted
immediately prior to such deemed distribution pursuant to Section 4.4(d)(ii)
hereof and such adjusted Carrying Values shall then constitute the Agreed
Values of such properties upon such deemed contribution to the reconstituted
Partnership. The Capital Accounts of such reconstituted Partnership shall be
maintained in accordance with the principles of this Section 4.4. In the case
of a transferor who holds both Common Units and Series B Preferred Units or
Series C Preferred Units, the Capital Account attributable to a Common Unit
transferred shall be deemed to equal the Capital Account attributable to each
other Common Unit then outstanding so as to preserve the uniformity of the
Common Units outstanding from time to time.

(d) (i) Consistent with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(iv) (f), on an issuance of additional Units for cash or
Contributed Property (including the cancellation of debt, accrued interest, or
distribution arrearages by a Partner in exchange for a Unit or the conversion
of Series B Preferred Units or Series C Preferred Units to Common Units), the
Capital Accounts of all Partners and the Carrying Value of each Partnership
property immediately prior to such issuance shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as if such Unrealized Gain or Unrealized Loss had been
recognized on an actual sale of each such property immediately prior to such
issuance and had been allocated to the Partners at such time as provided in
Section 5.1(c).

(ii) In accordance with Treasury Regulations Section 1.704
- - - - - 1(b)(2)(iv)(f), immediately prior to any distribution to a Partner of any
Partnership property (other than a distribution of cash that is not in
redemption or retirement of a Partnership Interest), the Capital Accounts of
all Partners and the Carrying Value of each Partnership property shall,
immediately prior to any such distribution, be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership
property, as if such Unrealized Gain or Unrealized Loss had been recognized in
a sale of each such property immediately prior to such distribution for an
amount equal to its fair market value. Any Unrealized Gain or Unrealized Loss
attributable to such property shall be allocated to the Partners as provided in
Section 5.1(c).

(iii) The adjustments provided for in this Section 4.4(d)
shall be made in such a manner as shall be required to establish and preserve
the uniformity of the Common Units outstanding from time to time.

4.5 Interest. No interest shall be paid by the Partnership on
Capital Contributions or on balances in Partners' Capital Accounts, except as
otherwise provided in a Certificate of Designations.

4.6 No Withdrawal. No Partner shall be entitled to withdraw any
part of his Capital Contribution or his Capital Account or to receive any
distribution from the Partnership, except as provided in Articles V, XIII and
XIV hereof or in a Certificate of Designations.

4.7 Loans from Partners. Loans by a Partner to the Partnership
shall not constitute Capital Contributions. If any Partner shall advance funds
to the Partnership in excess of the amounts required hereunder to be
contributed by it to the capital of the Partnership, the making of such excess
advances shall not result in any increase in the amount of the Capital Account
for such Partner. The amount of any such excess advances shall be a debt
obligation of the Partnership to such Partner and shall be payable or
collectible

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only out of the Partnership assets in accordance with the terms and conditions
upon which such advances are made.

4.8 No Fractional Units. No fractional Units shall be issued by
the Partnership.

4.9 Splits and Combinations. (a) Subject to Sections 4.9(f) and
5.8 hereof, the Managing General Partner may make a pro rata distribution of
Units or Partnership Securities to all Record Holders or may effect a
subdivision or combination of Units or other Partnership Securities; provided,
however, that after any such distribution, subdivision or combination, each
Partner shall have the same Percentage Interest in the Partnership as before
such distribution, subdivision or combination: and provided, however, that
nothing in this Section 4.9 shall be deemed to authorize the Managing General
Partner to combine Units or Partnership Securities of any class or series with
those of any other class or series.

(b) If Partnership Debt Securities are distributed pursuant to
Section 4.9(a), such distribution shall be treated as a distribution of
property for purposes of this Agreement.

(c) Whenever such a distribution, subdivision or combination of
Units or Partnership Securities is declared, the Managing General Partner shall
select a Record Date as of which the distribution, subdivision or combination
shall be effective and shall send notice of the distribution, subdivision or
combination at least 20 days prior to such Record Date, to each Record Holder
as of the date not less than 10 days prior to the date of such notice. The
Managing General Partner also may cause a firm of independent public
accountants selected by it to calculate the number of Units to be held by each
Record Holder after giving effect to such distribution, subdivision or
combination. The Managing General Partner shall be entitled to rely on any
certificate provided by such firm as conclusive evidence of the accuracy of
such calculation.

(d) Promptly following any such distribution, subdivision or
combination, the Managing General Partner may cause Depositary Receipts to be
issued to the Record Holders of Units as of the applicable Record Date
representing the new number of Units held by such Record Holders, or the
Managing General Partner may adopt such other procedures as it may deem
appropriate to reflect such distribution, subdivision or combination; provided,
however, that in the event any such distribution, subdivision or combination
results in a smaller total number of Units outstanding, the Managing General
Partner shall require, as a condition to the delivery to a Record Holder of
such new Depositary Receipt, the surrender of any Depositary Receipt held by
such Record Holder immediately prior to such Record Date.

(e) The Partnership shall not issue fractional Units upon any
distribution, subdivision or combination of Units. If a distribution,
subdivision or combination of Units would result in the issuance of fractional
Units but for the provisions of Section 4.8 hereof and this Section 4.9(f),
each fractional Unit shall be rounded to the nearest whole Unit (and a 0.5 Unit
shall be rounded to the next higher Unit).

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ARTICLE V

ALLOCATIONS AND DISTRIBUTIONS

5.1 Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Section 4.4(b) hereof) shall be allocated among
the Partners in each taxable year (or portion thereof) as provided herein
below. Amounts paid on the Series B Preferred Units and Series C Preferred
Units shall be treated as guaranteed payments for the use of capital pursuant
to Section 707(c) of the Code and therefore shall not be treated as the
allocation of income affecting the respective capital accounts of the
recipients pursuant to the provisions of this Article V.

(a) Net Income. All items of income, gain, loss and
deduction taken into account in computing Net Income for such taxable
period shall be allocated in the same manner as such Net Income is
allocated hereunder which Net Income shall be allocated as follows:

(i) First, 100% to the General Partners, in the
proportion that their respective Percentage Interest bears to
2%, until the aggregate Net Income allocated to the General
Partners pursuant to this Section 5.1(a)(i) for the current
taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partners
pursuant to Section 5.1(b)(iii) hereof for all previous
taxable years;

(ii) Second, 100% to the Limited Partners holding
Common Units in the proportion that the respective number of
Common Units held by them bears to the total number of Common
Units then outstanding until the aggregate Net Income
allocated to the holder of a Common Unit pursuant to this
Section 5.1(a)(ii) for the current taxable year and all
previous taxable years is equal to the aggregate Net Losses
allocated to the holder of such Common Unit pursuant to
Section 5.1(b)(ii) hereof for all previous taxable years: and

(iii) Third, the balance, if any, 100% to the
General Partners and the Limited Partners holding Common Units
in proportion to their respective Percentage Interests.

(b) Net Losses. All items of income, gain, loss and
deduction taken into account in computing Net Losses for such taxable
period shall be allocated in the same manner as such Net Losses are
allocated hereunder which Net Losses shall be allocated as follows:

(i) First, 100% to the General Partners and the
Limited Partners holding Common Units in accordance with their
respective Percentage Interests, until the aggregate Net
Losses allocated to the holder of a Common Unit pursuant to
this Section 5.1(b)(i) for the current taxable year and all
previous taxable years is equal to the aggregate Net Income
allocated to the holder of such Common Unit pursuant to
Section 5.1(a)(iii) hereof for all previous taxable years;

(ii) Second, 100% to the Limited Partners holding
Common Units, in the proportion that the respective number of
Common Units held by them bears to the total number of Common
Units then outstanding; provided, that Net Losses shall not be
allocated pursuant to this Section 5.1(b)(ii) to the extent
that such allocation would cause any Limited Partner to have a
deficit balance in its Adjusted Capital Account at the end of
such taxable year (or increase any existing deficit balance in
its Adjusted Capital Account); and

(iii) Third, the balance, if any, 100% to the
General Partners, in the proportion that their respective
Percentage Interests bears to 2%.

(c) Net Termination Gain and Losses. All items of
income, gain, loss and deduction taken into account in computing Net
Termination Gain or Net Termination Loss for such taxable period shall
be allocated in the same manner as such Net Termination Gain or Net
Termination Loss is allocated hereunder. All allocations under this
Section 5.1(c) shall be made after Capital Account balances have been
adjusted by all other allocations provided under this Section 5.1 and
after all distributions of

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Available Cash provided under Section 5.4 or 5.5 hereof have been made
with respect to such taxable period.

(i) If a Net Termination Gain is recognized, such Net
Termination Gain shall be allocated between the General Partners and
the Limited Partners in the following manner (and the Capital Accounts
of the Partners shall be increased by the amount so allocated in each
of the following subclauses, in the order listed, before an allocation
is made pursuant to the next succeeding subclause):

(A) First, to each Partner having a deficit
balance in its Adjusted Capital Account, in the proportion of
such deficit balance to the deficit balances in the Adjusted
Capital Accounts of all Partners, until each such Partner has
been allocated Net Termination Gain equal to any such deficit
balance in its Adjusted Capital Account; and

(B) Second, 98% to Limited Partners holding
Common Units in the proportion that the respective number of
Common Units held by them bears to the total number of Common
Units outstanding, 1.9% to the Managing General Partner and
0.1% to the Special General Partner.

(ii) If a Net Termination Loss is recognized, such Net
Termination Loss shall be allocated to the Partners in the following
manner:

(A) First, 98% to Limited Partners holding Common
Units in proportion to, and to the extent of, the positive
balances in their respective Adjusted Capital Accounts, 1.9%
to the Managing General Partner and 0.1% to the Special
General Partner until such Limited Partner's Adjusted Capital
Accounts are reduced to zero;

(B) Second, the balance, if any, 100% to the
General Partners in the proportion that their respective
Percentage Interest bears to 2%.

(d) Agreed Allocations. Notwithstanding any other provisions of
this Section 5.1 (other than Section 5.1(e) hereof), the following
special allocations shall be made for such taxable period:

(i) Priority Allocations.

(A) If the amount of cash or the Net Agreed Value
of any property distributed (except cash or property
distributed pursuant to Section 14.3 or 14.4 hereof) to any
Limited Partner holding Common Units during a taxable year is
greater (on a per Common Unit basis) than the amount of cash
or the Net Agreed Value of property distributed to the other
Limited Partners holding Common Units (on a per Common Unit
basis), then (1) each such Limited Partner receiving such
greater cash or property distribution shall be allocated gross
income in an amount equal to the product of (x) the amount by
which the distribution (on a per Common Unit basis) to such
Limited Partner exceeds the distribution (on a per Common Unit
basis) to the Limited Partners receiving the smallest
distribution and (y) the number of Common Units owned by the
Limited Partner receiving the greater distribution; and (2)
the General Partners shall be allocated gross income (95% to
the Managing General Partner and 5% to the Special General
Partner) in an amount equal to 2.0408% of the sum of the
amounts allocated in clause (1) above.

(B) If the amount of cash and the Net Agreed
Value of any property distributed (except cash or property
distributed pursuant to Section 14.3 or 14.4 hereof) to the
Limited Partners holding Common Units or the General Partners
during a taxable year exceeds that which would have been
distributed to either class of partners had such distributions
been made in the ratio of 98% and 2% (as between the Limited
Partners holding Common Units and the General Partners,
respectively), such class receiving the excess distribution
will be allocated gross

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income in an amount equal to such excess. Gross income
allocated to the Limited Partners holding Common Units
pursuant to this Section 5.1(d)(i)(B) shall be allocated among
such Limited Partners holding Common Units in the proportion
that the respective number of Common Units held by them bears
to the total number of Common Units. Gross income allocated
to the General Partners pursuant to this Section 5.1(d)(i)(B)
shall be allocated among such General Partners in the ratio
that their respective Percentage Interests bear to 2%.

(ii) Nonrecourse Liabilities. For purposes of Treasury
Regulation Section 1.752-3(a)(3), the Partners agree that Nonrecourse
Liabilities of the Partnership in excess of the sum of (A) the amount
of Partnership Minimum Gain and (B) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Partners in accordance with
their respective Percentage Interests.

(iii) Discretionary Allocation. (A) Notwithstanding any
other provisions of Section 5.1(a), (b) or (c) hereof, the Agreed
Allocations shall be adjusted so that, to the extent possible, the net
amount of items of income, gain, loss and deduction allocated to each
Partner pursuant to the Required Allocations and the Agreed
Allocations, together, shall be equal to the net amount of such items
that would have been allocated to each such Partner under the Agreed
Allocations had there been no Required Allocations; provided, however,
that for purposes of applying this Section 5.1(d)(iii)(A), it shall be
assumed that all chargebacks pursuant to Section 5.1(e)(i) and (ii)
hereof have occurred.

(B) The Managing General Partner shall have
reasonable discretion, with respect to each taxable year, to
(1) apply the provisions of Section 5.1(d)(iii)(A) hereof in
whatever fashion as is most likely to minimize the economic
distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to
Section 5.1(d)(iii)(A) hereof among the Partners in a manner
that is likely to minimize such economic distortions.

(e) Required Allocations. Notwithstanding any other provision of
this Section 5.1, the following special allocations shall be made for such
taxable period:

(i) Partnership Minimum Gain Chargeback. Notwithstanding
the other provisions of this Section 5.1, if there is a net decrease
in Partnership Minimum Gain during any Partnership taxable period,
each Partner shall be allocated items of Partnership income and gain
for such period (and, if necessary subsequent periods) in the manner
and amounts provided in Treasury Regulation Sections 1.704-2(f),
1.704-2(g)(2) and 1.704- 2(j)(2)(i), or any successor provision. For
purposes of this Section 5.1(e), each Partner's Adjusted Capital
Account balance shall be determined, and the allocation of income or
gain required hereunder shall be effected, prior to the application of
any other allocations pursuant to this Section 5.1 with respect to
such taxable period (other than an allocation pursuant to Sections
5.1(e)(v) and 5.1(e)(vi)). This Section 5.1(e)(i) is intended to
comply with the Partnership Minimum Gain chargeback requirement in
Treasury Regulation Section 1.704-2(f) and shall be interpreted
consistently therewith.

(ii) Chargeback of Minimum Gain Attributable to Partner
Nonrecourse Debt. Notwithstanding the other provisions of this
Section 5.1 (other than 5.1(e)(i) hereof), except as provided in
Treasury Regulation Section 1.704-2(i)(4), if there is a net decrease
in Minimum Gain Attributable to Partner Nonrecourse Debt during any
Partnership taxable period, any Partner with a share of Minimum Gain
Attributable to Partner Nonrecourse Debt at the beginning of such
taxable period shall be allocated items of Partnership income and gain
for such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 5.1(e), each Partner's Adjusted Capital Account balance shall
be determined and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 5.1(e), other than Section 5.1(e)(i) hereof
and other than an allocation pursuant

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to Sections 5.1(e)(v) and 5.1(e)(vi), with respect to such taxable
period. This Section 5.1(e)(ii) is intended to comply with the
chargeback of items of income and gain required in Treasury Regulation
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

(iii) Qualified Income Offset. In the event any Partner
unexpectedly receives adjustments, allocations or distributions
described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704- 1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of
Partnership income and gain shall be specifically allocated to such
Partner in an amount and manner sufficient to eliminate, to the extent
required by the Treasury regulations promulgated under Section 704(b)
of the Code, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions as
quickly as possible unless such deficit balance is otherwise
eliminated pursuant to Section 5.1(e)(i) or 5.1(e)(ii) hereof.

(iv) Gross Income Allocations. In the event any Partner
has a deficit balance in its Adjusted Capital Account at the end of
any Partnership taxable period that is in excess of the sum of (A) the
amount such Partner is obligated to restore and (B) the amount such
Partner is deemed to be obligated to restore pursuant to Treasury
Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5), such Partner
shall be specially allocated items of Partnership gross income and
gain in the amount of such excess as quickly as possible; provided,
that an allocation pursuant to this Section 5.1(e)(iv) shall be made
only if and to the extent that such Partner would have a deficit
balance in its Adjusted Capital Account after all other allocations
provided in this Section 5.1 have been tentatively made as if this
Section 5.1(e)(iv) was not in the Agreement.

(v) Nonrecourse Deductions. Nonrecourse Deductions for
any taxable period shall be allocated to the Partners in accordance
with their respective Percentage Interests. If the Managing General
Partner determines in its good faith discretion that the Partnership's
Nonrecourse Deductions must be allocated in a different ratio to
satisfy the safe harbor requirements of the Treasury regulations
promulgated under Section 704(b) of the Code, the Managing General
Partner is authorized, upon notice to the Limited Partners, to revise
the prescribed ratio to the numerically closest ratio which does
satisfy such requirements.

(vi) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any taxable period shall be allocated 100% to the
Partner that bears the Economic Risk of Loss for such Partnership
Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Treasury Regulation Section
1.704-2(i). If more than one Partner bears the Economic Risk of Loss
with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or among
such Partners in accordance with the ratios in which they share such
Economic Risk of Loss.

5.2 Allocations for Tax Purposes. (a) Except as otherwise
provided herein, for federal income tax purposes, each item of income, gain,
loss and deduction which is recognized by the Partnership, for federal income
tax purposes, shall be allocated among the Partners in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated
pursuant to Section 5.1 hereof.

(b) In an attempt to eliminate Book-Tax Disparities attributable
to a Contributed Property or Adjusted Property, each item of income, gain,
loss, depreciation, depletion and cost recovery deduction which is recognized
by the Partnership, for federal income tax purposes, shall be allocated for
federal income tax purposes among the Partners as follows:

(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners in the
manner provided under Section 704(c) of the Code that takes into
account the variation between the Agreed Value of such property and
its adjusted basis at the time of contribution; and (B) except as
otherwise provided in Section 5.2(b)(iii) hereof, any item of Residual
Gain or Residual Loss attributable to a Contributed Property shall be
allocated among the Partners in the same manner as its correlative
item of "book" gain or loss is allocated pursuant to Section 5.1
hereof.

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(ii) (A) In the case of an Adjusted Property, such items
shall (1) first, be allocated among the Partners in a manner
consistent with the principles of Section 704(c) of the Code to take
into account the Unrealized Gain or Unrealized Loss attributable to
such property and the allocations thereof pursuant to Section
4.4(d)(i) or (ii) hereof, and (2) second, in the event such property
was originally a Contributed Property, be allocated among the Partners
in a manner consistent with Section 5.2(b)(i)(A) hereof; and (B)
except as otherwise provided in Section 5.2(b)(iii) hereof, any item
of Residual Gain or Residual Loss attributable to an Adjusted Property
shall be allocated among the Partners in the same manner as its
correlative item of "book" gain or loss is allocated pursuant to
Section 5.1 hereof.

(iii) Any items of income, gain, loss or deduction otherwise
allocable under Section 5.2(b)(i)(B) or 5.2(b)(ii)(B) hereof shall be
subject to allocation by the Managing General Partner in a manner
designed to eliminate, to the maximum extent possible, Book-Tax
Disparities in a Contributed Property or Adjusted Property otherwise
resulting from the application of the "ceiling" limitation (under
Section 704(c) of the Code or Section 704(c) principles) to the
allocations provided under Section 5.2(b)(i)(A) or 5.2(b)(ii)(A)
hereof.

(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Units (or any class or classes thereof), the
Managing General Partner shall have the sole discretion to (i) adopt such
conventions as it deems appropriate in determining the amount of depreciation,
amortization and cost recovery deductions; (ii) make special allocations for
federal income tax purposes of income (including gross income) or deductions;
and (iii) amend the provisions of this Agreement as appropriate (x) to reflect
the proposal or promulgation of Treasury regulations under Section 704(b) of
the Code or (y) otherwise to preserve or achieve uniformity of the Units (or
any class or classes thereof). The Managing General Partner may adopt such
conventions, make such allocations and make such amendments to this Agreement
as provided in this Section 5.2(c) only if such conventions, allocations or
amendments would not have a material adverse effect on the Partners, the
holders of any class or classes of Units issued and outstanding or the
Partnership, and if such allocations are consistent with the principles of
Section 704 of the Code.

(d) The Managing General Partner in its sole discretion may
determine to depreciate the portion of an adjustment under Section 743(b) of
the Code attributable to unrealized appreciation in any Adjusted Property (to
the extent of the unamortized Book-Tax Disparity) using a predetermined rate
derived from the depreciation method and useful life applied to the
Partnership's common basis of such property, despite the inconsistency of such
approach with Proposed Treasury Regulation Section 1.168-2(n), Treasury
Regulation Section 1.167(c)-1(a)(6) or the legislative history of Section 197
of the Code. If the Managing General Partner later determines that such
reporting position cannot reasonably be taken, the Managing General Partner may
adopt a depreciation convention under which all purchasers acquiring Units in
the same month would receive depreciation based upon the same applicable rate
as if they had purchased a direct interest in the Partnership's property. If
the Managing General Partner chooses not to utilize such aggregate method, the
Managing General Partner may use any other reasonable depreciation convention
to preserve the uniformity of the intrinsic tax characteristics of any Units
that would not have a material adverse effect on the Limited Partners or the
Record Holders of any class or classes of Units.

(e) Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall, to the extent possible,
after taking into account other required allocations of gain pursuant to this
Section 5.2, be characterized as Recapture Income in the same proportions and
to the same extent as such Partners have been allocated any deductions directly
or indirectly giving rise to the treatment of such gains as Recapture Income.

(f) All items of income, gain, loss, deduction and credit
recognized by the Partnership for federal income tax purposes and allocated to
the Partners in accordance with the provisions hereof shall be determined
without regard to any election under Section 754 of the Code which may be made
by the Partnership, provided, however, that such allocations once made, shall
be adjusted as necessary or appropriate to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.

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(g) Each item of Partnership income, gain, loss and deduction
attributable to a transferred Partnership Interest of the General Partners or
to transferred Units shall, for federal income tax purposes, be determined on
an annual basis and prorated on a monthly basis and shall be allocated to the
Partners as of the opening of the New York Stock Exchange on the first Business
Day of each month; provided, however, that gain or loss on a sale or other
disposition of any assets of the Partnership other than in the ordinary course
of business shall be allocated to the Partners as of the opening of the New
York Stock Exchange on the first Business Day of the month in which such gain
or loss is recognized for federal income tax purposes. The Managing General
Partner may revise, alter or otherwise modify such methods of allocation as it
determines necessary, to the extent permitted or required by Section 706 of the
Code and the regulations or rulings promulgated thereunder.

(h) Allocations that would otherwise be made to a Limited Partner
under the provisions of this Article V shall instead be made to the beneficial
owner of Units held by a nominee in any case in which the nominee has furnished
the identity of such owner to the Partnership in accordance with Section
6031(c) of the Code or any other method acceptable to the Managing General
Partner in its sole discretion.

5.3 Requirement and Characterization of Distributions. Within 60
days following the end of each calendar quarter an amount equal to 100% of
Available Cash with respect to such quarter shall be distributed in accordance
with this Article V by the Partnership to the Partners, as of the Record Date
selected by the Managing General Partner in its reasonable discretion, unless
such distribution shall be prohibited by a Certificate of Designations, a loan
agreement or other instrument then in effect to which the Partnership is a
party or by which its properties are bound, or unless a Certificate of
Designation requires a different distribution. The Managing General Partner
shall have the right to determine in its sole discretion the amount of
Available Cash for each quarter except to the extent it is established that
such determination is contrary to any express requirement of this Agreement.

5.4 Distributions. Available Cash with respect to a calendar
quarter shall be distributed 98% to Limited Partners holding Common Units, in
the proportion that the respective number of Common Units held by them bears to
the total number of Common Units outstanding, 1.9% to the Managing General
Partner and 0.1% to the Special General Partner, unless such distribution shall
be prohibited by a Certificate of Designations, a loan agreement or other
instrument then in effect to which the Partnership is a party or by which its
properties are bound, or unless a Certificate of Designation requires a
different distribution.

5.5 [placeholder section]

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5.6 Distributions of Proceeds from Capital Transactions. (a)
Proceeds from Capital Transactions which the Managing General Partner
determines to distribute shall be distributed, first as provided in Section
5.6(b) hereof and second 98% to the Limited Partners holding Common Units, in
the proportion that the respective number of Common Units held by them bears to
the total number of Common Units, 1.9% to the Managing General Partner and 0.1%
to the Special General Partner.

(b) If one or more Capital Transactions shall occur in any taxable
year, then before any distribution is made pursuant to Section 5.6(a) hereof
(except as otherwise provided below in this Section 5.6(b)) the Managing
General Partner shall be required to make a distribution of Proceeds from
Capital Transactions on or before the April 1st next following the end of the
taxable year in which such Capital Transactions occur in accordance with the
following procedure:

(i) The Managing General Partner shall determine the net
capital gain and net ordinary income recognized by the Partnership
(without taking account of any Code Section 743 adjustments) for
federal income tax purposes from all Capital Transactions during such
year, and shall then determine the portion of such net capital gain
and net ordinary income allocable to any then outstanding Common
Units.

(ii) The Managing General Partner shall then cause the
Partnership (except as provided in paragraph (iii) immediately below)
to distribute cash to the Partners, in accordance with the provisions
of this Section 5.6(b) until an amount has been distributed pursuant
hereto with respect to every Common Unit outstanding on the Record
Date established by the Managing General Partner with respect to such
distribution equal to 125% of the federal income tax liability that
would be due with respect to the "net capital gain" and "net ordinary
income" attributed to any outstanding Common Unit on the Record Date
(assuming for such purpose that the maximum marginal federal income
tax rates for individuals, relating to either long-term capital gain
or ordinary income, whichever the case may be, would apply at the time
of such recognition without regard to any elimination of the benefit
of lower rates, any surtaxes or any alternative minimum taxes).

(iii) No distribution of Proceeds from Capital Transactions
shall be required by this Section 5.6(c) with respect to any tax year
if the amount or value otherwise distributable for such taxable year
under this Section 5.6(c) does not exceed $.10 per Common Unit, or if
such distribution shall be prohibited by a Certificate of
Designations, a loan agreement or other instrument then in effect to
which the Partnership is a party or by which its properties are bound.

5.7 Distributions Upon Liquidation. In the event of the
liquidation of the Partnership, distribution of the assets of the Partnership
shall be in accordance with Section 14.3 hereof, subject to the terms of any
applicable Certificates of Designations.

5.8 Other Capital Distributions. Subject to the Certificates of
Designations, distributions of equity securities of the Partnership or
securities in respect of a liquidation of the Partnership, including without
limitation, distributions of Common Units, distributions of interests in the
Partnership other than Common Units, distributions of rights or warrants
entitling the holders thereof to subscribe for the Common Units or any
securities entitling the holders thereof to convert such securities into, or
exchange such securities for, Common Units, or distributions of rights or
warrants to purchase debt securities or assets of the Partnership, if
distributed by the Partnership, shall be distributed 98% to holders of Common
Units, in the proportion that the respective number of Common Units held by
them bears to the total number of Common Units, and 1.9% to the Managing
General Partner and 0.1% to the Special General Partner.

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ARTICLE VI

MANAGEMENT AND OPERATION OF BUSINESS

6.1 Management. (a) The Managing General Partner shall conduct,
direct and exercise full control over all activities of the Partnership.
Except as otherwise expressly provided in this Agreement, all management powers
over the business and affairs of the Partnership shall be exclusively vested in
the Managing General Partner, and neither Limited Partners nor (except as
expressly set forth herein) the Special General Partner shall have any right of
control or management power over the business and affairs of the Partnership.
In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the Managing
General Partner under any other provision of this Agreement, the Managing
General Partner, subject to Section 6.3 hereof, shall have full power and
authority to do all things deemed necessary or desirable by it to conduct the
business of the Partnership, to exercise all powers set forth in Section 3.2
hereof and to effectuate the purposes set forth in Section 3.1 hereof
including, without limitation, (i) the making of any expenditures, the
borrowing of money, the guaranteeing of indebtedness and other liabilities, the
issuance of evidences of indebtedness and the incurring of any obligations it
deems necessary for the conduct of the activities of the Partnership; (ii) the
making of tax, regulatory and other filings, or rendering of periodic or other
reports to governmental or other agencies having jurisdiction over the business
or assets of the Partnership; (iii) the acquisition, disposition, mortgage,
pledge, encumbrance, hypothecation or exchange of any assets of the Partnership
or the merger or other combination of the Partnership with or into another
entity (all of the foregoing subject to any prior approval which may be
required by Section 6.3 hereof); (iv) the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose consistent with
the terms of this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct of the operations of the Partnership
or any of its Subsidiaries, the lending of funds to other persons (including
its Subsidiaries) and the repayment of obligations of the Partnership and its
Subsidiaries and the making of capital contributions to its Subsidiaries; (v)
the negotiation and execution on any terms deemed desirable in its sole
discretion and the performance of any contracts, conveyances or other
instruments that it considers useful or necessary to the conduct of the
Partnership operations or the implementation of its powers under this
Agreement; (vi) the distribution of Partnership cash or other Partnership
assets; (vii) the selection and dismissal of employees and agents (including,
without limitation, employees having titles such as "president", "vice
president", "secretary" and "treasurer") and agents, outside attorneys,
accountants, consultants and contractors and the determination of their
compensation and other terms of employment or hiring; (viii) the maintenance of
such insurance for the benefit of the Partnership and the Partners as it deems
necessary or appropriate; (ix) the formation of, or acquisition of an interest
in, and the contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems desirable
(including, without limitation, the acquisition of interests in, and the
contributions of property to its Subsidiaries from time to time); (x) the
control of any matters affecting the rights and obligations of the Partnership,
including the conduct of litigation and the incurring of legal expense and the
settlement of claims and litigation; (xi) the lending or borrowing of money,
the assumption or guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidences of indebtedness and the securing
of same by mortgage, deed of trust or other lien or encumbrance, the bringing
and defending of actions at law or in equity and the indemnification of any
Person against liabilities and contingencies to the extent permitted by law;
(xii) the entering into listing agreements with the New York Stock Exchange and
any other securities exchange and delisting some or all of the Units from, or
requesting that trading be suspended on, any such exchange (subject to any
prior approval which may be required under Section 1.6 hereof); (xiii) the
undertaking of any action in connection with the Partnership's investment in
its Subsidiaries (including, without limitation, the contribution or loan by
the Partnership to its Subsidiaries of funds); (xiv) the undertaking of any
action in connection with the Partnership's direct or indirect investment in
its Subsidiaries; and (xv) determine the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as it
may adopt.

(b) The Special General Partner shall have power and authority
coextensive with that of the Managing General Partner to represent the
Partnership in dealings with third parties (for the purposes of this Section
6.1, "third parties" shall be deemed to be persons other than the Partners and
the Assignees thereof),

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and accordingly may bind the Partnership. However, in the absence of notice
given to the Partnership by either of the Managing General Partner or the
Special General Partner to the contrary, the Special General Partner's power
and authority to manage the Partnership shall be presumed to have been
delegated to the Managing General Partner. In the absence of such delegation
of the Special General Partner's power and authority, the Special General
Partner shall have voting power in all matters of management of the Partnership
proportionate with its general partner Partnership Interest.

(d) If the Managing General Partner determines such action to be
necessary or appropriate in connection with the proposed qualification or
formation and operation of the Partnership in any state other than the State of
Delaware in which the Partnership is transacting or may transact business, the
Managing General Partner may cause the Partnership to form one or more
operating partnerships pursuant to and in conformity with the laws of such
jurisdiction or jurisdictions as the Managing General Partner may determine
("Operating Partnership"). An Operating Partnership may have conveyed to it
and may acquire, hold, operate and dispose of all or part of the Partnership
assets located in a state. Each Operating Partnership shall be composed of the
Managing General Partner as managing general partner thereof, having a 1.9%
interest in the Operating Partnership, the Special General Partner as special
general partner thereof, have a 0.1% general partner interest in the Operating
Partnership, which shall in turn reduce the interests of the Managing General
Partner and the Special General Partner in the Partnership so that the economic
interest of the Managing General Partner as managing general partner and the
Special General Partner as special general partner in the Partnership and the
Operating Partnership or Operating Partnerships remains 1.9% and 0.1%,
respectively, and the Partnership as the sole limited partner thereof having a
98% interest in the Operating Partnership. Each Operating Partnership shall be
formed pursuant to an agreement of limited partnership in substantially the
form of this Agreement, provided that the Operating Partnership agreement may
contain (i) a provision providing for a name of the Operating Partnership
different from the name of the Partnership, (ii) such provisions as the
Managing General Partner determines are reasonable and necessary or appropriate
to comply with the laws of the jurisdiction in which the Operating Partnership
is being formed or to reflect the manner in which the Operating Partnership
will be or is required to conduct the activities of the Operating Partnership
with respect to the properties located in a state, (iii) such provisions as the
Managing General Partner would be permitted to adopt as amendments to this
Agreement (provided that the Managing General Partner complies with any
applicable requirements of such sections) and (iv) any other provision that the
Managing General Partner has determined is necessary or appropriate and is fair
and reasonable to all parties concerned. The Managing General Partner is
hereby authorized on behalf of the Partnership to execute the agreement of
limited partnership of each Operating Partnership and any other certificates,
instruments and documents necessary to form the Operating Partnership, and the
Partners hereby approve, ratify and confirm the execution, delivery and
performance thereof.

(e) At all times from and after the date hereof, the Managing
General Partner shall cause the Partnership and any Operating Partnership to
obtain and maintain to the extent available on a commercially reasonable basis
(i) casualty and liability insurance on the properties of the Partnership and
(ii) liability insurance for the General Partners and the Indemnitees
hereunder.

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(f) At all times from and after the date hereof, the Managing
General Partner shall cause the Partnership to maintain working capital
reserves in such amounts as the Managing General Partner deems appropriate and
reasonable from time to time.

6.2 Certificate of Limited Partnership. The Managing General
Partner has filed the Certificate of Limited Partnership with the Secretary of
State of the State of Delaware as required by the Delaware Act and shall use
all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware or any other state in which the Partnership may elect to do
business or own property. To the extent that such action is determined by the
Managing General Partner to be reasonable and necessary or appropriate, the
Managing General Partner shall file amendments to and restatements of the
Certificate of Limited Partnership and do all the things to maintain the
Partnership as a limited partnership (or a partnership in which the limited
partners have limited liability) under the laws of the State of Delaware or any
other state in which the Partnership may elect to do business or own property.
Subject to the terms of Section 7.5(a) hereof, the Managing General Partner
shall not be required, before or after filing, to deliver or mail a copy of the
Certificate of Limited Partnership or any amendment thereto to any Limited
Partner.

6.3 Restrictions on the General Partners' Authority. (a) No
General Partner may, without the written approval of the specific act by all of
the Limited Partners or by other written instrument executed and delivered by
all of the Limited Partners subsequent to the date of this Agreement, take any
action in contravention of this Agreement, including, without limitation, (i)
take any act that would make it impossible to carry on the ordinary business of
the Partnership, except as otherwise provided in this Agreement, (ii) possess
Partnership property, or assign any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admit a person as a Partner, except
as otherwise provided in this Agreement; (iv) amend this Agreement in any
manner, except as otherwise provided in this Agreement; or (v) transfer its
interest as a General Partner of the Partnership, except as otherwise provided
in this Agreement.

(b) Except as provided in Article XIV hereof, no General Partner
may sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related
transactions (including by way of merger, consolidation or other combination
with any other Person) without the approval of the holders of at least a
majority of the Outstanding Units, voting together as a single class unless the
holders of a particular class or series of Outstanding Partnership Securities
have the right to approve such transaction or series of transactions pursuant
to the Certificate of Designations creating such Partnership Securities;
provided, however, that this provision shall not preclude or limit the
mortgage, pledge, hypothecation or grant of a security interest in all or
substantially all of the Partnership's assets (unless otherwise prohibited in a
Certificate of Designations) and shall not apply to any forced sale of any or
all of the Partnership's assets pursuant to the foreclosure of, or other
realization upon, any such encumbrance.

(c) Unless approved by the affirmative vote of the holders of at
least a majority of the Outstanding Units, no General Partner shall take any
action or refuse to take any reasonable action the effect of which, if taken or
not taken, as the case may be, would cause the Partnership to be treated as a
corporation or as an association taxable as a corporation for federal income
tax purposes.

(d) At all times while serving as a general partner of the
Partnership, the General Partners will not make any dividend or distribution
on, or repurchase any stock or take any other action if the effect of such
dividend or distribution, repurchase or other action would be to reduce its net
worth below an amount necessary to receive an Opinion of Counsel that the
Partnership will be treated as a partnership for federal income tax purposes.

6.4 Reimbursement of the General Partners. (a) Except as
provided in this Section 6.4 and elsewhere in this Agreement, none of the
General Partners shall be compensated for its services as a general partner of
the Partnership.

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(b) The General Partners shall be reimbursed on a monthly basis,
or such other basis as the Managing General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including amounts paid to any Person to
perform services to or for the Partnership) and (ii) except as provided in (d)
below, that portion of the General Partners' or their Affiliates' legal,
accounting, investor communications, utilities, telephone, secretarial, travel,
entertainment, bookkeeping, reporting, data processing, office rent and other
office expenses (including overhead charges), salaries, fees and other
compensation and benefit expenses of employees, officers and directors, other
administrative or overhead expenses and all other expenses, in each such case,
necessary or appropriate to the conduct of the Partnership's business and
allocable to the Partnership or otherwise incurred by the General Partners in
connection with operating the Partnership's business (including, without
limitation, expenses allocated to the General Partners by their Affiliates).
The Managing General Partner shall determine the fees and expenses that are
allocable to the Partnership in any reasonable manner determined by the
Managing General Partner in its sole discretion. Such reimbursement shall be
in addition to any reimbursement to the General Partners as a result of
indemnification pursuant to Section 6.7 hereof.

(c) The Managing General Partner in its sole discretion and
without the approval of the Limited Partners may propose and adopt on behalf of
the Partnership, employee benefit plans (including, without limitation, plans
involving the issuance of Units), for the benefit of employees of the General
Partners, the Partnership, its Subsidiaries or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership or any of its Subsidiaries.

(d) The Managing General Partner shall not be reimbursed for any
salaries, fees and other compensation and benefit expenses of employees,
officers and directors of the Managing General Partner which are paid to
individuals who also serve as a director of the Managing General Partner or who
are shareholders of the Managing General Partner to the extent that such
payments are made pursuant to an employment agreement. The reimbursement to
the Managing General Partner pursuant to the terms of 6.4(b) for any
compensation or benefits paid, directly or indirectly, to its shareholders or
directors in their capacity as such, shall be limited to the amount of
reasonable directors' fees and expenses and costs of directors' and officers'
liability insurance.

6.5 Outside Activities. (a) No General Partner shall, for so long
as it is a general partner of the Partnership, enter into or conduct any
business or incur any debts or liabilities which adversely affect or are in
direct competition with the Partnership.

(b) Except as described in the Registration Statement or as
provided in Section 6.5(a) hereof, no Indemnitee shall be expressly or
implicitly restricted or proscribed pursuant to this Agreement or the
partnership relationship established hereby from engaging in other activities
for profit, whether in the businesses engaged in by the Partnership or
anticipated to be engaged in by the Partnership or otherwise, including,
without limitation, those businesses described in or contemplated by the
Registration Statement. None of the Partnership, any Limited Partner or any
other Person shall have any rights by virtue of this Agreement or the
partnership relationship established hereby or thereby in any business ventures
of any Indemnitee, and except as set forth in the Registration Statement, such
Indemnitees shall have no obligation to offer any interest in any such business
ventures to the Partnership, any Limited Partner or any such other Person. The
General Partners and any other Persons affiliated with the General Partners may
acquire Units or Partnership Securities and shall be entitled to exercise all
rights of an Assignee or Limited Partner, as applicable, relating to such Units
or Partnership Securities, as the case may be.

6.6 Contracts with Affiliates. (a) The Partnership may lend or
contribute to its Subsidiaries, and its Subsidiaries may borrow funds, on terms
and conditions established in the sole discretion of the Managing General
Partner. The foregoing authority shall be exercised by the Managing General
Partner in its reasonable discretion and shall not create any right or benefit
in favor of any Subsidiary or any other Person. The Partnership may not lend
funds to the General Partners or any of their Affiliates.

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(b) Each General Partner may itself, or may enter into an
agreement with any of its Affiliates to, render services to the Partnership.
Any services rendered to the Partnership by a General Partner or any Affiliate
thereof shall be on terms that are fair and reasonable to the Partnership. The
provisions of Section 6.4 hereof shall apply to the rendering of services
described in this Section 6.6(b).

(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law.

(d) Neither a General Partner nor any Affiliate thereof shall
sell, transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the
requirements of this Section 6.6(d) shall be deemed to be satisfied as to any
transactions described in or contemplated by the Registration Statement and the
Consent Solicitation Statement.

6.7 Indemnification. (a) To the fullest extent permitted by law
but subject to the limitations expressly provided in this Agreement, each
Indemnitee shall be indemnified and held harmless by the Partnership from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as (x) a General Partner, a departing
General Partner or any of their Affiliates, (y) an officer, director, employee,
partner, agent or trustee of a General Partner, any departing General Partner
or any of their Affiliates or (z) a Person serving at the request of the
Partnership in another entity in a similar capacity, provided that in each case
the Indemnitee acted in good faith and in the manner which such Indemnitee
believed to be in, or not opposed to, the best interests of the Partnership
and, with respect to any criminal proceeding, had no reasonable cause to
believe its conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
the Indemnitee acted in a manner contrary to that specified above. Any
indemnification pursuant to this Section 6.7 shall be made only out of the
assets of the Partnership.

(b) To the fullest extent permitted by law, expenses (including
legal fees and expenses) incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding shall, from time to time, be advanced by the
Partnership prior to the final disposition of such claim, demand, action, suit
or proceeding upon receipt by the Partnership of an undertaking by or on behalf
of the Indemnitee to repay such amount if it shall be determined that the
Indemnitee is not entitled to be indemnified as authorized in this Section 6.7.

(c) The indemnification provided by this Section 6.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity.

(d) The Partnership may purchase and maintain insurance, on behalf
of a General Partner and such other Persons as the Managing General Partner
shall determine, against any liability that may be asserted against or expense
that may be incurred by such Person in connection with the Partnership's
activities, regardless of whether the Partnership would have the power to
indemnify such Person against such liability under the provisions of this
Agreement.

(e) For purposes of this Section 6.7, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 6.7(a); and action taken
or omitted by it with respect to an employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants, and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.

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(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in
this Agreement.

(g) An Indemnitee shall not be denied indemnification in whole or
in part under this Section 6.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction were otherwise permitted by the terms of this Agreement.

(h) The provisions of this Section 6.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.

(i) No amendment, modification or repeal of this Section 6.7 or
any provision hereof shall in any manner terminate, reduce or impair the right
of any past, present or future Indemnitee to be indemnified by the Partnership,
nor the obligation of the Partnership to indemnify any such Indemnitee under
and in accordance with the provisions of this Section 6.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.

6.8 Liability of Indemnitees. (a) Notwithstanding anything to the
contrary set forth in this Agreement or as otherwise prohibited by law, no
Indemnitee shall be liable for monetary damages to the Partnership, Limited
Partners or to any Persons who have acquired interests in the Units for losses
sustained or liabilities incurred as a result of errors of judgment or of any
act or omission if such Indemnitee acted in good faith and in the manner which
such Indemnitee believed to be in, or not opposed to, the best interests of the
Partnership.

(b) Subject to its obligations and duties as Managing General
Partner set forth in Section 6.1(a) hereof, the Managing General Partner may
exercise any of the powers granted to it by this Agreement and perform any of
the duties imposed upon it hereunder either directly or by or through its
agents and the Managing General Partner shall not be responsible for any
misconduct or negligence on the part of any such agent appointed by it in good
faith.

(c) Any amendment, modification or repeal of this Section 6.8 or
any provision hereof shall be prospective only and shall not in any way affect
the limitations or the liability to the Partnership and the Limited Partners of
a General Partner, its directors, officers, partners and employees under this
Section 6.8 as in effect immediately prior to such amendment, modification or
repeal with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless
of when such claims may arise or be asserted.

6.9 Resolution of Conflicts of Interest. (a) Unless otherwise
expressly provided in this Agreement, whenever a potential conflict of interest
exists or arises between a General Partner or any Affiliate thereof, on the one
hand, and the Partnership, any Subsidiary or any Partner, on the other hand,
any resolution or course of action in respect of such conflict of interest
shall be permitted and deemed approved by all Partners, and shall not
constitute a breach of this Agreement, of any agreement contemplated herein, or
of any duty stated or implied by law or equity, if the resolution or course of
action is, or by operation of this Agreement is deemed to be, fair and
reasonable to the Partnership. The Managing General Partner shall be
authorized but not required in connection with its resolution of such conflict
of interest to seek Special Approval of a resolution of such conflict or course
of action. Any conflict of interest and any resolution of such conflict of
interest shall be deemed fair and reasonable to the Partnership upon Special
Approval of such conflict of interest or resolution. The Managing General
Partner may also adopt a resolution or course of action that has not received
Special Approval. Any such resolution or course of action in respect of any
conflict of interest shall not constitute a breach of this Agreement, of any
other agreement contemplated herein, or of any duty stated or implied by law or
equity, if such resolution or course of action is fair and reasonable to the
Partnership. The Managing General Partner (including the

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Conflicts and Audit Committee in connection with Special Approval) shall be
authorized in connection with its resolution of any conflict of interest to
consider (i) the relative interests of any party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interest; (ii) any customary or accepted industry practices; (iii) any
applicable generally accepted accounting practices or principles; and (iv) such
additional factors as the Managing General Partner (including the Conflicts and
Audit Committee in connection with Special Approval) determines in its sole
discretion to be relevant, reasonable or appropriate under the circumstances.
Nothing contained in this Agreement, however, is intended to nor shall it be
construed to require the Managing General Partner (including the Conflicts and
Audit Committee in connection with Special Approval) to consider the interests
of any Person other than the Partnership and the Limited Partners as a group.
So long as the Managing General Partner acted in good faith and in a manner
that it believed to be in, or not opposed to, the best interests of the
Partnership and had no reasonable grounds to believe its conduct was unlawful,
the resolution, action or terms so made, taken or provided by the Managing
General Partner with respect to such matter shall not constitute a breach of
this Agreement or any other agreement contemplated herein or a breach of any
standard of care or duty imposed herein or therein or under the Delaware Act or
any other law, rule or regulation.

(b) Whenever this Agreement or any other agreement contemplated
hereby provides that the Managing General Partner or any of its Affiliates is
permitted or required to make a decision (i) in its "discretion" or under a
grant of similar authority or latitude, the Managing General Partner or such
Affiliate shall be entitled to consider only such interests and factors as it
desires and shall have no duty or obligation to give any consideration to any
interest of or factors affecting, the Partnership or any Limited Partner, or
(ii) in "good faith" or under another express standard, the Managing General
Partner or such Affiliate shall act under such express standard and shall not
be subject to any other or different standards imposed by this Agreement or any
other agreement contemplated hereby.

(c) Whenever a particular transaction, arrangement or resolution
of a conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.

6.10 Other Matters Concerning General Partners. (a) A General
Partner may rely and shall be protected in acting or refraining from acting
upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, bond, debenture, or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties.

(b) A General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants
and advisers selected in good faith by it, and any act taken or omitted to be
taken in reliance upon the opinion (including an Opinion of Counsel) of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.

(c) A General Partner shall have the right, in respect of any of
its powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such
attorney shall, to the extent provided by such General Partner in the power of
attorney, have full power and authority to do and perform all and every act and
duty which is permitted or required to be done by such General Partner
hereunder.

(d) A General Partner shall have the right, but not the
obligation, to make loans to the Partnership; provided, that in no event shall
such loans be on terms and conditions less favorable than those that the
Partnership could obtain from unaffiliated third parties or banks for the same
purpose.

6.11 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner,
individually or collectively, shall have any ownership interest in such
Partnership assets or any portion thereof. Title to any or all of the
Partnership assets may be held in the name of the Partnership, the Managing
General Partner or one or more nominees, as the Managing General Partner may
determine, including Affiliates of the Managing General Partner. The Managing
General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the Managing General Partner or any
nominee or Affiliate of the Managing General Partner shall be held by the
Managing General Partner for the use and benefit of the Partnership in
accordance with the provisions of this Agreement; provided, however, that the
Managing

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General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.

6.12 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the Managing General Partner has full power and
authority to encumber, sell or otherwise use in any manner any and all assets
of the Partnership and to enter into any contracts on behalf of the
Partnership, and such Person shall be entitled to deal with the Managing
General Partner as if it were the Partnership's sole party in interest, both
legally and beneficially. The Special General Partner, each Limited Partner
and each Assignee hereby waives any and all defenses or other remedies which
may be available against such Person to contest, negate or disaffirm any action
of the Managing General Partner in connection with any such dealing. In no
event shall any Person dealing with the Managing General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the Managing General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the Managing General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming
thereunder that (a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (b) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (c) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.

6.13 Covenants and Representations of General Partners. (a) The
General Partners hereby covenant and represent that (i) at all times while
acting as general partners of the Partnership, they will collectively maintain
assets (excluding any interest in, or receivables due from, the Partnership)
the fair market value of which exceeds their liabilities by the amount of at
least $10 million; (ii) the Partnership will be operated in accordance with
applicable state partnership statutes and with this Partnership Agreement;
(iii) at least ninety percent (90%) of the Partnership's gross income for each
taxable year will consist of (w) income or gain derived from the exploration,
development, production, processing, refining, transportation or marketing of
crude oil and refined petroleum products, (x) gains from the sale of real
property, (y) real property rents or (z) gains from the sale or other
disposition of a capital asset held for the production of income or gain of the
character described in clauses (w), (x) and (y) above; and (iv) the General
Partners will act independently of the Limited Partners.

(b) The Managing General Partner hereby covenants and agrees that
it will not permit the Partnership to exercise its purchase option to acquire
the Comyn pipeline (as described in the Registration Statement) unless the
Partnership has first received an opinion from a nationally recognized
investment banking firm which is independent of the General Partners to the
effect that the exercise of the option is fair from a financial point of view
to the holders of the Units in their capacity as such.

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ARTICLE VII

RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS

7.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement
or the Delaware Act.

7.2 Management of Business. No Limited Partner or Assignee (in
his capacity as such) shall take part in the operation, management or control
(within the meaning of the Delaware Act) of the Partnership's business,
transact any business in the Partnership's name or have the power to sign
documents for or otherwise bind the Partnership. The transaction of any such
business by a General Partner, any Affiliate thereof or any officer, director,
employee, partner, agent or trustee of such General Partner or any Affiliate
thereof, in its capacity as such, shall not affect, impair or eliminate the
limitations on the liability of the Limited Partners or Assignees under this
Agreement.

7.3 Outside Activities. Subject to the provisions of Section 6.5
hereof which shall continue to be applicable to the Persons referred to
therein, regardless of whether such Persons shall also be Limited Partners or
Assignees, any Limited Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to
the Partnership, including business interests and activities in direct
competition with the Partnership. Neither the Partnership nor any Partners
shall have any rights by virtue of this Agreement in any business ventures of
any Limited Partner or Assignee.

7.4 Return of Capital. No Limited Partner shall be entitled to
the withdrawal or return of his Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Except to the extent provided by Article V
hereof, or as set forth in a Certificate of Designations, or as otherwise
expressly provided in this Agreement, no Limited Partner or Assignee shall have
priority over any other Limited Partner or Assignee either as to the return of
Capital Contributions or as to profits, losses or distributions.

7.5 Rights of Limited Partners Relating to the Partnership. (a)
In addition to other rights provided by this Agreement or by applicable law,
and except as limited by Section 7.5(b) hereof, each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon reasonable demand and at such
Limited Partner's own expense:

(i) to obtain true and full information regarding the
status of the business and financial condition of the Partnership;

(ii) promptly after becoming available, to obtain a copy
of the Partnership's federal, state and local income tax returns for
each year;

(iii) to have furnished to him, upon notification to the
Managing General Partner, a current list of the name and last known
business, residence or mailing address of each Partner;

(iv) to have furnished to him, upon notification to the
Managing General Partner, a copy of this Agreement and the Certificate
of Limited Partnership and all amendments thereto, together with
executed copies of all powers of attorney pursuant to which this
Agreement, the Certificate of Limited Partnership and all amendments
thereto have been executed;

(v) to obtain true and full information regarding the
amount of cash and a description and statement of the Agreed Value of
any other Capital Contribution by each Partner and which each Partner
has agreed to contribute in the future, and the date on which each
became a Partner; and

(vi) to obtain such other information regarding the
affairs of the Partnership as is just and reasonable.

(b) Notwithstanding any other provision of this Section 7.5, the
Managing General Partner may keep confidential from the Limited Partners for
such period of time as the Managing General Partner determines in its sole
discretion to be reasonable, any information that the Managing General Partner
reasonably believes to be in the nature of trade secrets or other information
the disclosure of which the Managing General Partner in

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good faith believes is not in the best interests of the Partnership or which
the Partnership is required by law or by agreements with unaffiliated third
parties to maintain confidentiality.

ARTICLE VIII

BOOKS, RECORDS, ACCOUNTING AND REPORTS

8.1 Records and Accounting. The Managing General Partner shall
keep or cause to be kept at the principal office of the Partnership appropriate
books and records with respect to the Partnership's business including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 7.5(a) hereof. Any records maintained by or on behalf of the
Partnership in the regular course of business, including the record of the
Record Holders and Assignees of Units, Depositary Units or Partnership
Securities, books of account and records of Partnership proceedings, may be
kept on, or be in the form of, punch cards, magnetic tape, photographs,
micrographics or any other information storage device, provided that the
records so maintained are convertible into clearly legible written form within
a reasonable period of time. The books of the Partnership shall be maintained,
for financial and tax reporting purposes, on an accrual basis in accordance
with generally accepted accounting principles.

8.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.

8.3 Reports. (a) As soon as practicable, but in no event later
than 120 days after the close of each Partnership Year, the Managing General
Partner shall cause to be mailed to each Record Holder of a Unit as of a date
selected by the Managing General Partner in its sole discretion, an annual
report containing financial statements of the Partnership for such Partnership
Year, presented in accordance with generally accepted accounting principles,
including a balance sheet and statements of operations, Partners' equity and
changes in financial position, such statements to be audited by a nationally
recognized firm of independent public accountants selected by the Managing
General Partner.

(b) As soon as practicable, but in no event later than 90 days
after the close of each calendar quarter except the last calendar quarter of
each year, the Managing General Partner shall cause to be mailed to each Record
Holder of a Unit, as of a date selected by the Managing General Partner in its
sole discretion, a report containing unaudited financial statements of the
Partnership and such other information as may be required by applicable law,
regulation or rule of any National Securities Exchange on which the Units are
listed for trading, or as the Managing General Partner determines to be
appropriate.

ARTICLE IX

TAX MATTERS

9.1 Preparation of Tax Returns. The Managing General Partner
shall arrange for the preparation and timely filing of all returns of
Partnership income, gains, deductions, losses and other items required of the
Partnership for federal and state income tax purposes and shall use all
reasonable efforts to furnish, within 90 days of the close of each taxable
year, the tax information reasonably required by Unitholders for federal and
state income tax reporting purposes. The classification, realization and
recognition of income, gains, losses and deductions and other items shall be on
the accrual method of accounting for federal income tax purposes. The taxable
year of the Partnership shall be the calendar year.

9.2 Tax Elections. Except as otherwise provided herein, the
Managing General Partner shall, in its sole discretion, determine whether to
make any available election pursuant to the Code; provided, however, that the
Managing General Partner shall make the election under Section 754 of the Code
in accordance with applicable regulations thereunder. The Managing General
Partner shall have the right to seek to revoke any such election (including,
without limitation, the election under Section 754 of the Code) upon the
Managing General Partner's determination in its sole discretion that such
revocation is in the best interests of the Limited Partners and Assignees. For
purposes of computing the adjustments under Section 743(b) of the Code, the
Managing General Partner shall be authorized (but not required) to adopt a
convention whereby

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the price paid by a transferee of Units will be deemed to be the lowest quoted
trading price of the Units on any National Securities Exchange on which such
Units are traded during the calendar month in which such transfer is deemed to
occur pursuant to Section 5.1(d) hereof without regard to the actual price paid
by such transferee.

9.3 Tax Controversies. Subject to the provisions hereof, the
Managing General Partner is designated the Tax Matters Partners (as defined in
Section 6231 of the Code), and is authorized and required to represent the
Partnership (at the Partnership's expense) in connection with all examinations
of the Partnership's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend Partnership funds for
professional services and costs associated therewith. Each Partner or Assignee
agrees to cooperate with the Managing General Partner and to do or refrain from
doing any or all things reasonably required by the Managing General Partner to
conduct such proceedings.

9.4 Organizational Expenses. The Partnership shall elect to
deduct expenses, if any, incurred by it in organizing the Partnership ratably
over a 60-month period as provided in Section 709 of the Code.

9.5 Withholding. Notwithstanding any other provision of this
Agreement, the Managing General Partner is authorized to take any action that
it determines in its sole discretion to be necessary or appropriate to cause
the Partnership to comply with any withholding requirements established under
the Code or any other federal, state or local law including, without
limitation, pursuant to Section 1441, 1442, 1445 and 1446 of the Code. To the
extent that the Partnership is required to withhold and pay over to any taxing
authority any amount resulting from the allocation or distribution of income to
any Partner or Assignee (including by reason of Section 1446 of the Code), the
amount withheld shall be treated as a distribution of cash pursuant to Section
5.3 hereof in the amount of such withholding from such Partner.

9.6 [placeholder]

9.7 Entity-Level Deficiency Collections. If the Partnership is
required by applicable law to pay any federal, state or local income tax on
behalf of any Partner or Assignee or any former Partner or Assignee, (i) the
Managing General Partner shall pay such tax on behalf of such Partner or
Assignee or former Partner or Assignee from the funds of the Partnership; (ii)
any amount so paid on behalf of any Partner or Assignee shall constitute a
distribution of Available Cash to such Partner or Assignee pursuant to Section
5.3 hereof or 14.3 hereof; and (iii) to the extent any such Partner or Assignee
(but not a former Partner or Assignee) is not then entitled to such
distribution under this Agreement, the Managing General Partner shall be
authorized, without the approval of any Partner or Assignee, to amend this
Agreement insofar as is necessary to maintain the uniformity of intrinsic tax
characteristics as to each class or series of Units and to make subsequent
adjustments to distributions in a manner which, in the reasonable judgment of
the Managing General Partner, will make as little alteration in the priority
and amount of distributions otherwise applicable under this Agreement, and will
not otherwise alter the distributions to which Partners and Assignees are
entitled under this Agreement. If the Partnership is permitted (but not
required) by applicable law to pay any such tax on behalf of any Partner or
Assignee or former Partner or Assignee, the Managing General Partner shall be
authorized (but not required) to pay such tax from the funds of the Partnership
and to take any action consistent with this Section 9.7. The Managing General
Partner shall be authorized (but not required) to take all necessary or
appropriate actions to collect all or any portion of a deficiency in the
payment of any such tax which relates to prior periods which is attributable to
Persons who were Limited Partners or Assignees when such deficiencies arose
from such Persons.

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9.8 Opinions of Counsel. Notwithstanding any other provision of
this Agreement, if the Partnership is taxable for federal income tax purposes
as a corporation or an association taxable as a corporation at any time and,
pursuant to the provisions hereof, an Opinion of Counsel would otherwise be
required at that time to the effect that an action will not cause the
Partnership to become so taxable as a corporation or to be treated as an
association taxable as a corporation, such requirement for an Opinion of
Counsel shall be deemed automatically waived.

ARTICLE X

CERTIFICATES AND DEPOSITARY RECEIPTS

10.1 Certificates and Depositary Receipts. (a) Upon the issuance
of Units by the Partnership to a Limited Partner or any other Person, the
Partnership shall issue one or more Certificates in the name of such Person
evidencing the number and class, if applicable, of Units being so issued.
Certificates shall be executed on behalf of the Partnership by the Managing
General Partner.

(b) The Managing General Partner (i) may cause the deposit of some
or all of the Certificates in the Deposit Account pursuant to the Deposit
Agreement; (ii) with respect to those Certificates deposited in the Deposit
Account, shall receive Depositary Receipts registered in the name of the
Person(s) to whom such Units have been issued, evidencing the same number of
Depositary Units, as the case may be, as the number of Units represented by the
Certificates so deposited; and (iii) shall cause the distribution of such
Depositary Receipts to such Person(s).

10.2 Registration of Transfer and Exchange. (a) The Managing
General Partner shall cause to be kept on behalf of the Partnership a register
(the "Unit Register") in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 10.2(b) hereof, the
Managing General Partner will provide for the registration of Units and the
transfer of such Units. The Depositary is hereby appointed Transfer Agent and
registrar for the purpose of registering Units and transfers of such Units as
herein provided. The Partnership shall not recognize transfers of Certificates
representing Units which have been deposited pursuant to Section 10.1(a) hereof
and not withdrawn or interests therein except by transfers of Depositary Units
in the manner described in this Section 10.2 and in the Deposit Agreement.
Upon surrender for registration of transfer of any Depositary Units evidenced
by a Depositary Receipt and, subject to the provisions of Section 10.2(b)
hereof, the Managing General Partner on behalf of the Partnership will execute,
and the Transfer Agent will countersign and deliver, in the name of the holder
or the designated transferee or transferees, as required pursuant to the
holder's instructions, one or more new Depositary Receipts evidencing the same
aggregate number of Depositary Units as was evidenced by the Depositary Receipt
so surrendered.

(b) The Partnership shall not recognize any transfer of Depositary
Units until the Depositary Receipts evidencing such Depositary Units are
surrendered for registration of transfer and such Depositary Receipts are
accompanied by a Transfer Application duly executed by the transferee (or the
transferee's attorney-in-fact duly authorized in writing). No charge shall be
imposed by the Partnership for such transfer, provided that, as a condition to
the issuance of any new Depositary Receipt under this Section 10.2, the
Managing General Partner may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed with respect thereto.

10.3 Mutilated, Destroyed, Lost or Stolen Depositary Receipts. (a)
If any mutilated Depositary Receipt is surrendered to the Transfer Agent, the
Depositary shall execute, and the Transfer Agent shall countersign and deliver
in exchange therefor, a new Depositary Receipt evidencing the same number of
Depositary Units, as the case may be, as the Depositary Receipt so surrendered.

(b) If there shall be delivered to the Managing General Partner
and the Transfer Agent (i) evidence (including, without limitation, proof by
affidavit if requested by the Managing General Partner in form and substance
satisfactory to the Managing General Partner) to their satisfaction of the
destruction, loss or theft of any Depositary Receipt and (ii) such security or
indemnity as may be required by them to indemnify and hold each of them and any
of their agents harmless, then, in the absence of notice to the Managing
General Partner

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or the Transfer Agent that such Depositary Receipt has been acquired by a bona
fide purchaser, the Managing General Partner on behalf of the Partnership shall
execute and, upon its request, the Transfer Agent shall countersign and
deliver, in exchange for and in lieu of any such destroyed, lost or stolen
Depositary Receipt, a new Depositary Receipt evidencing the same number of
Depositary Units, as the Depositary Receipt so destroyed, lost or stolen.

(c) As a condition to the issuance of any new Depositary Receipt
under this Section 10.3, the Managing General Partner may require the payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Transfer Agent) connected therewith.

10.4 Registered Owner. In accordance with Section 10.2(b) hereof,
the Partnership shall be entitled to recognize the Record Holder as the Limited
Partner or Assignee with respect to any Units and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such Units on
the part of any other Person, whether or not the Partnership shall have actual
or other notice thereof, except as otherwise provided by law or any applicable
rule, regulation, guideline or requirement of any National Securities Exchange
on which the Units are listed for trading. Without limiting the foregoing,
when a Person (such as a broker, dealer, bank, trust company or clearing
corporation or an agent of any of the foregoing) is acting as nominee, agent or
in some other representative capacity for another Person in acquiring and/or
holding Units, as between the Partnership on the one hand and such other
Persons on the other hand, such representative Person (a) shall be the Limited
Partner or Assignee (as the case may be) of record and beneficially, (b) must
execute and deliver a Transfer Application and (c) shall be bound by this
Agreement and shall have the rights and obligations of a Limited Partner or
Assignee (as the case may be) hereunder and as provided for herein.

10.5 Withdrawal of Units from and Redeposit of Units in Depositary
Account. Any Units may be withdrawn from the Depositary Account by surrender
of the Depositary Receipts evidencing the corresponding Depositary Units duly
executed by the Record Holder thereof (or his attorney-in-fact duly authorized
in writing), provided that such Record Holder is then reflected on the books
and records of the Partnership as the Limited Partner in respect of the Units
for which such withdrawal is requested. Upon any such withdrawal, the Managing
General Partner shall cause the Partnership to issue a Certificate evidencing
such Units. Any such withdrawn Units, or Units which have not previously been
so deposited, may be redeposited or deposited (as the case may be) in the
Deposit Account by the surrender of the Certificate evidencing such withdrawn
Units or non-deposited Units to the Depositary and payment to the Depositary of
such fee and upon such terms as may be required therefor pursuant to the
Deposit Agreement. Upon any such redeposit or deposit, the Depositary shall
issue a Depositary Receipt evidencing the same number of Units as was evidenced
by the Certificate so redeposited or deposited.

10.6 Amendment of Deposit Agreement. Subject to its fiduciary
obligations, the Managing General Partner may amend or modify any provision of
the Deposit Agreement in any respect it reasonably determines to be necessary
or appropriate, provided, however, that the Managing General Partner shall not
amend or modify the Deposit Agreement if the effect of any such amendment or
modification would materially adversely affect the Limited Partners or would
impair the right of Limited Partners to withdraw their Units from deposit
thereunder.

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ARTICLE XI

TRANSFER OF INTERESTS

11.1 Transfer. (a) The term "transfer," when used in this Article
XI with respect to a Partnership Interest, shall be deemed to refer to an
appropriate transaction by which a General Partner assigns its general partner
Partnership Interest to another Person or by which the holder of a Unit assigns
such Unit to another Person who is or becomes an Assignee and includes a sale,
assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any
other disposition by law or otherwise.

(b) No Partnership Interest shall be transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article XI. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article XI shall be null and void.

11.2 Transfer of a General Partner's Partnership Interest. (a)
Each of the General Partners may transfer all, but not less than all, of its
general partner Partnership Interest (unless to an Affiliate, in which case
less than all of such interest may be transferred) to a single transferee if,
but only if, (i) the transferee agrees to assume and be bound by the rights and
duties of such general partner under the provisions of this Agreement, (ii) the
Partnership receives an Opinion of Counsel that such transfer would not result
in the loss of limited liability of any Limited Partner or the taxation of the
Partnership as a corporation or as an association taxable as a corporation for
federal income tax purposes and (iii) the transfer is made to an Affiliate or
upon such General Partner's merger, consolidation or other combination into any
other entity or the transfer by it of all or substantially all of its assets to
another entity.

(b) Notwithstanding Section 11.2(a) hereof, the Special General
Partner may not transfer its general partner Partnership Interest without the
consent of the Managing General Partner.

(c) Any transferee of the Managing General Partner's general
partner interest pursuant to Section 11.2(a) hereof shall be admitted to the
Partnership as successor Managing General Partner hereunder and shall continue
the business of the Partnership and the transferor of such general partner
interest shall cease to be a General Partner following the admission of such
transferee.

(d) Any transferee of the Special General Partner's general
partner interest pursuant to Section 11.2(a) hereof shall be admitted to the
Partnership as successor Special General Partner hereunder and the Managing
General Partner shall continue the business of the Partnership notwithstanding
such transfer by the Special General Partner and the transferor of such general
partner interest shall cease to be a General Partner following the admission of
such transferee.

(e) Any successor General Partner pursuant to this Section 11.2
shall become a General Partner effective, to the extent permitted by the
Delaware Act, as of the date immediately prior to the date of the transfer of
the general partner interest. This Agreement and the Certificate of Limited
Partnership shall be amended as appropriate to reflect the cessation of the
former General Partner and the substitution of the successor General Partner.

11.3 Transfer of Units. (a) Any Units which have been deposited in
the Deposit Account may be transferred, but only in the manner described in
Section 10.2 hereof. Units with respect to which no such deposit has been made
or which have been withdrawn from the Deposit Account and not redeposited are
not transferable except upon death or by operation of law, by transfer to the
Managing General Partner for the account of the Partnership, pursuant to
Section 11.7 or otherwise in accordance with this Agreement. The transfer of
any Units and the admission of any new Partner shall not constitute an
amendment to this Agreement.

(b) Until admitted as a Substituted Limited Partner pursuant to
Article XII hereof, the Record Holder of a Depositary Unit shall constitute an
Assignee in respect of such Unit.

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(c) Each distribution in respect of Units shall be paid by the
Partnership, directly or through the Transfer Agent or through any other Person
or agent, only to the Record Holders thereof as of the Record Date set for the
distribution. Such payment shall constitute full payment and satisfaction of
the Partnership's liability with respect of such payment, regardless of any
claim of any Person who may have an interest in such payment by reason of an
assignment or otherwise.

11.4 Restrictions on Transfers. Notwithstanding the other
provisions of this Article XI, no transfer of any Unit or interest therein of
any Limited Partner in the Partnership shall be made if such transfer (i) would
violate the then applicable federal or state securities laws or rules and
regulations of the Securities and Exchange Commission, any state securities
commission or any other governmental authorities with jurisdiction over such
transfer, (ii) would result in the taxation of the Partnership as a corporation
or as an association taxable as a corporation for federal income tax purposes
or (iii) would affect the Partnership's existence or qualification as a limited
partnership under the Delaware Act.

11.5 Citizenship Certification; Non-citizen Assignees. (a) In the
event that, because of the nationality (or any other status) of a Limited
Partner or Assignee, the Partnership is or becomes subject to federal, state or
local laws or regulations the effect of which would, in the reasonable
determination of the Managing General Partner, cause cancellation or forfeiture
of any property in which the Partnership has an interest, the Managing General
Partner may request any such Limited Partner or Assignee to furnish to the
Managing General Partner or, with respect to Depositary Units, to the
Depositary within 30 days after receipt of such request an executed Citizenship
Certification or such other information concerning his nationality, citizenship
or other status (or, if the Limited Partner or Assignee is a nominee holding
for the account of another Person, the nationality, citizenship or other status
of such Person) as the Managing General Partner may request. If a Limited
Partner or Assignee fails to furnish such Citizenship Certification or other
information as may be requested, or if upon receipt of such Citizenship
Certification or other information the Managing General Partner determines,
with the advice of counsel, that a Limited Partner or an Assignee is not an
Eligible Citizen, the Units owned by such Limited Partner or Assignee shall be
subject to redemption in accordance with the provisions of Section 11.6 hereof.
In addition to becoming subject to redemption, the Managing General Partner may
require that the status of any such Limited Partner or Assignee be changed to
that of a Non-citizen Assignee, and, thereupon, the Managing General Partner
shall be substituted for such Non-citizen Assignee as the Limited Partner in
respect of his Units.

(b) The Managing General Partner shall, in exercising voting
rights in respect of Units held by it on behalf of Non-citizen Assignees,
distribute the votes in the same ratios as the votes of the Limited Partners in
respect of Units other than those of Non-citizen Assignees are cast, either
for, against or abstaining as to the matter.

(c) Upon dissolution of the Partnership, a Non-citizen Assignee
shall have no right to receive a distribution in kind pursuant to Section 14.4
hereof but shall be entitled to the cash equivalent thereof, and the Managing
General Partner shall provide cash in exchange for an assignment of the
Non-citizen Assignee's share of the distribution in kind. Such payment and
assignment shall be treated for Partnership purposes as a purchase by the
Managing General Partner from the Non-citizen Assignee of his Partnership
Interest (representing his right to receive his share of such distribution in
kind).

(d) At any time after he can and does certify that he has become
an Eligible Citizen, a Non-citizen Assignee may, upon application to the
Managing General Partner, request admission as a Substituted Limited Partner
with respect to any Partnership Interest of such Non-citizen Assignee not
redeemed pursuant to Section 11.6 hereof and upon his admission pursuant to
Section 12.2 hereof the Managing General Partner shall cease to be deemed to be
the Limited Partner in respect of the Non-citizen Assignee's Units.

11.6 Redemption of Interests. (a) If at any time a Limited
Partner or Assignee fails to furnish a Citizenship Certification or other
information requested within the 30-day period specified in Section 11.5(a)
hereof, or if upon receipt of such Citizenship Certification or other
information the Managing General Partner determines, with the advice of
counsel, that a Limited Partner or Assignee is not an Eligible Citizen, the
Partnership may, unless the Limited Partner or Assignee establishes to the
satisfaction of the Managing General Partner that such Limited Partner or
Assignee is an Eligible Citizen or has transferred his

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Units to a Person who furnishes a Citizenship Certification to the Managing
General Partner prior to the date fixed for redemption as provided below,
redeem the Partnership Interest of such Limited Partner or Assignee as follows:

(i) The Managing General Partner shall, not later than
the 30th day before the date fixed for redemption, give notice of
redemption to the Limited Partner or Assignee, at his last address
designated on the records of the Partnership or the Depositary, by
registered or certified mail, postage prepaid. The notice shall be
deemed to have been given when so mailed. The notice shall specify
the Redeemable Units, the date fixed for redemption, the place of
payment, that payment of the redemption price will be made upon
surrender of the Depositary Receipt or the Certificate evidencing the
Redeemable Units and that on and after the date fixed for redemption
no further allocations or distributions to which the Limited Partner
or Assignee would otherwise be entitled in respect of the Redeemable
Units will accrue or be made.

(ii) The aggregate redemption price for Redeemable Units
shall be an amount equal to the Current Market Price (the date of
determination of which shall be the date fixed for redemption) of
Units of the class to be so redeemed multiplied by the number of Units
of each such class included among the Redeemable Units. The
redemption price shall be paid, in the sole discretion of the Managing
General Partner, in cash or by delivery of a promissory note of the
Partnership in the principal amount of the redemption price, bearing
interest at the rate of 10% annually and payable in three equal annual
installments of principal, together with accrued interest, commencing
one year after the redemption date.

(iii) Upon surrender by or on behalf of the Limited Partner
or Assignee, at the place specified in the notice of redemption, of
the Depositary Receipt or the Certificate evidencing the Redeemable
Units, duly endorsed in blank or accompanied by an assignment duly
executed in blank, the Limited Partner or Assignee or his duly
authorized representative shall be entitled to receive the payment
therefor.

(iv) After the redemption date, Redeemable Units shall no
longer constitute issued and Outstanding Units.

(b) The provisions of this Section 11.6 shall be applicable to
Units held by a Limited Partner or Assignee as nominee of a Person determined
to be other than an Eligible Citizen.

(c) Nothing in this Section 11.6 shall prevent the recipient of a
notice of redemption from transferring his Units before the redemption date if
such transfer is otherwise permitted under this Agreement. Upon receipt of
notice of such a transfer, the Managing General Partner shall withdraw the
notice of redemption; provided, the transferee of such Units or Depositary
Units certifies in the Transfer Application that he is an Eligible Citizen. If
the transferee fails to make such certification, such redemption shall be
effected from the transferee on the original redemption date.

(d) [placeholder]

(e) If the Partnership or the Managing General Partner determines
that because of the nationality (or other status) of a General Partner, whether
or not in its capacity as such, the Partnership is or becomes subject to
federal, state or local regulations the effect of which would, in the
reasonable determination of the Managing General Partner, cause cancellation or
forfeiture of any property in which the Partnership has an interest, the
Partnership may, unless such General Partner has furnished a Citizenship
Certification or transferred his Partnership Interest or Units to a Person who
furnishes a Citizenship Certification prior to the date fixed for redemption,
redeem the Partnership Interest or Interests of such General Partner in the
Partnership as provided in Section 11.6(a) hereof. The redemption price shall
be paid in cash.

11.7 Registration Rights. The Special General Partner or any of
its shareholders or their relatives who may acquire Common Units from the
Special General Partner have the right to cause the Partnership, upon request,
to register an offering and sale of their Common Units with the Securities and
Exchange Commission subject to the terms set forth in an agreement dated March
29, 1990 by and among the Special General Partner and the Partnership.

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ARTICLE XII

ADMISSION OF PARTNERS

12.1 [Placeholder]

12.2 Admission of Substituted Limited Partners. By transfer of a
Depositary Unit in accordance with Article XI hereof, the transferor shall be
deemed to have given the transferee the right to seek admission as a
Substituted Limited Partner subject to the conditions of, and in the manner
permitted under, this Agreement. A transferor of a Depositary Receipt shall,
however, only have the authority to convey to a purchaser or other transferee
who does not execute and deliver a Transfer Application (i) the right to
negotiate such Unit to a purchaser or other transferee and (ii) the right to
transfer the right to request admission as a Substituted Limited Partner to
such purchaser or other transferee in respect of the transferred Depositary
Units. Each transferee of a Depositary Unit (including any nominee holder or
an agent acquiring such Depositary Unit for the account of another Person) who
executes a Transfer Application shall be an Assignee and shall be deemed to
have applied to become a Substituted Limited Partner with respect to the
Depositary Units so transferred to such Person by virtue of executing and
delivering such Transfer Application. Such Assignee shall become a Substituted
Limited Partner at such time as the Managing General Partner consents thereto,
which consent may be given or withheld in the Managing General Partner's sole
discretion, and when any such admission is shown on the books and records of
the Partnership. If such consent is withheld, such transferee shall be an
Assignee. An Assignee shall have an interest in the Partnership equivalent to
that of a Limited Partner with respect to allocations and distributions,
including liquidating distributions, of the Partnership. With respect to
voting rights attributable to Units that are held by Assignees, the Managing
General Partner shall be deemed to be the Limited Partner with respect thereto
and shall, in exercising the voting rights in respect of such Units on any
matter, vote such Units at the written direction of the Assignee who is the
Record Holder of such Units. If no such written direction is received, such
Units will not be voted. An Assignee shall have no other rights of a Limited
Partner.

12.3 Admission of Successor Managing General Partner and Special
General Partner. (a) A successor Managing General Partner approved pursuant
to Sections 13.1 or 13.2 hereof or the transferee of or successor to all of the
Managing General Partner's Partnership Interest pursuant to Section 11.2 hereof
who is proposed to be admitted as a successor Managing General Partner shall be
admitted to the Partnership as the Managing General Partner, effective
immediately prior to the withdrawal or removal of the Managing General Partner
pursuant to Sections 13.1 or 13.2 hereof or the transfer pursuant to Section
11.2 hereof; provided, however, that no such successor shall be admitted to the
Partnership until the terms of Section 11.2 hereof have been complied with.
Any such successor shall carry on the business of the Partnership without
dissolution. In each case, the admission shall be subject to the successor
Managing General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.

(b) A successor Special General Partner or the transferee hereof
or successor to all of the Special General Partner's Partnership Interest
pursuant to Section 11.2 hereof who is proposed to be admitted to the
Partnership as a successor Special General Partner shall be admitted to the
Partnership as the Special General Partner effective immediately prior to the
withdrawal or removal of the Special General Partner pursuant to Section 13.2
hereof or the transfer pursuant to Section 11.2 hereof; provided, however, that
no such successor shall be admitted to the Partnership until the terms of
Section 11.2 hereof have been complied with. In each case, the admission shall
be subject to the successor Special General Partner executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement and such other documents or instruments as may be required to effect
the admission.

12.4 Admission of Additional Limited Partners. (a) A Person
(other than a Substituted Limited Partner) who makes a Capital Contribution to
the Partnership in

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accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the Managing General Partner
(i) evidence of acceptance in form satisfactory to the Managing General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 1.4 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
Managing General Partner in order to effect such Person's admission as an
Additional Limited Partner.

(b) Notwithstanding anything to the contrary in Section 12.4(a),
no Person shall be admitted as an Additional Limited Partner without the
consent of the Managing General Partner, which consent may be given or withheld
in the Managing General Partner's sole discretion. The admission of any Person
as an Additional Limited Partner shall become effective on the date upon which
the name of such Person is recorded on the books and records of the
Partnership, following the consent of the Managing General Partner to such
admission.

(c) Notwithstanding anything to the contrary in this Section 12.4,
the holder of any Series B Preferred Units or Series C Preferred Units shall be
automatically admitted to the Partnership as an Additional Limited Partner upon
furnishing to the Managing General Partner evidence of acceptance in form
reasonably satisfactory to the Managing General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 1.4 hereof.

12.5 Amendment of Agreement and Certificate of Limited Partnership.
For the admission to the Partnership of any Partner, the Managing General
Partner shall take all steps necessary and appropriate under the Delaware Act
to amend the records of the Partnership and, if necessary, to prepare as soon
as practical an amendment of this Agreement and, if required by law, shall
prepare and file an amendment to the Certificate of Limited Partnership and may
for this purpose exercise the power of attorney granted pursuant to Section 1.4
hereof.

ARTICLE XIII

WITHDRAWAL OR REMOVAL OF PARTNERS

13.1 Withdrawal of the Managing General Partner. (a) The Managing
General Partner covenants and agrees that it will not withdraw as Managing
General Partner before December 31, 2000, subject to its right to transfer its
Partnership Interest pursuant to Section 11.2 hereof.

(b) The Managing General Partner shall be deemed to have withdrawn
from the Partnership upon the occurrence of any one of the following events
(each such event herein referred to as an "Event of Withdrawal"):

(i) the Managing General Partner voluntarily withdraws
from the Partnership by giving written notice to the other Partners;

(ii) the Managing General Partner transfers all of its
rights as Managing General Partner pursuant to Section 11.2 hereof;

(iii) the Managing General Partner is removed pursuant to
Section 13.2 hereof;

(iv) the Managing General Partner

(A) makes a general assignment for the benefit of
creditors;

(B) files a voluntary bankruptcy petition;

(C) files a petition or answer seeking for itself
a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any law;

(D) files an answer or other pleading admitting
or failing to contest the material allegations of a petition
filed against the Managing General Partner in a proceeding of
the type described in paragraphs (A)-(C) of this subsection;
or

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(E) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the
Managing General Partner or of all or any substantial part of
its properties;

(v) a final and non-appealable judgment is entered by a
court with appropriate jurisdiction ruling that the Managing General
Partner is bankrupt or insolvent, or a final and non-appealable order
for relief is entered by a court with appropriate jurisdiction against
the Managing General Partner, in each case under any federal or state
bankruptcy or insolvency laws as now or hereafter in effect; or

(vi) a certificate of dissolution or its equivalent is
filed for the Managing General Partner, or 90 days expire after the
date of notice to the Managing General Partner of revocation of its
charter without a reinstatement of its charter, under the laws of its
state of incorporation.

If an Event of Withdrawal specified in paragraphs (iv), (v) or (vi) occurs, the
withdrawing Managing General Partner shall give written notice to the Limited
Partners within 30 days after such occurrence. The Partners hereby agree that
only the Events of Withdrawal described in this Section 13.1 shall result in
withdrawal of the Managing General Partner from the Partnership.

(c) Withdrawal of the Managing General Partner from the
Partnership (including withdrawal upon the occurrence of an Event of
Withdrawal) will constitute a breach of this Agreement if such withdrawal
occurs; (i) at any time prior to December 31, 2000, unless the Managing General
Partner gives at least 90 days' advance written notice of its intention to
withdraw to the Limited Partners and prior to the effective date of such
withdrawal, the Limited Partners approve such withdrawal by the vote of at
least a majority of the Outstanding Units (excluding for purposes of such
determination any Units owned by the General Partners and their Affiliates); or
(ii) at any time after December 31, 2000, unless the Managing General Partner
gives at least 90 days' advance written notice to the Limited Partners and the
Partnership receives an Opinion of Counsel that such withdrawal (following the
selection of the successor Managing General Partner) would not result in the
loss of the limited liability of holders of Units or cause the Partnership to
be taxable as a corporation or to be treated as an association taxable as a
corporation for federal income tax purposes, such withdrawal to take effect on
the date specified in such notice.

(d) Withdrawal of the Managing General Partner from the
Partnership upon the occurrence of an Event of Withdrawal will not constitute a
breach of this Agreement under the following circumstances: (i) at any time
that the Managing General Partner ceases to be a Managing General Partner
pursuant to Section 13.1(b)(ii) hereof or is removed pursuant to Section 13.2
hereof; or (ii) notwithstanding Section 13.1(c) above, at any time that the
Managing General Partner voluntarily withdraws by giving at least 90 days'
advance written notice of its intention to withdraw to the Limited Partners,
such withdrawal to take effect on the date specified in the notice, if at the
time such notice is given more than 50% of the Outstanding Units held by
Persons other than the withdrawing Managing General Partner and its Affiliates
are owned beneficially or of record or controlled at any time by one Person or
its Affiliates. If the Managing General Partner gives a notice of withdrawal
pursuant to Section 13.1(b)(i) hereof or if the Managing General Partner is
removed pursuant to Section 13.2 hereof, holders of at least a majority in
interest of the Outstanding Units (excluding for purposes of such determination
Units owned by the Managing General Partner and its Affiliates) may, prior to
the effective date of such withdrawal, elect a successor Managing General
Partner and agree to continue the business of the Partnership, provided that
such majority in interest satisfies the provisions of Section 4 of Internal
Revenue Service Revenue Procedure 94-46. If prior to the effective date of the
Managing General Partner's withdrawal, a successor is not selected by the
Limited Partners as provided herein or the Partnership does not receive an
Opinion of Counsel that such withdrawal (following the selection of the
successor Managing General Partner) would not result in the loss of the limited
liability of the holders of Units or cause the Partnership to be taxable as a
corporation or to be treated as an association taxable as a corporation for
federal income tax purposes, the Partnership shall be dissolved in accordance
with Section 14.1 hereof. If a successor Managing General Partner is elected
and the Opinion of Counsel rendered as provided herein, such successor shall be
admitted (subject to Section 12.3 hereof) immediately prior to the effective
time of the withdrawal of the departing Managing General Partner and shall
continue the business of the Partnership without dissolution.

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13.2 Removal of the Managing General Partner. The Managing General
Partner may be removed only if such removal is approved by the written consent
or affirmative vote of Limited Partners holding not less than 66 2/3% of the
Outstanding Units; provided, however, that after March 31, 1998, if the Series
B Preferred Units and the Series C Preferred Units have not, on or before such
date, become issuable by the Partnership in exchange for the convertible senior
notes pursuant to the terms of the Note Agreement, the Managing General Partner
may be removed if such removal is approved by the written consent or
affirmative vote of Limited Partners holding not less than 51% of the
Outstanding Units. Any action by the Limited Partners for removal of the
Managing General Partner must also provide for the election and succession of a
new Managing General Partner. Such removal shall be effective immediately
following the admission of the successor Managing General Partner pursuant to
Section 12.3 hereof. The right of the Limited Partners to remove the Managing
General Partner shall not exist or be exercised unless the Partnership has
received an Opinion of Counsel that the removal of the Managing General Partner
and the selection of a successor Managing General Partner will not result in
(i) the loss of limited liability of any Limited Partner in the Partnership or
(ii) the taxation of the Partnership as a corporation or the treatment of the
Partnership as an association taxable as a corporation for federal income tax
purposes.

13.3 Interest of Departing Managing General Partner and Successor
Managing General Partner. (a) In the event of (i) withdrawal of the Managing
General Partner under circumstances where such withdrawal does not violate this
Agreement or (ii) removal of the Managing General Partner by the Limited
Partners, the departing Managing General Partner shall, at its option
exercisable prior to the effective date of the departure of such departing
Managing General Partner, promptly receive from its successor in exchange for
its Partnership Interest as Managing General Partner an amount in cash equal to
the fair market value of the departing Managing General Partner's Partnership
Interest as Managing General Partner, such amount to be determined and payable
as of the effective date of its departure. If the Managing General Partner
withdraws under circumstances where such withdrawal violates this Agreement,
its successor shall have the option described in the immediately preceding
sentence, and the departing Managing General Partner shall not have such
option. In either event, the departing Managing General Partner shall be
entitled to receive all reimbursements due such departing Managing General
Partner pursuant to Section 6.4 hereof, including any employee- related
liabilities (including severance liabilities only in the event of (i)
withdrawal of the Managing General Partner under circumstances where such
withdrawal does not violate this Agreement or (ii) removal of the Managing
General Partner by the Limited Partners), incurred in connection with the
termination of any employees employed by the departing Managing General Partner
for the benefit of the Partnership. Subject to Section 13.3(b) hereof, the
departing Managing General Partner shall, as of the effective date of its
departure, cease to share in any allocations or distributions with respect to
its Partnership Interest as the Managing General Partner and Partnership
income, gain, loss, deduction and credit will be prorated and allocated as set
forth in Section 5.1(d) hereof.

For purposes of this Section 13.3(a), the fair market value of the
departing Managing General Partner's Partnership Interest as Managing General
Partner herein shall be determined by agreement between the departing Managing
General Partner and its successor or, failing agreement within 30 days after
the effective date of such departing Managing General Partner's departure, by
an independent investment banking firm or other independent expert selected by
the departing Managing General Partner and its successor, which, in turn, may
rely on other experts and the determination of which shall be conclusive as to
such matter. If such parties cannot agree upon one independent investment
banking firm or other independent expert within 45 days after the effective
date of such departure, then such firm shall be designated by the independent
investment banking firms or other independent experts selected by each of the
departing Managing General Partner and its successor. In making its
determination, such independent investment banking firm or other independent
expert shall consider the then current trading price of Units on any National
Securities Exchange on which Units are then listed, the value of the
Partnership's assets, the rights and obligations of the Managing General
Partner and other factors it may deem relevant.

(b) If its Partnership Interest is not acquired in the manner set
forth in Section 13.3(a) hereof, the departing Managing General Partner shall
become a Limited Partner and its Partnership Interest in the Partnership shall
be converted into Common Units equal to the fair market value of such interest
pursuant to a

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valuation made by an investment banking firm or other independent expert
selected pursuant to Section 13.3(a) hereof, without reduction in such
Partnership Interest (but subject to proportionate dilution by reason of the
admission of its successor). The Partnership shall indemnify the departing
Managing General Partner as to all debts and liabilities of the Partnership
arising on or after the date on which the departing Managing General Partner
becomes a Limited Partner, including employee related liabilities, including
severance liabilities, incurred in connection with the termination of the
employees employed by the departing Managing General Partner for the benefit of
the Partnership. For purposes of this Agreement, the departing Managing
General Partner's conversion of its Partnership Interest to Common Units will
be characterized as if the departing Managing General Partner contributed its
Partnership Interest to the Partnership in exchange for the newly-issued Common
Units.

(c) If the option described in Section 13.3(a) hereof is not
exercised by the party entitled to do so, the successor Managing General
Partner shall, at the effective date of its admission to the Partnership,
contribute to the capital of the Partnership cash in an amount such that its
Capital Account, after giving effect to such contribution and any adjustments
made to the Capital Accounts of all Partners pursuant to Section 4.4(d)(i)
hereof, shall be equal to that percentage of the Capital Accounts of all
Partners that is equal to its Percentage Interest as the Managing General
Partner. In such event, each successor Managing General Partner shall, subject
to the following sentence, be entitled to such Percentage Interest of all
Partnership allocations and distributions and any other allocations and
distributions to which the departing Managing General Partner was entitled. In
addition, such successor Managing General Partner shall cause this Agreement to
be amended to reflect that, from and after the date of such successor Managing
General Partner's admission, the successor Managing General Partner's interest
in all Partnership distributions and allocations shall be 1.9%, and that of the
Special General Partner and the Limited Partners shall be 0.1% and 98%,
respectively.

13.4 Withdrawal or Removal of Special General Partner. (a) The
Special General Partner may withdraw from the Partnership in the capacity of
Special General Partner (i) upon 30 days' advance written notice to the
Managing General Partner or (ii) by transferring its general partner interest
in the Partnership pursuant to Section 11.2 hereof. Such withdrawal shall take
effect on the date specified in such notice. Upon receiving such notice, the
Managing General Partner shall select a successor Special General Partner
within such 30-day period. Any withdrawal of the Special General Partner shall
not become effective unless the Partnership has received by the end of such
30-day period an Opinion of Counsel that such withdrawal will not result in the
loss of limited liability of any Limited Partner or cause the Partnership to be
treated as a corporation or as an association taxable as a corporation for
federal income tax purposes. Following any withdrawal of the Special General
Partner, the business and operations of the Partnership shall be continued by
the Managing General Partner.

(b) In addition to the voluntary withdrawal described above, the
Special General Partner shall be deemed to have withdrawn (i) when and if, the
Special General Partner (A) makes a general assignment for the benefit of
creditors, (B) files a voluntary bankruptcy petition, (C) files a petition or
answer seeking for itself a reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any law, (D)
files an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Special General Partner in a
proceeding of the type described in clauses (A)-(C) of this subsection, or (E)
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the Special General Partner or of all or any substantial part of
its properties; or, (ii), when a final and non-appealable judgment is entered
by a court with appropriate jurisdiction ruling that the Special General
Partner is bankrupt or insolvent, or a final and non-appealable order for
relief is entered by a court with appropriate jurisdiction against the Special
General Partner, in each case under any federal or state bankruptcy or
insolvency laws as now or hereinafter in effect; or (iii) when a certificate of
dissolution or its equivalent is filed for the Special General Partner, or 90
days expire after the date of notice to the Special General Partner of
revocation of its charter without a reinstatement of its charter, under the
laws of its state of incorporation.

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(c) The Special General Partner may be removed only if such
removal is approved by the written consent or affirmative vote of Limited
Partners holding not less than 66 2/3% of the Outstanding Units. Any such
action by the Limited Partners for removal of the Special General Partner must
also provide for the approval of the successor Special General Partner. Such
removal shall be effective immediately following the admission of the successor
Special General Partner pursuant to Article XII hereof. The right of the
Limited Partners to remove the Special General Partner shall not exist or be
exercised unless the Partnership has received an Opinion of Counsel that the
removal of the Special General Partner and the selection of a successor Special
General Partner will not result in (i) the loss of limited liability of any
Limited Partner or (ii) the taxation of the Partnership as a corporation or the
treatment of the Partnership as an association taxable as a corporation for
federal income tax purposes unless already so taxed.

(d) Upon the withdrawal or removal of the Special General Partner
under this Section 13.4 (except by reason of a transfer of the interest made
pursuant to Section 11.2 hereof), the Partnership shall distribute to the
Special General Partner an amount of cash equal to the positive balance in its
Capital Account (following the adjustment of its Capital Account in accordance
with Section 4.4 hereof).

(e) Notwithstanding the other provisions of this Section 13.4, a
successor Special General Partner or a successor special general partner of any
Operating Partnership need not be selected if the Partnership has received an
Opinion of Counsel that the failure to select a successor would not cause the
Partnership or any Operating Partnership to be treated as a corporation or as
an association taxable as a corporation for federal income tax purposes.

13.5 Withdrawal of Limited Partners. Except as provided in Section
13.5 hereof, no Limited Partner shall have any right to withdraw from the
Partnership; provided, however, that when a transferee of a Limited Partner's
Units becomes a Record Holder, such transferring Limited Partner shall cease to
be a Limited Partner with respect to the Units so transferred.

ARTICLE XIV

DISSOLUTION AND LIQUIDATION

14.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners, the
admission of successor General Partners in accordance with the terms of this
Agreement or the withdrawal of the Special General Partner pursuant to Section
13.4 hereof. Upon the removal or withdrawal of the Managing General Partner,
any successor Managing General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and its affairs shall be wound
up, upon:

(a) the expiration of its terms as provided in Section 1.5 hereof;

(b) an Event of Withdrawal of the Managing General Partner as
provided in Section 13.1(b) hereof, unless a successor is named as provided in
13.1(d) hereof;

(c) an election to dissolve the Partnership by the Managing
General Partner that is approved by the written consent or affirmative vote of
holders of at least a majority of the Outstanding Units.

(d) entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act; or

(e) the sale of all or substantially all of the assets and
properties of the Partnership.

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14.2 Continuation of the Business of the Partnership after
Dissolution. Upon (i) dissolution of the Partnership following an Event of
Withdrawal caused by the withdrawal or removal of the Managing General Partner
and a failure of the requisite number of Partners to agree to continue the
business of the Partnership and appoint a successor Managing General Partner as
provided in Sections 13.1 and 13.2 hereof, then within an additional 90 days or
(ii) dissolution of the Partnership upon an event constituting an Event of
Withdrawal as defined in Section 13.1(b)(iv) hereof, then within 180 days
thereafter, at least a majority in interest of the Outstanding Units may elect
to reconstitute the Partnership and continue its business on the same terms and
conditions set forth in this Agreement by forming a new limited partnership on
terms identical to those set forth in this Agreement and having as a managing
general partner a Person approved by the holders of at least a majority of the
Outstanding Units, provided that such majority in interest satisfies the
provisions of Section 4 of Internal Revenue Service Revenue Procedure 94-46.
Upon any such election by the holders of at least a majority of the Outstanding
Units, all Partners shall be bound thereby and shall be deemed to have approved
thereof. Unless such an election is made within the applicable time period as
set forth above, the Partnership shall conduct only activities necessary to
wind up its affairs. If such an election is so made, then:

(a) the reconstituted Partnership shall continue until the end of

the term set forth in Section 1.5 hereof unless earlier dissolved in
accordance with this Article XIV;

(b) if the successor Managing General Partner is not the former
Managing General Partner, then the interest of the former Managing General
Partner shall be treated thenceforth as the interests of a Limited Partner
and converted into Common Units in the manner provided in Section 13.3(b)
hereof;

(c) all necessary steps shall be taken to cancel this Agreement
and the Certificate of Limited Partnership and to enter into and, as
necessary, to file a new partnership agreement and certificate of limited
partnership, and the successor Managing General Partner may for this
purpose exercise the powers of attorney granted the Managing General
Partner pursuant to Section 1.4 hereof; provided, that the right of the
holders of at least a majority of Outstanding Units to approve a successor
managing general partner and to reconstitute and to continue the business
of the Partnership shall not exist and may not be exercised unless the
Partnership has received an Opinion of Counsel that (x) the exercise of
the right would not result in the loss of limited liability of any Limited
Partner and (y) neither the Partnership nor the reconstituted limited
partnership would become taxable as a corporation or treated as an
association taxable as a corporation for federal income tax purposes upon
the exercise of such right to continue.

14.3 Liquidation. Upon dissolution of the Partnership, unless the
Partnership is continued under an election to reconstitute and continue the
Partnership pursuant to Section 14.2 hereof, the Managing General Partner, or
in the event the Managing General Partner has been dissolved or removed, become
bankrupt as set forth in Section 13.1 hereof or withdrawn from the Partnership,
a liquidator or liquidating committee approved by the holders of at least a
majority of the Outstanding Units, shall be the Liquidator. The Liquidator (if
other than the Managing General Partner) shall be entitled to receive such
compensation for its services as may be approved by the holders of at least a
majority of the Outstanding Units. The Liquidator shall agree not to resign at
any time without 15 days' prior written notice and (if other than the Managing
General Partner) may be removed at any time, with or without cause by notice of
removal approved by at least a majority of the Outstanding Units. Upon
dissolution, removal or resignation of the Liquidator, a successor and
substitute Liquidator (who shall have and succeed to all rights, power and
duties of the original Liquidator) shall within 30 days thereafter be approved
by the holders of at least a majority of the Outstanding Units. The right to
approve a successor or substitute Liquidator in the manner provided herein
shall be deemed to refer also to any such successor or substitute Liquidator
approved in the manner herein provided. Except as expressly provided in this
Article XIV, the Liquidator approved in the manner provided herein shall have
and may exercise, without further authorization or consent of any of the
parties hereto, all of the powers conferred upon the Managing General Partner
under the terms of this Agreement (but subject to all of the applicable
limitations, contractual and otherwise, upon the exercise of

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such powers, other than the limitation on sale set forth in Section 6.3(b)
hereof) to the extent necessary or desirable in the good faith judgment of the
Liquidator to carry out the duties and functions of the Liquidator hereunder
for and during such period of time as shall be reasonably required in the good
faith judgment of the Liquidator to complete the winding-up and liquidation of
the Partnership as provided for herein. The Liquidator shall liquidate the
assets of the Partnership, and apply and distribute the proceeds of such
liquidation in the following order of priority, unless otherwise required by
mandatory provisions of applicable law:

(a) the payment to creditors of the Partnership, including
Partners who are creditors, in order of priority provided by law; and the
creation of a reserve of cash or other assets of the Partnership for
contingent liabilities in an amount, if any, determined by the Liquidator
to be appropriate for such purposes;

(b) to holders of Series B Preferred Units and Series C Preferred
Units, if any, in accordance with the terms of the Certificate of
Designations of such Units;

(c) to holders of other classes of Partnership Securities, if any,
in accordance with the terms of their respective Certificates of
Designations; and

(d) to all Partners in accordance with and to the extent of the
positive balances in their respective Capital Accounts after taking into
account adjustments to such Capital Accounts pursuant to Article V hereof.

14.4 Distributions in Kind. Notwithstanding the provisions of
Section 14.3 hereof which require the liquidation of the assets of the
Partnership, but subject to the order of priorities set forth therein, if the
Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including those to Partners as creditors)
and/or distribute to the Partners or to specific classes of Partners, in lieu
of cash, as tenants in common and in accordance with the provisions of Section
14.3 hereof, undivided interests in such Partnership assets as the Liquidator
deems not suitable for liquidation. Any such distributions in kind shall be
made only if, in the good faith judgment of the Liquidator, such distributions
in kind are in the best interest of the Limited Partners, and shall be subject
to such conditions relating to the disposition and management of such
properties as the Liquidator deems reasonable and equitable and to any
agreements governing the operation of such properties at such time. The
Liquidator shall determine the fair market value of any property distributed in
kind using such reasonable method of valuation as it may adopt, and the
Partners' Capital Accounts shall be adjusted to reflect the manner in which the
unrealized income, gain, loss, and deduction interest in that property that has
not previously been reflected in the Capital Accounts would be allocated among
the Partners if there were a taxable disposition of that property for fair
market value on the date of distribution.

14.5 Cancellation of Certificate of Limited Partnership. Upon the
completion of the distribution of Partnership cash and property as provided in
Sections 14.3 and 14.4 hereof, the Partnership shall be terminated and the
Certificate of Limited Partnership and all qualifications of the Partnership as
a foreign limited partnership in jurisdictions other than the State of Delaware
shall be cancelled and such other actions as may be necessary to terminate the
Partnership shall be taken.

14.6 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 14.3 hereof,
in order to minimize any losses otherwise attendant upon such winding-up and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.

14.7 Return of Capital. No General Partner shall be personally
liable for the return of the Capital Contribution of the Limited Partners, or
any portion thereof, it being expressly understood that any such return shall
be made solely from Partnership assets.

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14.8 No Capital Account Restoration. No Partner shall have any
obligation to restore any negative balance in its Capital Account upon
liquidation of the Partnership.

14.9 Waiver of Partition. Each Partner hereby waives any right to
partition of the Partnership property.

ARTICLE XV

AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE

15.1 Amendment to be Adopted Solely by Managing General Partner.
Each Limited Partner agrees that the Managing General Partner (pursuant to its
powers of attorney from the Limited Partners and Assignees), without the
approval of any Limited Partner or Assignee, may amend any provision of this
Agreement, and execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection therewith, to reflect:

(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent or
the registered office of the Partnership;

(b) admission, substitution, withdrawal or removal of Limited or
General Partners in accordance with this Agreement:

(c) a change that, in the sole discretion of the Managing General
Partner, is reasonable and necessary or appropriate to qualify or continue
the qualification of the Partnership as a limited partnership or a
partnership in which the limited partners have limited liability under the
laws of any state or, subject to the provisions of Section 1.6 hereof,
that is necessary or advisable in the opinion of the Managing General
Partner to ensure that the Partnership will not be taxable as a
corporation or treated as an association taxable as a corporation for
federal income tax purposes.

(d) a change (i) that does not adversely affect the Limited
Partners in any material respect, (ii) that is necessary or desirable to
satisfy any requirements, conditions or guidelines contained in any
opinion, directive, order, ruling or regulation of any federal or state
agency or judicial authority or contained in any federal or state statute
(including, without limitation, the Delaware Act) or that is necessary or
desirable to facilitate the trading of the Depositary Units (including,
without limitation, the division of Outstanding Units into different
classes in order to facilitate uniformity of tax consequences within such
classes of Units) or comply with any rule, regulation, guideline or
requirement of any National Securities Exchange on which the Depositary
Units are or will be listed for trading, compliance with any of which the
Managing General Partner determines to be in the best interests of the
Partnership and the Limited Partners or (iii) that is required to effect
the intent of the provisions of this Agreement or is otherwise
contemplated by this Agreement;

(e) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership or any General Partner or its directors or
officers from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of
1940, as amended, or "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974, as amended, whether or not
substantially similar to plan asset regulations currently applied or
proposed by the United States Department of Labor;

(f) subject to the terms of Section 4.2 hereof, an amendment that
the Managing General Partner determines in its sole discretion to be
necessary or desirable in connection with the authorization for issuance
of any class or series of Units pursuant to Section 4.2 hereof, including
the creation of any Certificate of Designations;

(g) any amendment expressly permitted in this Agreement to be made
by the Managing General Partner acting alone;

(h) an amendment effected, necessitated or contemplated by a
Merger Agreement approved in accordance with Section 16.3 hereof; or

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(i) any other amendments similar to the foregoing.

15.2 Amendment Procedures. Except as provided in Sections 15.1 and
15.3 hereof, all amendments to this Agreement shall be made in accordance with
the following requirements: If an amendment is proposed, the Managing General
Partner shall seek the written approval of the requisite Percentage Interests
or call a meeting of the Limited Partners to consider and vote on such proposed
amendment. Each such proposal to the Limited Partners shall contain the text
of the proposed amendment. A proposed amendment shall be effective upon its
approval by the holders of at least a majority of the Outstanding Units unless
a greater or different percentage is required under this Agreement. The
Managing General Partner shall notify all Record Holders upon final adoption of
any proposed amendment. Amendments to Certificates of Designations shall be
made in accordance with Section 4.1.

15.3 Amendment Requirements. (a) Amendments to this Agreement may
be proposed solely by the Managing General Partner. Notwithstanding the
provisions of Sections 15.1 and 15.2 hereof, no provision of this Agreement
which establishes a Percentage Interest required to take any action shall be
amended, altered, changed, repealed or rescinded in any respect which would
have the effect of reducing such voting requirement unless such amendment is
approved by the written consent or the affirmative vote of Partners whose
aggregate Percentage Interests constitute not less than the voting requirement
sought to be reduced.

(b) Notwithstanding the provisions of Sections 15.1 and 15.2
hereof, the approval of the Special General Partner shall be required for any
amendment, if such amendment would change the Special General Partner's
Percentage Interest or increase the Special General Partner's duties or
liabilities or if the Partnership has received an Opinion of Counsel that such
amendment would have a materially adverse consequence to the Special General
Partner.

(c) Notwithstanding the provisions of Sections 15.1 and 15.2
hereof, no amendment to this Agreement may (i) enlarge the obligations of any
Limited Partner, (ii) modify the compensation payable to the Managing General
Partner or any Affiliates of the Managing General Partner by the Partnership,
(iii) change Section 14.1(a) or (c) hereof, (iv) restrict in any way any action
by or rights of the Managing General Partner as set forth in this Agreement or
(v) except as set forth in Section 14.1(c) hereof, give any person the right to
dissolve the Partnership.

(d) In the event at any time there exists any class or series of
Outstanding Units having any rights or preferences different from the rights or
preferences of any other class or series of Outstanding Units, no amendment
shall be effective which the Managing General Partner determines would have a
material adverse effect on the rights and preferences of any such class or
series of Outstanding Units without, in addition to any other required
approval, the approval by written consent or affirmative vote of 66 2/3% in
interest of the holders of the Outstanding Units of such class or series.

(e) Notwithstanding any other provision of this Agreement, except
for amendments pursuant to Section 15.1 hereof, no amendment shall become
effective without the approval of the Record Holders of all Units unless the
Partnership obtains an Opinion of Counsel to the effect that (i) such amendment
would not cause the Partnership to become taxable as a corporation or treated
as an association taxable as a corporation for federal income tax purposes and
(ii) such amendment will not affect the limited liability of any Limited
Partner in the Partnership under applicable law.

(f) This Section 15.3 shall only be amended with the approval by
written consent or affirmative vote of the holders of not less than 90% of the
Outstanding Units.

15.4 Meetings. All acts of Limited Partners to be taken hereunder
shall be taken in the manner provided in this Article XV. Meetings of the
Limited Partners may be called by the Managing General Partner or by Limited
Partners owning 20% or more of the Outstanding Units of the class for which a
meeting is proposed. Limited Partners shall call a meeting by delivering to
the Managing General Partner one or more

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requests in writing stating that the signing Limited Partners wish to call a
meeting and indicating the general or specific purposes for which the meeting
is to be called. Within 60 days after receipt of such a call from Limited
Partners or within such greater time as may be reasonably necessary for the
Partnership to comply with any statutes, rules, regulations, listing agreements
or similar requirements governing the holding of a meeting or the solicitation
of proxies for use at such a meeting, the Managing General Partner shall send a
notice of the meeting to the Limited Partners either directly or indirectly
through the Transfer Agent. A meeting shall be held at a time and place
determined by the Managing General Partner on a date not more than 60 days
after the mailing of notice of the meeting. Limited Partners shall not vote on
matters that would cause the Limited Partners to be deemed to be taking part in
the management and control of the business and affairs of the Partnership so as
to jeopardize the Limited Partners' limited liability under the Delaware Act or
the laws of any other state in which the Partnership is qualified to do
business.

15.5 Notice of a Meeting. Notice of a meeting called pursuant to
Section 15.4 hereof shall be given to the Record Holders in writing by mail or
other means of written communication in accordance with Section 19.1 hereof.
The notice shall be deemed to have been given at the time when deposited in the
mail or sent by other means of written communication.

15.6 Record Date. For purposes of determining the Limited Partners
entitled to notice of or to vote at a meeting of the Limited Partners or to
give approvals without a meeting as provided in Section 15.11 hereof, the
Managing General Partner may set a Record Date, which shall not be less than 10
nor more than 60 days before (a) the date of the meeting (unless such
requirement conflicts with any rule, regulation, guideline or requirement of
any National Securities Exchange on which the Units are listed for trading, in
which case the rule, regulation, guideline or requirement of such exchange
shall govern) or (b) in the event that approvals are sought without a meeting,
the date on which Limited Partners are requested in writing by the Managing
General Partner to give such approvals.

15.7 Adjournment. When a meeting is adjourned to another time or
place, notice need not be given of the adjourned meeting and a new Record Date
need not be fixed, if the time and place thereof are announced at the meeting
at which the adjournment is taken, unless such adjournment shall be for more
than 45 days. At the adjourned meeting, the Partnership may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if a new Record Date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given in
accordance with this Article XV.

15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes.
The transactions of any meeting of Limited Partners, however called and
noticed, and whenever held, shall be as valid as if had at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the Limited Partners
entitled to vote, present in person or by proxy, signs a written waiver of
notice or an approval of the holding of the meeting or an approval of the
minutes thereof. All waivers and approvals shall be filed with the Partnership
records or made a part of the minutes of the meeting. Attendance of a Limited
Partner at a meeting shall constitute a waiver of notice of the meeting, except
when the Limited Partner does not approve, at the beginning of the meeting, of
the transaction of any business because the meeting is not lawfully called or
convened; and except that attendance at a meeting is not a waiver of any right
to disapprove the consideration of matters required to be included in the
notice of the meeting, but not so included, if the disapproval is expressly
made at the meeting.

15.9 Quorum. 66 2/3% of the Outstanding Units of the class for
which a meeting has been called represented in person or by proxy shall
constitute a quorum at a meeting of Limited Partners of such class unless any
such action by the Limited Partners requires approval by holders of a smaller
percentage of Outstanding Units, in which case, the quorum shall be the
percentage of Outstanding Units required for approval. At any meeting of the
Limited Partners duly called and held in accordance with this Agreement at
which a quorum is present, the act of Limited Partners whose Percentage
Interests represent at least a majority of the Percentage Interests entitled to
vote and be present in person or by proxy at such meeting shall be deemed to
constitute the act of all Limited Partners, unless a different percentage is
required with respect to such action under the provisions of this Agreement, in
which case the act of the Limited Partners owning such different percentage
shall be required. The Limited Partners present at a duly called or held
meeting at

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which a quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Limited Partners to leave less than a
quorum, if any action taken (other than adjournment) is approved by the
required Percentage Interests of the Limited Partners specified in this
Agreement. In the absence of a quorum, any meeting of Limited Partners may be
adjourned from time to time by the affirmative vote of a majority of the
Percentage Interests represented either in person or by proxy, but no other
business may be transacted, except as provided in Section 15.7 hereof.

15.10 Conduct of Meeting. The Managing General Partner shall have
full power and authority concerning the manner of conducting any meeting of the
Limited Partners or solicitation of approvals in writing, including, without
limitation, the determination of Persons entitled to vote, the existence of a
quorum, the satisfaction of the requirements of Section 15.4 hereof, the
conduct of voting, the validity and effect of any proxies and the determination
of any controversies, votes or challenges arising in connection with or during
the meeting or voting. The Managing General Partner shall designate a Person
to serve as chairman of any meeting and shall further designate a Person to
take the minutes of any meeting, in either case including, without limitation,
a Partner or a director or officer of the Managing General Partner. All
minutes shall be kept with the records of the Partnership maintained by the
Managing General Partner. The Managing General Partner may make such other
regulations consistent with applicable law and this Agreement as it may deem
advisable concerning the conduct of any meeting of the Limited Partners or
solicitation of approvals in writing, including regulations in regard to the
appointment of proxies, the appointment and duties of inspectors of votes and
approvals, the submission and examination of proxies and other evidence of the
right to vote, and the revocation of approvals in writing.

15.11 Action Without a Meeting. Any action that may be taken at a
meeting of the Limited Partners may be taken without a meeting if an approval
in writing setting forth the action so taken is signed by Limited Partners
owning not less than the minimum Percentage Interests that would be necessary
to authorize or take such action at a meeting at which all the Limited Partners
were present and voted. Prompt notice of the taking of action without a
meeting shall be given to the Limited Partners who have not approved in
writing. The Managing General Partner may specify that any written ballot
submitted to Limited Partners for the purpose of taking any action without a
meeting shall be returned to the Partnership within the time period, which
shall not be less than 20 days, specified by the Managing General Partner. If
a ballot returned to the Partnership does not vote all of the Units held by the
Limited Partner, the Partnership shall be deemed to have failed to receive a
ballot for the Units which were not voted. If approval of the taking of any
action by the Limited Partners is solicited by any Person other than by or on
behalf of the Managing General Partner, the written approvals shall have no
force and effect unless and until (a) they are deposited with the Partnership
in care of the Managing General Partner, (b) approvals sufficient to take the
action proposed are dated as of a date not more than 90 days prior to the date
sufficient approvals are deposited with the Partnership and (c) an Opinion of
Counsel is delivered to the Managing General Partner as to whether the exercise
of such right and the action proposed to be taken with respect to any
particular matter (i) would cause the Limited Partners to be deemed to be
taking part in the management and control of the business and affairs of the
Partnership so as to jeopardize the Limited Partners' limited liability, (ii)
would jeopardize the status of the Partnership as a partnership under
applicable tax laws and regulations and (iii) is otherwise permissible under
the state statutes then governing the rights, duties and liabilities of the
Partnership and the Partners.

15.12 Voting and Other Rights. (a) Only those Record Holders of
Units on the Record Date set pursuant to Section 15.6 hereof shall be entitled
to notice of, and to vote at, a meeting of Limited Partners or to act with
respect to matters as to which approvals are solicited.

(b) With respect to Units that are held for a Person's account by
another Person (such as a broker, dealer, bank, trust company or clearing
corporation, or an agent of any of the foregoing), in whose name such Units are
registered, such broker, dealer or other agent shall, in exercising the voting
rights in respect of such Units on any matter, and unless the arrangement
between such Persons provides otherwise, vote such Units in favor of, and at
the direction of, the Person who is the beneficial owner, and the Partnership
shall be entitled to assume it is so acting without further inquiry. The
provisions of this Section 15.12(b) are subject to the provisions of Section
10.4 hereof.

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ARTICLE XVI

MERGER

16.1 Authority. The Partnership may merge or consolidate with one
or more corporations, business trusts or associations, real estate investment
trusts, common law trusts or unincorporated businesses, including, without
limitation, a general partnership or limited partnership, formed under the laws
of the State of Delaware or any other state of the United States of America
pursuant to a written agreement of merger or consolidation ("Merger Agreement")
in accordance with this Article XVI.

16.2 Procedure for Merger or Consolidation. Merger or
consolidation of the Partnership pursuant to this Article requires the prior
approval of the Managing General Partner. If the Managing General Partner
shall determine, in the exercise of its sole discretion, to consent to the
merger or consolidation, the Managing General Partner shall approve the Merger
Agreement, which shall set forth:

(a) The names and jurisdictions of formation or organization of
each of the business entities proposing to merge or consolidate;

(b) The name and jurisdictions of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(hereafter designated as the "Surviving Business Entity");

(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash,
property or general or limited partnership interests, rights, securities
or obligations of the Surviving Business Entity; and (i) if any general or
limited partnership interests, securities or rights of any constituent
business entity are not to be exchanged or converted solely for, or into,
cash, property or general or limited partnership interests, rights,
securities or obligations of the Surviving Business Entity, the cash,
property, or general or limited partnership interests, rights, securities
or obligations of any limited partnership, corporation, trust or other
entity (other than the Surviving Business Entity) which the holders of
such general or limited partnership interests are to receive in exchange
for, or upon conversion of, their securities or rights, and (ii) in the
case of securities represented by certificates, upon the surrender of such
certificates, which cash, property or general or limited partnership
interests, rights, securities or obligations of the Surviving Business
Entity or any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof are to be
delivered;

(e) A statement of any changes in the constituent documents (the
articles or certificate of incorporation, articles of trust, declaration
of trust, certificate or agreement of limited partnership or other similar
charter or governing document) of the Surviving Business Entity to be
effected by such merger or consolidation;

(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 16.4 hereof or a
later date specified in or determinable in accordance with the Merger
Agreement (provided that if the effective time of the merger is to be
later than the date of the filing of the certificate of merger, it shall
be fixed no later than the time of the filing of the certificate of merger
and stated therein); and

(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or desirable.

16.3 Approval by Limited Partners of Merger or Consolidation. (a)
The Managing General Partner of the Partnership, upon its approval of the
Merger Agreement, shall direct that the Merger Agreement be submitted to a vote
of Limited Partners whether at a meeting or by written consent, in either case
in accordance with the requirements of Article XV hereof. A copy or a summary
of the Merger Agreement shall be included in or enclosed with the notice of a
meeting or the written consent.

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(b) The Merger Agreement shall be approved upon receiving the
affirmative vote or consent of the holders of at least a majority of the
Outstanding Units, unless the Merger Agreement contains any provision which, if
contained in an amendment to the Agreement, the provisions of this Agreement or
the Delaware Act would require the vote or consent of a greater percentage of
the Percentage Interests of the Limited Partners or of any class of Limited
Partners, in which case such greater percentage vote or consent shall be
required for approval of the Merger Agreement.

(c) After such approval by vote or consent of the Limited
Partners, and at any time prior to the filing of the certificate of merger
pursuant to Section 16.4 hereof, the merger or consolidation may be abandoned
pursuant to provisions therefor, if any, set forth in the Merger Agreement.

16.4 Certificate of Merger. Upon the required approval by the
Managing General Partner and Limited Partners of a Merger Agreement, a
certificate of merger shall be executed and filed with the Secretary of State
of the State of Delaware in conformity with the requirements of the Delaware
Act.

16.5 Effect of Merger. (a) Upon the effective date of the
certificate of merger:

(i) all of the rights, privileges and powers of each of
the business entities that has merged or consolidated, and all
property, real, personal and mixed, and all debts due to any of those
business entities and all other things and causes of action belonging
to each of those business entities shall be vested in the Surviving
Business Entity and after the merger or consolidation shall be the
property of the Surviving Business Entity to the extent they were of
each constituent business entity;

(ii) the title to any real property vested by deed or
otherwise in any of those constituent business entities shall not
revert and is not in any way impaired because of the merger or
consolidation;

(iii) all rights of creditors and all liens on or security
interests in property of any of those constituent business entities
shall be preserved unimpaired; and

(iv) all debts, liabilities and duties of those
constituent business entities shall attach to the Surviving Business
Entity, and may be enforced against it to the same extent as if the
debts, liabilities and duties had been incurred or contracted by it.

(b) A merger or consolidation effected pursuant to this Article
shall not be deemed to result in a transfer or assignment of assets or
liabilities from one entity to another having occurred.

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ARTICLE XVII

RIGHT TO ACQUIRE COMMON UNITS

17.1 Right to Acquire Common Units. (a) Notwithstanding the
provisions of Section 13.1(a) hereof or any other provision of this Agreement,
in the event that at any time less than 10% of the total Common Units
outstanding are held by Persons other than the General Partners and any
Affiliate of the General Partners, the Managing General Partner shall then have
the right, which right it may assign and transfer to the Partnership or any
Affiliates of the Managing General Partner, exercisable in its sole discretion,
to purchase all, but not less than all, of the Common Units outstanding held by
Persons other than the General Partners and any Affiliates of the General
Partners, at the greater of (y) the Current Market Price as of the date the
notice described in Section 17.1(b) hereof is mailed or (z) the highest cash
price paid by either of the General Partners or any of their Affiliates for any
Unit purchased during the 90-day period preceding the date that the notice
described in Section 17.1(b) hereof is mailed. As used herein, (i) "Current
Market Price" of any class of Units listed or admitted to trading on any
National Securities Exchange means the average of the daily Closing Prices per
Unit of such class for the 30 consecutive Trading Days (as hereinafter defined)
immediately prior to such date and (ii) "Trading Day" means a day on which the
principal National Securities Exchange on which the Units of any class are
listed or admitted to trading is open for the transaction of business or, if
Units of a class are not listed or admitted to trading on any National
Securities Exchange, a day on which banking institutions in New York City
generally are open.

(b) If the Managing General Partner, any Affiliate of the Managing
General Partner or the Partnership elects to exercise either right to purchase
Common Units granted pursuant to Section 17.1(a) hereof, the Managing General
Partner shall deliver to the Transfer Agent written notice of such election to
purchase (hereinafter in this Section 17.1 called the "Notice of Election to
Purchase") and shall cause the Transfer Agent to mail a copy of such Notice of
Election to Purchase to the Record Holders of Common Units (as of a Record Date
selected by the Managing General Partner) at least 10, but not more than 60,
days prior to the Purchase Date. Such Notice of Election to Purchase shall
also be published in daily newspapers of general circulation printed in the
English language and published in the Borough of Manhattan, New York. The
Notice of Election to Purchase shall specify the Purchase Date and the price
(determined in accordance with Section 17.1(a) hereof) at which Common Units
will be purchased and state that the Managing General Partner, any Affiliate of
the Managing General Partner or the Partnership, as the case may be, elects to
purchase such Common Units, upon surrender of Depositary Receipts with respect
to such Common Units in exchange for payment, at such office or offices of the
Transfer Agent as the Transfer Agent may specify, or as may be required by any
National Securities Exchange on which the Common Units are listed or admitted
to trading. Any such Notice of Election to Purchase mailed to a Record Holder
of Common Units at his address as reflected in the records of the Transfer
Agent shall be conclusively presumed to have been given whether or not the
owner receives such notice. On or prior to the Purchase Date, the Managing
General Partner, any Affiliate of the Managing General Partner or the
Partnership, as the case may be, shall deposit with the Transfer Agent cash in
an amount sufficient to pay the aggregate purchase price of all of the Common
Units to be purchased in accordance with this Section 17.1. If the Notice of
Election to Purchase shall have been duly given as aforesaid at least 10 days
prior to the Purchase Date, and if on or prior to the Purchase Date the deposit
described in the preceding sentence has been made for the benefit of the
holders of Common Units subject to purchase as provided herein, then from and
after the Purchase Date, notwithstanding that any Depositary Receipt shall not
have been surrendered for purchase, all rights of the holders of such Common
Units (including, without limitation, any rights pursuant to Articles IV, V and
XIV hereof) shall thereupon cease, except the right to receive the purchase
price (determined in accordance with Section 17.1(a) hereof) for Common Units
therefor, without interest, upon surrender to the Transfer Agent of the
Depositary Receipts representing such Common Units, and such Common Units shall
thereupon be deemed to be transferred to the Managing General Partner, any
Affiliate of the Managing General Partner or the Partnership, as the case may
be, on the record books of the Transfer Agent and the Partnership, and the
Managing General Partner or any Affiliate of the Managing General Partner, or
the Partnership, as the case may be, shall be deemed to be the owner of all
such Common Units from and after the Purchase Date and shall have all rights as
the owner

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of such Common Units (including, without limitation, all rights as owner of
such Common Units pursuant to Articles IV, V and XIV hereof).

(c) At any time from and after the Purchase Date, a holder of an
Outstanding Unit subject to purchase as provided in this Section 17.1 may
surrender his Depositary Receipt or Certificate, as the case may be, evidencing
such Unit to the Transfer Agent in exchange for payment of the amount described
in Section 17.1(a) therefor without interest thereon.

ARTICLE XVIII

CHANGES TO PREVIOUS CAPITALIZATION
OF THE PARTNERSHIP

18.1 Changes in Capitalization Effective Upon the Effective Date.
Upon the Effective Date:

(a) Each Outstanding common unit of the Partnership shall become,
and shall become one-twenty first of one Common Unit, and

(b) Each Outstanding convertible preferred unit of the Partnership
shall become one Common Unit.

18.2 Elimination of Cumulative Distribution Arrearages. Upon the
Effective Date, all cumulative distribution arrearages with respect to the
Partnership's common units and convertible preferred units Outstanding
immediately prior to the Effective Date shall be eliminated in accordance with
the terms of the Consent Solicitation.

ARTICLE XIX

GENERAL PROVISIONS

19.1 Addresses and Notices. Any notice, demand, request or report
required or permitted to be given or made to a Partner or Assignee under this
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by first class United States mail or by other means of
written communication to the Partner or Assignee at the address described
below. Any notice, payment or report to be given or made to a Partner or
Assignee hereunder shall be deemed conclusively to have been given or made, and
the obligation to give such notice or report or to make such payment shall be
deemed conclusively to have been fully satisfied, upon sending of such notice,
payment or report to the Record Holder of such Unit at his address as shown on
the records of the Transfer Agent or as otherwise shown on the records of the
Partnership, regardless of any claim of any Person who may have an interest in
such Unit or the Partnership Interest of a General Partner by reason of an
assignment or otherwise. An affidavit or certificate of making of any notice,
payment or report in accordance with the provisions of this Section 19.1
executed by the Managing General Partner, the Transfer Agent or the mailing
organization shall be prima facie evidence of the giving or making of such
notice, payment or report. If any notice, payment or report addressed to a
Record Holder at the address of such Record Holder appearing on the books and
records of the Transfer Agent or the Partnership is returned by the United
States Post Office marked to indicate that the United States Postal Service is
unable to deliver it, such notice, payment or report and any subsequent
notices, payments and reports shall be deemed to have been duly given or made
without further mailing (until such time as such Record Holder or another
Person notifies the Transfer Agent or the Partnership of a change in his
address ) if they are available for the Partner or Assignee at the principal
office of the Partnership for a period of one year from the date of the giving
or making of such notice, payment or report to the other Partners and
Assignees. Any notice to the Partnership shall be deemed given if received by
the Managing General Partner at the principal office of the Partnership
designated pursuant to Section 1.3 hereof. The Partnership and the Managing
General Partner may rely and shall be protected in relying on any notice or
other document from a Partner or other Person if believed by them to be
genuine.

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19.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the
scope or intent of any provisions hereof. Except as specifically provided
otherwise, references to "Articles" and "Sections" are to Articles and Sections
of this Agreement.

19.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.

19.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as
may be necessary or appropriate to achieve the purposes of this Agreement.

19.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.

19.6 Integration. This Agreement constitutes the entire agreement
among the parties hereto pertaining to the subject matter hereof and supersedes
all prior agreements and understandings pertaining thereto.

19.7 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.

19.8 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute one agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto or, in the case of a
Person acquiring a Unit, upon executing and delivering a Transfer Application
as herein described, independently of the signature of any other party.

19.9 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.

19.10 Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.

MANAGING GENERAL PARTNER

Pride Refining, Inc.

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

SPECIAL GENERAL PARTNER

Pride SGP, Inc.

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

LIMITED PARTNERS:
All Limited Partners now and hereafter
admitted as limited partners of the
Partnership, pursuant to Powers of
Attorney now and hereafter executed in
favor of, and granted and delivered to,
the Managing General Partner.

By: Pride Refining, Inc. Managing
General Partner, as attorney-in-
fact for all Limited Partners
pursuant to the Powers of Attorney
granted pursuant to Section 1.4
hereof.

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

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CERTIFICATE OF DESIGNATIONS

SERIES B CUMULATIVE CONVERTIBLE PREFERRED UNITS

PRIDE COMPANIES, L.P.
---------------------

Pursuant to [Second Amended and Restated Agreement
of Limited Partnership
effective as of [ ]
---------------------

Pride Refining, Inc., a Texas corporation, as Managing General Partner of
Pride Companies, L.P. (the "Company"), certifies that pursuant to authority
contained in Section of the Second Amended and Restated Agreement of Limited
Partnership effective as of [ , as amended], a series of preferred
limited partnership units of the Company has been duly established, and that
such series has the designations, rights, powers, preferences, qualifications,
limitations and restrictions set forth below:

SERIES B CUMULATIVE CONVERTIBLE PREFERRED UNITS

Section 1. Number of Units and Designation. There is hereby established a
series of preferred limited partnership units of the Company with the
designation "Series B Cumulative Convertible Preferred Units" (herein referred
to as the "Series B Units" or the "Units"), which shall consist of a maximum of
15,850 Units, with a Stated Value per Unit of $1,000 (the "Stated Value").

Section 2. Definitions. In addition to the definitions set forth elsewhere
herein, the following terms shall have the meanings indicated:

"Affiliate" of any Person is a Person that, directly or indirectly,
controls, is controlled by or is under common control with such Person (and
"control" means the power, directly or indirectly, to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, or to elect a
majority of a Person's Board of Directors or equivalent governing body).

"Business Day" means any day other than a Saturday, Sunday or a day on
which commercial banks in Dallas, Texas are required or authorized to
close.

"Common Units" means the common limited partnership units of the
Company issued or authorized for issuance pursuant to of the
Partnership Agreement.

"Credit Agreement" means the Fifth Restated and Amended Credit
Agreement dated as of August 13, 1996, as from time to time amended,
modified or restated, among the Company, as borrower, the Managing General
Partner, the Special General Partner, Desulfur Partnership, Pride Marketing
of Texas (Cedar Wind), Inc., and Pride Borger, Inc., as guarantors,
NationsBank of Texas, N.A., as agent, and NationsBank of Texas, N.A. and
Bank One, Texas, N.A., as lenders.

"$450,000 Loan" means indebtedness of the Company to the Special
General Partner evidenced by that certain Promissory Note dated as of
August 13, 1996, made by the Company payable to the order of the Special
General Partner in the original principal amount of $450,000.

"Funded Debt" of a Person on any date means, without duplication, (a)
any obligation of such Person for borrowed money; (b) any obligation of
such Person for the deferred purchase price of assets or services having a
final maturity of one or more than one year from the date such obligation
was originally incurred (or which is renewable or extendable at the option
of such Person to a maturity beyond one year from the date of incurrence
thereof), (c) the face amount of all letters of credit, bankers acceptances
or other similar facilities, whether drawn or undrawn, for which such
Person is the account party, (d) all

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Capitalized Lease Obligations of such Person, (e) all Guaranty Liabilities
by such Person in respect of Funded Debt of another Person, and (f) any
obligation secured by or constituting a Lien existing on property owned by
such Person, whether or not such Person is directly liable for such
obligation if such obligation constitutes Funded Debt of any Person. The
term "Capitalized Lease Obligations" means at any time the capitalized
amount of the rental commitment under any lease of property (real, personal
or mixed) which in accordance with generally accepted accounting principles
would at such time be required to be shown on a balance sheet of the
lessee. The term "Guaranty Liabilities" means any contract, agreement or
understanding of a Person pursuant to which such Person guarantees, or in
effect guarantees, any indebtedness of any other Person in any manner,
whether directly or indirectly. The term "Lien" means any lien, mortgage,
security interest, pledge, encumbrance, conditional sale or title retention
arrangement or any other interest in property designed to secure the
repayment of an obligation.

"Initial Issuance Date" means the date on which the first issuance of
Series B Units occurs, whether such phrase is used in reference to Units
issued on such date or on any subsequent date.

"Junior Securities" means the Common Units and any other class or
series of equity of the Company ranking junior to the Series B Units as to
distributions or upon liquidation, dissolution or winding up, and the units
thereof.

"LOC Facility" means the letter of credit facility provided for in
Article III of the Credit Agreement.

"Managing General Partner" means the corporation or other entity
designated to serve as managing general partner of the Company pursuant to
the Partnership Agreement.

"Note Purchase Agreement" means that certain Note Agreement dated
August 13, 1996, providing, among other things, for the issuance by the
Company of the Series A Notes and the additional series of Convertible
Senior Secured Promissory Notes upon the conversion of which the Series B
Units and the Series C Units are issuable or have been issued.

"Parity Securities" means any class or series of equity of the Company
ranking on a parity with the Series B Units as to distributions or upon
liquidation, dissolution or winding up, and the units thereof.

"Partnership Agreement" means that certain Second Amended and Restated
Agreement of Limited Partnership of Pride Companies, L.P., effective as of
, as such agreement may be amended.

"payable in kind" or "paid in kind," when used in reference to any
distribution payable with respect to the Units, means payment of the
distribution by issuance of that number (or fraction) of additional Series
B Units that has an aggregate Stated Value equal to the dollar amount of
the distribution then payable. Units issued as distributions payable in
kind shall be duly authorized and validly issued and, upon issuance, shall
have rights (including without limitation distribution, voting, conversion
and redemption rights) identical to the outstanding Series B Units in
respect of which they are issued.

"Person" means an any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization
or government or any department or agency thereof.

"Pipeline Lease" means that certain Pipeline Lease Agreement effective
as of March 29, 1990, between the Company, as lessee, and the Special
General Partner, as lessor, as amended by Amendment No. 1 to Pipeline Lease
Agreement and Amendment No. 2 to Pipeline Lease Agreement each effective as
of March 29, 1990.

"Revolving Notes" has the meaning specified in Section 1.01 of the
Credit Agreement.

"Senior Securities" means any class or series of equity of the Company
ranking senior to the Series B Units as to distributions or upon
liquidation, dissolution or winding up, and the units thereof.

"Series A Notes" means the Convertible Senior Secured Series A
Promissory Notes of the Company in the aggregate initial principal amount
of $2,500,000 maturing November 30, 1997, issued

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pursuant to the Note Purchase Agreement and the unsecured promissory notes
into which the same shall have been converted in accordance with the Note
Purchase Agreement.

"Series C Units" means the Series C Cumulative Convertible Preferred
Units of the Company issued in accordance with Section of the
Partnership Agreement and the Certificate of Designations dated
, 199 relating to such series. Series C Units are Parity Securities.

"SGP Agreement" means the Agreement of Pride SGP dated August 13,
1996, by and between the Special General Partner and the Company.

"SGP Guarantee" means the guarantee by the Special General Partner of,
among other things, the distribution rights and liquidation preferences of
the Series B Units, Series C Units and the unsecured Series A Notes,
pursuant to and in accordance with the SGP Agreement.

"Special General Partner" means Pride SGP, Inc., a Texas corporation,
or any successor in its capacity as special general partner of the Company.

"Subordinate Preferred Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as contemplated by
Section 3 of the SGP Agreement, upon the conversion of the Subordinated
Note (as defined in such agreement) or the $450,000 Loan. The Subordinate
Preferred Units are Junior Securities.

"Subsidiary" means, with respect to any Person, any corporation,
association, partnership, joint venture, limited liability company or other
business or corporate entity, enterprise or organization which is directly
or indirectly (through one or more intermediaries) controlled by or owned
fifty percent or more by such person.

"Term Loans" has the meaning specified in Section 4(e) hereof.

"Transfer Agent" means such agent or agents of the Company as may be
designated by the Managing General Partner as the transfer agent for the
Series B Units.

Section 3. Distributions.

(a) The Company shall pay to the holders of the Series B Units, out of the
assets of the Company at any time legally available for the payment of
distributions, preferential quarterly distributions at the times and at the
rates provided for in this Section 3. Distributions shall accrue cumulatively on
each Unit from and including the date of original issuance of such Unit to and
including the date on which such Unit shall have been converted into Common
Units or redeemed and the redemption price shall have been paid in full as
contemplated by Section 6 hereof, whether or not such distributions are declared
by the Company and whether or not there shall be (at the time such distribution
becomes payable or at any other time) profits, surplus or other funds of the
Company legally available for the payment of distributions.

(b) To the extent that funds are legally available therefor, distributions
shall be paid quarterly, on and as of the fifth calendar day of each February,
May, August and November (each, a "Distribution Payment Date"), on each Unit
outstanding at the following rates:

(i) during the three-year period beginning on the Initial Issuance
Date and ending on the date immediately preceding the third anniversary
thereof, at the rate of 6% per annum of the Stated Value of the Unit, if
paid in cash, or at the rate of 8% per annum of such Stated Value, if paid
in kind in accordance with subsection (c) below;

(ii) during the two-year period beginning on the third anniversary of
the Initial Issuance Date and ending on the date immediately preceding the
fifth anniversary thereof, at the rate of 12% per annum of the Stated Value
of the Unit, payable in cash only; and

(iii) thereafter, at the rate of 15% per annum of the Stated Value of
the Unit, payable in cash only.

The amount of the distribution payable on each Distribution Payment Date
shall be determined by applying the applicable rate from and including the date
immediately following the last previous Distribution

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Payment Date (or from and including the date of original issuance of the Unit,
with respect to the first distribution period) to and including the Distribution
Payment Date, on the basis of a year of 360 days.

(c) During the three-year period referred to in subsection (b)(i) above,
distributions on the Units shall be payable in cash or payable in kind, at the
Company's option. Notwithstanding the foregoing or anything else contained
herein to the contrary, however, (i) distributions payable on any Redemption
Date (as defined in Section 6 below) or on any final distribution date relating
to a dissolution, liquidation or winding up of the Company, shall be payable in
cash only and, if the payment date does not occur on a regular Distribution
Payment Date, shall be calculated on the basis of the actual number of days
elapsed including the Redemption Date or such final distribution date, and (ii)
all distributions payable on any Distribution Payment Date in the three-year
period referred to in subsection (b)(i) shall be payable only in cash unless
earnings before income taxes, depreciation and amortization (EBITDA) of the
Company is less than $6.0 million for the 12-month period ended on the last day
of the second month preceding such Distribution Payment Date or such restriction
is waived by all holders of the outstanding Units. Distributions payable on the
Units for any period of less than a full quarterly distribution period shall be
computed on the basis of actual days elapsed, excluding the last preceding
Distribution Payment Date and including the last day of such period, and on the
basis of 360 days.

(d) To the extent not paid on a Distribution Payment Date, all
distributions which shall have accrued on each Unit outstanding as of such
Distribution Payment Date shall be added to the Stated Value of such Unit and
shall remain a part thereof until paid, and distributions shall accrue and be
paid on such Unit on the basis of the Stated Value, as so adjusted; provided,
that any such unpaid distributions accruing during the three-year period
referred to in subsection (b)(i) shall be added to such Stated Value at the rate
specified in such subsection for distributions paid in kind. Nothing in this
subsection (d) or any other provision hereof shall give the Company any right
not to pay any distribution as and to the extent required by subsection (b) of
this Section 3 or to defer or delay such payment beyond the applicable
Distribution Payment Date.

(e) Distributions payable on each Distribution Payment Date shall be paid
to record holders of the Units as they appear on the books of the Company at the
close of business on the tenth Business Day immediately preceding the respective
Distribution Payment Date.

(f) So long as any Series B Units are outstanding:

(i) No distribution shall be declared or paid, or set apart for
payment on or in respect of any Junior Securities, including without
limitation distributions payable in cash or other property or in units of
any Junior Security or other securities of the Company.

(ii) No distribution, except as described in the next succeeding
sentence, shall be declared or paid, or set apart for payment on or in
respect of any Parity Securities, for any period unless full cumulative
distributions on all outstanding Series B Units have been or
contemporaneously are declared and paid for all distribution periods
terminating on or prior to the date set for payment of such distribution on
the Parity Securities. When distributions are not paid in full, as
aforesaid, on the Series B Units and any Parity Securities, all
distributions declared upon such Parity Securities shall be declared and
paid pro rata with the Series B Units so that the amounts of distributions
per unit declared and paid on the Series B Units and such Parity Securities
shall in all cases bear to each other the same ratio that unpaid cumulative
distributions per unit on the Series B Units and on such Parity Securities
bear to each other, and shall in all cases be paid to the same extent in
cash, other assets and/or securities of the same class as the securities on
which the respective distributions are being paid.

(iii) Unless full cumulative distributions on all outstanding Series B
Units have been paid (or contemporaneously are declared and paid) in cash
for all prior distribution periods (1) no rental payments shall be made to
the Special General Partner pursuant to the Pipeline Lease and (2) the
Special General Partner shall not declare or pay, or set apart for payment,
any dividend or distribution in respect of any of the outstanding
securities of the Special General Partner. If the Company shall have paid
any distributions on the Series B Units in kind, the condition specified in
the preceding sentence

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shall not be deemed to be satisfied unless all Units issued in payment of
such distributions have been redeemed by the Company for cash.

For purposes of this subsection (f), unless expressly stated otherwise
herein, "distribution" shall include, without limitation, any distribution by
the Company of cash, evidences of indebtedness, securities or other properties
or assets of the Company, or of rights to purchase or otherwise acquire any of
the foregoing, whether or not made out of profits, surplus or other funds of the
Company legally available for the payment of distributions.

Section 4. Certain Covenants and Restrictions.

So long as any Series B Units are outstanding:

(a) The Company shall not (i) issue, reissue, agree to issue or authorize
the issuance of any Senior Securities or any Parity Securities (except for
Series B Units and Series C Units issued as distributions in kind to the
existing holders thereof in accordance with their respective Certificates of
Designations), or any units or other securities or any options, warrants, notes,
bonds, debentures or other instruments convertible into, exchangeable for or
having rights to purchase any Senior Securities or any Parity Securities or (ii)
reclassify or modify any Junior Security so that it becomes a Parity Security or
Senior Security.

(b) The Company shall not (i) redeem, purchase or otherwise acquire for any
consideration any Parity Securities or Junior Securities (or pay any money to a
sinking fund or otherwise set apart any money, property or other consideration
for the purchase or redemption of any Parity Securities or Junior Securities) or
(ii) pay, provide or distribute to the holders of any Parity Securities or
Junior Securities, as such, any money, property, rights or other consideration,
except for distributions to holders of Parity Securities permitted by Section
3(f)(ii) hereof.

(c) The Company shall not effect any split, reverse split or any other
subdivision or combination of the Common Units or any other class or series of
equity securities of the Company.

(d) Neither the Company nor the Managing General Partner shall amend, alter
or rescind (whether by merger, consolidation or otherwise) any of the provisions
of the Partnership Agreement, this Certificate of Designations, the Articles of
Corporation, bylaws or other organizational document of the Managing General
Partner or any agreement entered into for the benefit of holders of Series B
Units in any manner so as to affect adversely any of the preferences, rights or
powers of the Series B Units.

(e) The Company shall not and shall not permit any of its Subsidiaries to,
create, assume, incur, guarantee or otherwise become or be liable in respect of,
or maintain or otherwise allow to exist, any Funded Debt, except for the
following:

(i) Funded Debt represented by the Series A Notes;

(ii) Funded Debt representing revolving credit debt not to exceed at
any time outstanding $10,000,000;

(iii) Funded Debt with respect to letters of credit necessary for the
normal conduct of the crude oil purchase and exchange business of the
Company;

(iv) Funded Debt in respect to other letters of credit, drawn or
undrawn, up to the amount of $5,000,000;

(v) Guaranty Liabilities of the Subsidiaries of the Company with
respect to the Funded Debt permitted hereby;

(vi) Funded Debt represented by that certain promissory note dated
January 18, 1996 in the original principal amount of $2,402,296.98,
executed by the Company and payable to Defense Finance and Accounting
Service -- Columbus Center (DFAS-CO);

(vii) Funded Debt represented by the $450,000 Loan;

(viii) Funded Debt under notes to finance insurance premiums over the
term of the applicable coverage period;

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(ix) Funded Debt to AKZO Chemical Inc. pursuant to that certain supply
agreement dated April 5, 1993, for the deferred payment of a catalyst, to
the extent of two remaining annual payments of $160,000 each;

(x) Funded Debt incurred to (a) refinance the outstanding principal
balance of the mortgage indebtedness on that certain office building of the
Company located at 1209 N. 4th, Abilene, Texas (the "Cedar Building"), and
(b) finance renovation and refurbishment of the Cedar Building and expenses
related to relocation of the Company's offices to the Cedar Building, up to
the amount of $200,000;

(xi) Funded Debt represented by that certain promissory note dated
November 30, 1994, made to Diamond Shamrock Refining and Marketing Company
in the original principal amount of $6,000,000;

(xii) Funded Debt with respect to the Pipeline Lease;

(xiii) other Funded Debt (other than as specified in clauses (i)
through (xii) hereof) not in excess of $1,000,000 in the aggregate at any
one time outstanding, including but not limited to Capital Leases
Obligations for leases of tractor trailer vehicles used in the ordinary
course of the Company's business to the extent such Capital Leases
Obligations finance the residual value payment of such vehicles at the
expiration of an operating lease; and

(xiv) other Funded Debt (other than as specified in clauses (i)
through (xiii) hereof) ("Term Loans") not to exceed at any one time
outstanding the remainder of $25,000,000 minus the cumulative payments on
Term Loans under Section 4(g), (h) or (i).

(f) The Company will not, and will not permit any of its Subsidiaries to,
sell, lease, convey, transfer, issue or otherwise dispose of, in one transaction
or in a series of transactions, whether involving assets or securities, all or a
substantial portion of any Company Business, or any shares or partnership
interests in any Subsidiary (whether such interests are now or hereafter issued,
outstanding or created) except a sale for fair consideration (as determined by
the Board of Directors of the Managing General Partner) to a purchaser who is
not an Affiliate of the Company, the Managing General Partner or the Special
General Partner, which consideration shall consist solely of cash which is
applied by the Company as provided in subsection (h) of this Section 4. As used
in this subsection, "Company Business" means the operations and assets of one of
the following three primary lines of business as currently conducted by the
Company and its Subsidiaries on January 1, 1996: (i) crude oil gathering and
exchange, (ii) refining, and (iii) transportation and marketing of refinery
products.

(g) All money, property or other consideration received by the Company or
any Subsidiary outside the ordinary course of business, including but not
limited to consideration for or in connection with the sale, lease, transfer or
other disposition of any assets or properties of the Company (other than the
sale of goods and services in the ordinary course of business), or any shares or
partnership interests in any Subsidiary (whether such interests are now or
hereafter issued, outstanding or created) but excluding consideration received
in connection with (A) the sale or disposition of any asset of the Company which
is sold for fair consideration not in excess of $25,000 or in the aggregate not
in excess of $250,000 (provided that to the extent consideration from any such
excluded sale or disposition is applied by the Company in accordance with this
Section 4(g), the amount of such consideration shall not be counted under the
$250,000 aggregate limitation) and (B) Litigation Settlements or Equity
Offerings, shall be applied (or converted into cash and then applied, if
applicable) by the Company (i) first to the repayment of principal and accrued
interest outstanding under the Term Loans, 50% to installments in order of
maturity and 50% to installments in inverse order of maturity, (ii) then to the
repayment of principal and accrued interest outstanding under the Series A Notes
(whether or not then due) until all principal and accrued interest under the
Series A Notes has been paid, and (iii) then to the redemption of outstanding
Series B Units in accordance with Section 6 hereof; provided, however, that if
the creditor under the Term Loans does not require the application described in
clause (i) of this paragraph, such funds shall be applied in the order provided
in clauses (ii) and (iii); and provided further, that funds applied to the
redemption of Series B Units as provided in clause (iii) shall be so applied
with respect to the initial Stated Value of the Units being redeemed and any
portion of the Redemption Price of such Units attributable to adjustments to
Stated Value shall be paid out of other funds of the Company.

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(h) All consideration received by the Company or any Subsidiary in
connection with the resolution (by judgment or otherwise) or settlement of any
judicial, administrative or arbitral proceeding ("Litigation Settlements") shall
be applied (or converted into cash and then applied, if applicable) by the
Company (i) first to the repayment of principal and accrued interest outstanding
under the Series A Notes, (ii) then, up to a maximum of $5.0 million in the
aggregate, to the redemption of outstanding Series B Units in accordance with
Section 6 hereof, (iii) then, up to a maximum of $7.5 million in the aggregate,
to the repayment of principal and interest outstanding under the Term Loans, 50%
to installments in order of maturity and 50% to installments in inverse order of
maturity, and (iv) then to the redemption of remaining Series B Units in
accordance with Section 6 hereof; provided, however, that if the creditor under
the Term Loans does not require the application described in clause (iii) of
this paragraph, such funds shall be applied as provided in clause (iv); and
provided further, that funds applied to the redemption of Series B Units as
provided in clauses (ii) and (iv) shall be so applied with respect to the
initial Stated Value of the Units being redeemed and any portion of the
Redemption Price of such Units attributable to adjustments to Stated Value shall
be paid out of other funds of the Company.

(i) Except as provided in the next succeeding sentence, all proceeds of
public or private offerings of equity securities by the Company ("Equity
Offerings"), including without limitation any Rights Offering as defined in
Section 11, shall consist of cash and shall be applied to the reduction of Term
Loans or Series A Notes or the redemption of outstanding Series B Units in
accordance with Section 6 hereof. The Company may use up to $4.5 million, in the
aggregate, of proceeds of Equity Offerings for capital expenditures in excess of
normal maintenance capital expenditures if, out of every dollar so applied, no
more than 60% is applied to such excess capital expenditures and at least 40% is
applied (i) first to the repayment of principal and interest outstanding under
the Series A Notes, and (ii) then to the redemption of outstanding Series B
Units in accordance with Section 6 hereof. Funds applied to the redemption of
Series B Units as provided in either of the two preceding sentences shall be so
applied with respect to the initial Stated Value of the Units being redeemed and
any portion of the Redemption Price of such Units attributable to adjustments to
Stated Value shall be paid out of other funds of the Company.

(j) The Company shall not at any time pay, or contact or agree to pay,
interest on the $450,000 Loan at a rate in excess of the cash distribution rate
then in effect with respect to the Series B Units pursuant to Section 3(b)
hereof, and the Company shall not pay any principal or interest on, or redeem,
purchase or otherwise acquire for any consideration (or pay to a sinking fund or
otherwise set apart any money, property or other consideration for such purchase
or redemption) the Subordinate Preferred Units or pay, provide or distribute to
the holders of the Subordinate Preferred Units, as such, any money, property,
rights or other consideration.

(k) The Company shall not cause or permit the Pipeline Lease or any other
agreement between the Company and any Affiliate of the Company to be amended,
supplemented, replaced or modified in any manner that would increase the
payments required to be made by the Company thereunder or the costs of
compliance by the Company therewith.

(l) The Company shall deliver to each holder of Series B Units one (1) copy
of each of the following:

(i) Monthly Statements. As soon as available, and in any event within
30 days after the end of each calendar month, copies of the consolidated
balance sheet of the Company as of the end of such month, and statements of
income and retained earnings and changes in financial position and cash
flows of the Company for that month and for the portion of the fiscal year
ending with such period, in each case setting forth in comparative form the
figures for the corresponding period of the preceding fiscal year. Such
statements shall be in reasonable detail, with a certificate of the chief
financial officer of the Managing General Partner certifying that such
statements are true and correct in all material respects to the best of his
knowledge and prepared in accordance with generally accepted accounting
principles ("GAAP"), consistently maintained and applied, subject to
year-end audit adjustments.

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in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and accompanied by an
opinion thereon (which shall be without a "going concern" or like
qualification or exception) of Ernst & Young or of other independent public
accountants of recognized national standing selected by the Company and
satisfactory to the holders of Series B Units representing 51% or more of
the aggregate Stated Value of the outstanding Series B Units, to the effect
that such consolidated financial statements have been prepared in
accordance with GAAP consistently maintained and applied (except for
changes in which such accountants concur) and that the examination of such
accounts in connection with such financial statements has been made in
accordance with generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other auditing
procedures as were considered necessary in the circumstances.

(iii) SEC and Other Reports. Promptly upon its becoming available, one
copy of each financial statement, report, notice or proxy statement sent by
the Company to equity owners generally and of each regular or periodic
report, registration statement or prospectus filed by the Company with any
securities exchange or the Securities and Exchange Commission or any
successor agency, and of any order issued by any court or governmental
authority in any proceeding to which the Company is a party.

(iv) Other Information. Such other information concerning the
business, properties or financial condition of the Company as the holders
of Series B Units representing 51% or more of the aggregate Stated Value of
the outstanding Series B Units shall reasonably request.

For purposes of this Section 4, "proceeds" means gross amounts received
without deduction of any related costs or expenses, offset of any related losses
or other reduction of any kind, except that "proceeds" of Equity Offerings means
gross sales price less reasonable discounts and commissions of underwriters or
placement agents. Any noncash proceeds or other noncash assets received by the
Company and that are subject to the provisions of subsection (h) or (i) of this
Section 4 shall be converted to cash by the Company as soon as practicable and
applied as provided in the applicable subsection, and shall not be sold,
transferred or otherwise disposed of by the Company other than for such purpose.
Notwithstanding the foregoing, the Company may allow any promissory note or
similar instrument that is subject to subsection (h) or (i) of this Section 4 to
remain outstanding in accordance with its terms, provided that all payments
received by the Company thereunder, and the proceeds of any sale, transfer or
other disposition thereof, shall be applied as provided in the applicable
subsection of this Section 4.

Compliance by the Company with any covenant contained in this Section 4 may
be waived in writing by the holders of Series B Units representing 51% or more
of the aggregate Stated Value of the outstanding Series B Units. No such waiver
shall be deemed to be a continuing waiver nor a waiver with respect to any other
covenant of the Company or any other term, condition or provision hereof.

Section 5. Liquidation Preference.

(a) In the event of any liquidation, dissolution or winding up of the
Company (in connection with the bankruptcy or insolvency of the Company or
otherwise), whether voluntary or involuntary, before any payment or distribution
of the assets of the Company (whether capital or surplus) shall be made to or
set apart for the holders of Common Units or any other class or series of Junior
Securities, the holder of each Series B Unit shall be entitled to receive in
cash an amount equal to the Stated Value per Unit plus an amount equal to the
aggregate dollar amount of all accrued and unpaid distributions through the date
of final distribution to such holders (including a prorated distribution from
the most recent Distribution Payment Date to such date of final distribution).
No payment on account of any such liquidation, dissolution or winding up of the
Company shall be made to the holders of any class or series of Parity Securities
unless there shall be paid at the same time to the holders of the Series B Units
proportionate amounts in cash determined ratably in proportion to the full
amounts to which the holders of all outstanding Series B Units and the holders
of all such outstanding Parity Securities are respectively entitled with respect
to such distribution. For purposes of this Section 5, neither a consolidation or
merger of the Company with one or more partnerships, corporations or other
entities nor a sale, lease, exchange or transfer of all or any part of the
Company's assets for cash, securities or other property shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary if (i) the
surviving entity in any such consolidation, merger, sale, lease, exchange or
transfer

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assumes in writing all the Company's obligations under this Certificate of
Designations, the Registration Rights and Transfer Restriction Agreement
referred to in Section 12 hereof, the SGP Agreement, and the Warrants to
Purchase Common Units, issued by the Company to each holder of Series B Units or
Series C Units and (ii) an agreement shall be entered into by such surviving
entity, or by its general partner or equivalent entity, and its shareholders
with the holders of the Series B and Series C Units substantially to the same
effect as that certain Voting Agreement dated as of , 1996 among the
Managing General Partner, NationsBank of Texas, N.A. and Bank One, Texas, N.A.
and the shareholders of the Managing General Partner.

(b) Subject to the rights of the holders of any class or series of Parity
Securities or Senior Securities, upon any liquidation, dissolution or winding up
of the Company, after payment shall have been made in full to the holders of
Series B Units, as provided in this Section 5, any class or series of Junior
Securities shall, subject to the respective terms and provisions (if any)
applicable thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of Series B Units shall not be entitled to
share therein.

(c) Written notice of the commencement of any proceeding for or that may
result in any liquidation, dissolution or winding up of the Company shall be
given to holders of Series B Units in accordance with Section 10(k), but neither
the giving of such notice nor anything in this Section 5 or any other provision
hereof shall relieve the Company of its obligation to obtain consent from
holders of Units as provided in Section 9.

Section 6. Optional and Mandatory Redemption.

(a) The Company may, at the option of the Managing General Partner, redeem
for cash at any time after the Series A Retirement Date, from any source of
funds legally available therefor, in whole or in part, in the manner provided
below any and all of the outstanding Series B Units at a redemption price per
Unit (the "Redemption Price") equal to the Stated Value per Unit redeemed plus
an amount in cash equal to the aggregate dollar amount of all accrued and unpaid
distributions through the Redemption Date (including a prorated distribution
from the most recent Distribution Payment Date to the Redemption Date) that have
not been added to the Stated Value of such Units. "Redemption Date" means the
date fixed by the Managing General Partner for redemption. "Series A Retirement
Date" means the date on which the Series A Notes are repaid in full or converted
by the holder(s) thereof in full into Common Units.

(b) The Company shall, at the Redemption Price and in the manner provided
in this Section 6, redeem for cash from any source of funds legally available
therefor, all Series B Units outstanding on the first to occur of:

(i) the date that is five years and three months after the Initial
Issuance Date;

(ii) the date that is 30 days after any default (a "Cross-Default") by
the Company in its obligations to make payments under or with respect to
any Funded Debt with an outstanding principal amount in excess of $500,000;
provided, however, that the Company need not effect such mandatory
redemption because of a Cross-Default if such Cross-Default is cured prior
to the end of such 30-day period to the satisfaction of the holders of
Series B Units representing 51% or more of the aggregate Stated Value of
the then outstanding Series B Units or the right to require the Company to
effect such redemption is waived in writing by the holders of 51% or more
in Stated Value (as adjusted, if applicable) of the Series B Units; no such
waiver shall be deemed to be a continuing waiver nor a waiver with respect
to any other or subsequent Cross-Default;

(iii) the date that is 30 days after any failure by the Company to pay
in full in cash on any Distribution Payment Date any distribution payable
only in cash on such Distribution Payment Date; or

(iv) the date that is 30 days after any default or failure of
compliance by the Company with any covenant or restriction contained in
Section 3(f) or Section 4 hereof, unless such default or failure of
compliance is cured prior to the end of such 30-day period to the
satisfaction of the holders of Series B Units representing 51% or more of
the aggregate Stated Value of the then outstanding Series B Units; or

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(v) the Business Day immediately preceding any Change in Control of
the Company. For this purpose, a "Change in Control" means (1) a change in
the direct or indirect power to direct or cause the direction of the
management and policies of the Company, the Managing General Partner or the
Special General Partner, whether through the ownership of voting
securities, by contract or otherwise, or to elect a majority of any of such
entities' Boards of Directors or equivalent governing bodies; (2) any
reorganization, reclassification or change in any outstanding securities of
the Company; (3) the Company's consolidation or merger with or into another
partnership, corporation or other entity; (4) the sale, lease or other
transfer of the property of the Company as an entirety or substantially as
an entirety; (5) the termination of the SGP Guarantee or of the pledge of
all of the Special General Partner's assets securing its obligations
thereunder, or any event or circumstance as a result of which the SGP
Guarantee or such pledge shall no longer be in full force and effect; or
(6) the redemption, purchase or other acquisition by the Special General
Partner for any consideration any of the Special General Partner's
outstanding securities (or the payment of any money to a sinking fund or
the setting apart of any money, property or other consideration for the
purchase or redemption of any such securities) or the payment, provision or
distribution to the holders of any of its outstanding securities, as such,
any money, property, rights or other consideration, other than ordinary pro
rata dividends to all holders of a class of such outstanding securities;
provided, however, that in the case of clause (2), (3) or (4) of this
sentence, any reorganization, reclassification, change, consolidation,
merger, sale or transfer that has been approved by the holders of Series B
Units representing 51% or more of the aggregate Stated Value of the then
outstanding Series B Units in accordance with Section 9(b) shall not
constitute a Change in Control.

The Managing General Partner shall cause the Redemption Notice (as defined
below) to be mailed sufficiently in advance of the dates or events specified in
this subsection (b) to permit the redemption to occur on such dates.

If there are insufficient legally available funds for redemption under this
subsection (b), the Company shall redeem such lesser number of Series B Units
(on a pro rata basis from all holders of Series B Units, in proportion to the
number of Units held), to the extent there are funds legally available therefor,
and shall redeem all or part of the remainder of the Series B Units as soon as
the Company has sufficient funds that are legally available therefor. If the
redemption is delayed because of insufficient legally available funds,
distributions shall continue to accrue on Series B Units outstanding, and shall
be added to and become a part of the Redemption Price of such Units, until the
Redemption Price, as so adjusted, for such Units is paid in full.

(c) The Company also shall, at the Redemption Price and in the manner
provided in this Section 6, redeem Series B Units using the funds received from
the sources described in Section 4(g), (h) and (i), to the extent provided
therein, promptly after the Company's receipt of such funds.

(d) In connection with any optional or mandatory redemption of Units, at
least 20 days and not more than 60 days prior to the Redemption Date, written
notice (the "Redemption Notice") shall be sent simultaneously by certified mail,
return receipt requested, and by telecopy to each holder of record of the Series
B Units at the post office address last shown on the records of the Company for
such holder. The Redemption Notice shall state:

(i) whether all or less than all the outstanding Series B Units are to
be redeemed and the total number of Series B Units being redeemed;

(ii) the number of Series B Units held by the holder that the Company
intends to redeem;

(iii) the Redemption Date and the Redemption Price;

(iv) that the holder is to surrender to the Company, in the manner and
at the place designated, the certificate or certificates representing the
Series B Units to be redeemed; and

(v) that an Escrow Account as described in the following paragraph has
been established at a bank specified in the Redemption Notice.

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Notwithstanding the foregoing, a Redemption Notice relating to a mandatory
redemption required by paragraph (ii), (iii) or (iv) of subsection (b) of this
Section 6 shall be mailed at least 15 days and not more than 30 days prior to
the mandatory Redemption Date.

Not later than the date on which a Redemption Notice is mailed by the
Company, the Company shall deposit in an escrow account (the "Escrow Account")
for the pro rata benefit of the holders of the Units to be redeemed the funds
necessary for such redemption with a bank or trust company having capital and
surplus of at least $500 million and approved in writing by the holders of
Series B Units representing 51% or more of the aggregate Stated Value of the
then outstanding Series B Units (the "Escrow Agent"). Any such funds (i) that
represent the Redemption Price of Units converted into Common Units pursuant to
Section 10 prior to the applicable Redemption Date or (ii) that are unclaimed at
the end of two years after the applicable Redemption Date shall revert to the
general funds of the Company and, upon such reversion, the Escrow Agent shall,
upon demand, pay such funds over to the Company and be relieved of all
responsibility in respect thereof and any holder of Units entitled to receive
any of such funds shall thereafter look only to the Company for the payment of
the Redemption Price. Any interest on funds included in the Escrow Account shall
be for the account of the Company. The failure to establish the Escrow Account
by the date specified in this paragraph shall cause the Redemption Notice that
required such Escrow Account to have been established to be ineffective, and the
Company shall not have any right to redeem any Units pursuant to such Redemption
Notice. Such failure shall not relieve the Company of any obligation to effect a
mandatory redemption of Units.

On or before the Redemption Date each holder of Series B Units shall
surrender to the Company the certificate or certificates representing such Units
to be redeemed, in the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price for such Units shall be payable in
cash on the Redemption Date to the Person whose name appears on such certificate
or certificates as the owner thereof, and each surrendered certificate shall be
cancelled and retired. In the event that less than all Units represented by any
such certificate are redeemed, a new certificate shall be issued representing
the unredeemed Units.

In the event of a redemption of only a portion of the then outstanding
Series B Units, the Company shall effect such redemption pro rata according to
the number of Units held by each holder.

Unless the Company defaults in the payment in full of the Redemption Price,
distributions on the Series B Units called for redemption shall cease to
accumulate on the Redemption Date, and the holders of such Units redeemed shall
cease to have any further rights with respect thereto on the Redemption Date,
other than to receive the Redemption Price without interest.

Holders of all Series B Units shall have the right at any time from and
after the date on which the Company calls any Series B Units for redemption and
prior to the Redemption Date for such Units to convert all or any part of the
outstanding Units held by them into Common Units at the Conversion Price (as
defined in Section 10), notwithstanding anything herein to the contrary, and
whether or not such holders otherwise would have the right to effect such
conversion at such time pursuant to Section 10.

Section 7. Prohibitions on Issuance. All Units repurchased, redeemed or
otherwise acquired by the Company shall be retired and cancelled and shall not
be reissued. No authorized but unissued Units shall be issued other than as
distributions in kind to the existing holders of Series B Units in accordance
with Section 3(c) hereof.

Section 8. Ranking.

(a) No equity securities of the Company shall rank senior to the Series B
Units with respect to the payments required or permitted to be made to the
holders thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series B Units pursuant hereto.
The Company shall not issue any debt security (except as permitted by Section
4(e)).

(b) The following equity securities of the Company, and no others, shall
rank on a parity with the Series B Units with respect to the payments required
or permitted to be made to the holders thereof pursuant

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to their respective governing instruments and the payments required to be made
to holders of the Series B Units pursuant hereto: the Series C Units.

(c) Without limiting the definition of "Junior Securities" contained in
Section 2, the following equity securities of the Company shall rank junior to
the Series B Units with respect to the payments required or permitted to be made
to the holders thereof pursuant to their respective governing instruments and
the payments required to be made to holders of the Series B Units pursuant
hereto: the Subordinate Preferred Units and the Common Units.

Section 9. Voting.

(a) So long as any Series B Units remain outstanding, the Company will not,
without the affirmative vote at a meeting, or by written consent with or without
a meeting, of the holders Series B and Series C Units representing two-thirds or
more of the aggregate Stated Value of the then outstanding Series B and Series C
Units, voting as one class, (i) create, authorize, issue or reissue any class or
series of Senior Securities, or any units of any such class or series, or (ii)
amend, alter or rescind (whether by merger, consolidation or otherwise) any of
the provisions of the Partnership Agreement, the Certificate of Designations of
the Series B Units or the Certificate of Designations of the Series C Units that
prescribe the terms and conditions of the Series B or Series C Units; provided,
however, that any proposed amendment, alteration or rescission of any provision
of the Partnership Agreement or of the Certificate of Designations of the Series
B or Series C Units, as contemplated by clause (ii) of this sentence, shall
require the approval of the holders of Series B Units and the holders of Series
C Units representing two-thirds or more of the aggregate Stated Value of the
then outstanding Series B Units and Series C Units, respectively, each voting as
a separate class.

(b) So long as any Series B Units remain outstanding, the Company will not,
without the affirmative vote at a meeting, or by written consent with or without
a meeting, of the holders Series B and Series C Units representing 51% or more
of the aggregate Stated Value of the then outstanding Series B and Series C
Units, voting as one class, (i) create, authorize, issue or reissue any class or
series of Parity Securities, or any units of any such class or series, including
without limitation any authorized but unissued Series B or Series C Units (other
than Series B or Series C Units issued as distributions in kind to the existing
holders thereof in accordance with their respective Certificates of
Designations); (ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the Certificate
of Designations of the Series B Units or the Certificate of Designations of the
Series C Units that set forth the restrictions and covenants of the Company
(including without limitation restrictions regarding capital expenditures,
issuance of Funded Debt and payment of distributions to holders of Parity
Securities or Junior Securities) that benefit or protect the rights of holders
of the Series B or Series C Units; (iii) commence any voluntary proceeding
(under bankruptcy, insolvency or similar laws or otherwise) for or that may
result in the liquidation, dissolution or winding up of the Company, consent to
the entry of an order for relief in an involuntary proceeding under any federal
or state bankruptcy, insolvency or similar laws or to the appointment of a
receiver, liquidator, assignee, custodian, trustee or other similar official of
the Company or of any substantive part of its properties, or make an assignment
for the benefit of its creditors or admit in writing its inability to pay its
debts generally as they become due; or (iv) reorganize, reclassify or change any
outstanding securities, consolidate or merge with or into another partnership,
corporation or other entity or sell or transfer the property of the Company as
an entirety or substantially as an entirety.

(c) In addition, if the Initial Issuance Date and the date on which Series
C Units are first issued shall not have occurred by March 31, 1998, the
Partnership Agreement shall be deemed to be amended to provide that the vote
necessary to remove or replace the Managing General Partner of the Company shall
be 51% of all outstanding limited partnership units of the Company, including
the Series A Notes, the Series B Units and the Series C Units, va single class.
For purposes of such vote, the holder of each Series A Note, Series B Unit or
Series C Unit shall be entitled to the same number of votes as the holder of a
number of Common Units equivalent to the number of Common Units into which such
Series A Note, Series B Unit or Series C Unit is convertible at the Conversion
Price then in effect (whether or not such holder has the right to effect such
conversion at such time). [THIS MUST BE REFLECTED IN A CURRENT AMENDMENT TO THE
PARTNERSHIP AGREEMENT.]

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(d) In the event that no holder of Series B or Series C Units (or any
Affiliate of such a holder) holds, directly or indirectly, any debt of the
Company (other than the Series A Notes), and (i) the Company shall have failed
to pay in full in cash all accrued distributions on the Series B Units or Series
C Units for six quarterly distribution periods (whether or not consecutive, and
including any such failure resulting from the Company's election to pay accrued
distributions in kind), or (ii) the Company shall have failed to redeem in full
for cash all outstanding Series B Units or Series C Units on or before any date
on which such redemption is required, or (iii) the Company shall have defaulted
in the performance of any of its covenants or agreements contained in the
Partnership Agreement or the respective Certificates of Designations with
respect to the Series B Units or Series C Units for more than 60 days after
written notice of default shall have been served on the Company by the holders
of outstanding Series B and Series C Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series B and Series C Units
(treated as a single class, unless such default does not affect both Series, in
which case such notice may be given by the holders of 51% or more in Stated
Value of the Series affected), then the voting shareholders of the Managing
General Partner of the Company shall be required immediately to elect two
additional directors (the "Series B and C Directors") of the Managing General
Partner (out of a total Board of Directors consisting of nine directors)
selected by such shareholders from a slate of at least three individuals who are
not then affiliated with either of the Banks, Fina, Inc., Enron, Inc., Energy
Operating, L.P., Scurlock Permian Corporation, Koch Industries, Inc., Conoco,
Inc., Western Marketing, Inc. and any company in the business of crude oil
refining, marketing of crude oil products, or crude oil gathering in Texas or
New Mexico, nominated by the holders of Series B and Series C Units representing
51% or more of the aggregate Stated Value of the then outstanding Series B and
Series C Units (treated as a single class, unless the failure or default by the
Company has not affected both Series, in which case such nomination shall be
made by the holders of 51% or more in Stated Value of the affected Series).

Following the election of any Series B and C Directors, the Series B and C
Directors shall not be removed for any reason, nor shall the number of directors
constituting the whole Board of Directors of the Managing General Partner be
changed, except with the consent of the holders of Series B and Series C Units
representing 51% or more of the aggregate Stated Value of the then outstanding
Series B and Series C Units, treated as a single class (or of the then
outstanding Series B Units or Series C Units, as applicable, if such Series B
and C Directors were nominated by the holders of one such series). Upon the
occurrence of any vacancy in the office of any Series B and C Director, the
holders of outstanding Series B and Series C Units that would have been entitled
to consent to the removal of such director, as contemplated in the preceding
sentence, shall nominate a replacement director, and the shareholders of the
Managing General Partner shall be obligated to elect such replacement, in
accordance with the procedures outlined in this Section 9(d). The shareholders
of the Managing General Partner shall also use their best efforts to cause the
removal of any Series B and C Director if requested to do so by the holders of
Series B and Series C Units representing 51% or more of the aggregate Stated
Value of the then outstanding Series B and Series C Units, treated as a single
class (or of the then outstanding Series B Units or Series C Units, as
applicable, if such Series B and C Directors were nominated by the holders of
one such series), and, upon such removal, the resulting vacancy shall be filled
as provided in the preceding sentence.

The rights of the holders of Series B Units and Series C Units specified in
this Section 9(d) and the rights of the Series B and C Directors to continue as
directors of the Managing General Partner shall exist only if, and so long as,
the circumstances described in clause (i), (ii) or (iii) above are continuing
and the combined aggregate Stated Value, plus accrued and unpaid distributions
thereon, of all Series B and Series C Units then outstanding is equal to or
greater than $5.0 million. Such rights, after any termination thereof, shall
revest upon each and every subsequent occurrence of circumstances giving rise to
such rights pursuant to this subsection (c). The Series B and C Directors shall
not be counted or considered for purposes of determining whether the Managing
General Partner complies with any applicable law or any rules or regulations of
the New York Stock Exchange (or any other stock exchange or stock market on
which the securities of the Company may from time to time be listed or admitted
for trading) regarding the qualifications or number of independent directors
that the Managing General Partner is required to have on its Board of Directors,
and the Managing General Partner shall at all times cause its Board of Directors
to include a sufficient number of

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qualified independent directors to comply with all such applicable laws, rules
and regulations without consideration of the Series B and C Directors.

The charter and bylaws of the Managing General Partner, as amended prior to
the Initial Issuance Date, contain provisions that authorize and require the
election of the Series B and C Directors in the circumstances and at the times
described in this subsection (c), and so long as any Series B Units are
outstanding, the Managing General Partner shall not adopt, approve or permit any
rescission, amendment or modification of such provisions or adopt, approve or
permit the enactment or any other provisions inconsistent therewith. If a
meeting of the voting shareholders of the Managing General Partner (if such
meeting is required to elect the Series B and C Directors) is not called and
held immediately upon the occurrence of any circumstance requiring the election
of the Series B and C Directors, or if at any time a vacancy shall exist in the
office of a Series B and C Director previously elected, the holders of
outstanding Series B and Series C Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series B and Series C Units (or
of the affected Series, as the case may be) shall be entitled (without limiting
any other rights or remedies that may be available to such holders), by written
notice to the Secretary of the Managing General Partner, to require a proper
officer of the Managing General Partner to call a special meeting for the
purpose of electing the Series B and C Director or Directors. Any such meeting
shall be held at the earliest practicable date, and in any event no later than
20 days after the notice referred to in the preceding sentence is given to the
Secretary of the Managing General Partner. [Separate voting agreement with
shareholders of MGP also will be executed.]

(e) Except as expressly set forth herein or in the Partnership Agreement or
as required by applicable law, holders of Series B Units shall not have any
right to vote on any question presented to the holders of voting securities of
the Company.

Section 10. Conversion Rights.

(a) Each Series B Unit shall be convertible at the option of the holder
thereof into fully paid Common Units at any time during the Conversion Period;
provided that the frequency of conversions shall be subject to the limitations
set forth in Section 6B(v) of the Note Purchase Agreement. The number of Common
Units deliverable upon conversion of one Series B Unit shall be determined by
dividing the Stated Value of the Series B Unit by the Conversion Price (as
defined below) then in effect. The "Conversion Period" shall commence on the
earliest to occur of (i) 18 months from the completion of the Restructuring, as
defined in Paragraph 10(a) of the Note Purchase Agreement, (ii) one year from
the Initial Issuance Date or (iii) March 31, 1998, and shall end on the date on
which all outstanding Series B Units have been redeemed and the aggregate
Redemption Price has been paid in full in accordance with Section 6 hereof. The
Conversion Period shall also commence on any date on which the Company calls any
Series B Units for redemption pursuant to Section 6.

(b) Conversion of any Series B Unit may be effected by the holder thereof
by the surrender of the certificate for such Unit to the Company at the
principal office of the Transfer Agent in the State of Texas or at the office of
any successor Transfer Agent for the Series B Units, or to such other agent or
agents of the Company as may be designated by the Managing General Partner. If
any Series B Units are called for redemption pursuant to a Redemption Notice in
accordance Section 6 hereof, such right of conversion shall cease and terminate
as to the Units called for redemption at the close of business on the Redemption
Date, unless the Company shall default in the payment of the Redemption Price
(in which event such conversion right shall remain in effect until full payment
of the Redemption Price has been made) or shall have failed to establish an
Escrow Account as required by Section 6 (in which event such call for redemption
shall be ineffective, as provided in Section 6, and such conversion right shall
be unaffected by such Redemption Notice).

(c) The price at which holders of Series B Units may acquire Common Units
pursuant to the conversion rights set forth in this Section 10 (the "Conversion
Price") initially shall be $ per Common Unit, which price has been
determined on the basis of the number of outstanding Common Units, on a fully
diluted basis, as of the Initial Issuance Date, so that if Series B Units had
been convertible and converted into Common Units on such date, the holders of
Series B Units representing an aggregate Stated Value of

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$1.0 million would have received 2.0% of such outstanding Common Units, on a
fully diluted basis, as of such date. For this purpose, the number of
outstanding Common Units, on a fully diluted basis, includes (i) Common Units
actually outstanding on the Initial Issuance Date and (ii) Common Units into
which all convertible securities, convertible debt and other convertible
instruments (including without limitation the Series A Notes, the Series B and
Series C Units, the $450,000 Loan and the Subordinate Preferred Units) and all
warrants, options or other rights to acquire any Common Units of the Company
issued and outstanding on the Initial Issuance Date are convertible,
exchangeable or exercisable (notwithstanding that such conversion, exchange or
exercise rights may not have been fully vested on the Initial Issuance Date).
The Conversion Price and Stated Value of the Units, for purposes of conversion,
are subject to adjustment as provided herein.

(d) The Stated Value of each Series B Unit, for purposes of conversion,
shall be $1,000 plus the amount of accrued and unpaid distributions for all
distribution payment periods ending on or prior to the date such Units are
surrendered to the Company for conversion and for the partial distribution
period beginning on the date immediately following the most recent Distribution
Payment Date through and including the date on which such Units are surrendered
for conversion. Notwithstanding the foregoing, holders of Series B Units
surrendered for conversion shall have the option to require the Company to make
payment in cash of all such accrued and unpaid distributions, in lieu of such
adjustment to the Stated Value, whether or not funds are legally available
therefor and whether or not declared.

(e) As promptly as practicable after the surrender of Series B Units for
conversion, the Company shall issue and deliver or cause to be issued and
delivered to the holder of such Units certificates representing the number of
Common Units into which such Series B Units have been converted in accordance
with the provisions of this Section 10. Subject to the following provisions of
this Section 10, such conversion shall be deemed to have been made as of the
close of business on the date on which the Series B Units shall have been
surrendered for conversion in the manner herein provided, so that the rights of
the holder of the Series B Units so surrendered shall cease at such time and the
Person or Persons entitled to receive the Common Units upon conversion thereof
shall be treated for all purposes as having become the record holder or holders
of such Common Units at such time; provided, however, that any such surrender on
any date when the unit transfer books of the Company are closed shall be deemed
to have been made, and shall be effective to terminate the rights of the holder
or holders of the Series B Units so surrendered for conversion and to constitute
the Person or Persons entitled to receive such Common Units as the record holder
or holders thereof for all purposes, at the opening of business on the next
succeeding day on which such transfer books are open and such conversion shall
be at the Conversion Price in effect at such time. The Company will not at any
time close its transfer books against the transfer of any Series B Unit or of
any Common Unit issued or issuable upon the conversion of any Series B Unit in
any manner which interferes with the timely conversion of such Series B Unit.

(f) The Company shall not at any time limit the number of Common Units that
may be issued by the Company or take any other action that would impair the
Company's ability to issue Common Units sufficient to permit the conversion of
all outstanding Series B Units and the conversion, exchange or exercise of all
other securities and instruments convertible or exchangeable into or exercisable
for Common Units. The Company shall not, by amendment of its Partnership
Agreement or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Section 10 by the Company or any of the terms
of its Partnership Agreement which are applicable to Common Units issuable upon
conversion of the Series B Units, but will at all times in good faith assist in
the carrying out of all of the provisions of this Section 10 and in the taking
of all such other action as may reasonably be requested by any holder in order
to protect the conversion privilege and other rights of the Series B Units and
of the Common Units issuable upon conversion of the Series B Units against any
impairment.

(g) The Company covenants and agrees that all Common Units that may be
issued upon the exercise of the conversion rights of Series B Units will, upon
issuance, be fully paid, without any obligations to make additional capital
contributions to the Company, and free from all taxes, liens and charges with
respect to the issue thereof.

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(h) The number and kind of securities purchasable upon the exercise of the
conversion rights of the Series B Units shall be subject to adjustment from time
to time upon the happening of certain events, as follows:

(i) If the Company, at any time while any of the Series B Units are
outstanding, shall subdivide or combine its Common Units, the Conversion
Price shall be proportionately reduced, in case of subdivision of units, as
of the effective date of such subdivision, or if the Company shall take a
record of holders of its Common Units for the purpose of so subdividing, as
of such record date, whichever is earlier, or shall be proportionately
increased, in the case of a combination of units, as of the effective date
of such combination or, if the Company shall take a record of holders of
its Common Units for the purpose of so combining, as of such record date,
whichever is earlier; provided, however, that nothing in this paragraph
shall be deemed to permit the Company to effect any such subdivision or
combination in violation of any other provision, including Section 4(c),
hereof.

(ii) If the Company at any time while any of the Series B Units are
outstanding shall:

1. Make any distribution of Additional Common Units (as defined
below), the Conversion Price shall be adjusted, as of the date the
Company shall take a record of the holders of its Common Units for the
purpose of receiving such distribution (or if no such record is taken,
as of the date of such distribution), to that price determined by
multiplying the Conversion Price in effect immediately prior to such
record date (or if no such record is taken, then immediately prior to
such distribution) by a fraction (i) the numerator of which shall be the
total number of Common Units outstanding immediately prior to such
distribution, and (ii) the denominator of which shall be the total
number of Common Units outstanding immediately after such distribution
(plus in the event that the Company paid cash for fractional units, the
number of Additional Common Units which would have been outstanding had
the Company issued fractional units in connection with such
distribution); provided, however, that nothing in this paragraph shall
be deemed to permit the Company to effect any such distribution in
violation of any other provision, including Section 3(f) or 4(b),
hereof; or

2. Issue any Additional Common Units to the Special General Partner
(regardless of any consideration received by the Company for such
issuance) or make any payments under the Pipeline Lease in the form of
Additional Common Units, the Conversion Price shall be adjusted, as of
the date of such issuance or payment, to that price determined by
multiplying the Conversion Price in effect immediately prior to such
date by a fraction (i) the numerator of which shall be the total number
of Common Units outstanding immediately prior to such issuance or
payment, and (ii) the denominator of which shall be the total number of
Common Units outstanding immediately after such issuance or payment.

(iii) If the Company, at any time while any of the Series B Units are
outstanding and the Fair Market Price of the Common Units is less than or
equal to the Conversion Price, shall issue any Additional Common Units
(other than as provided in the foregoing paragraphs (i) and (ii) of this
subsection) at a price per unit less than the Conversion Price or without
consideration, then the Conversion Price upon each such issuance shall be
reduced (but never increased) to a price determined by multiplying the
existing Conversion Price by the following fraction, where O is the number
of Common Units outstanding, on a fully diluted basis, prior to such
issuance; N is the number of Additional Common Units being issued; P is the
amount of consideration received per unit by the Company in exchange for
issuance of such Additional Common Units; and is the existing Conversion
Price:

O + (N X P divided by C)
------------------------
O + N

(iv) If the Company, at any time while any of the Series B Units are
outstanding and the Fair Market Price of the Common Units is greater than
the Conversion Price, shall issue any Additional Common Units (other than
as provided in paragraphs (i) and (ii) of this subsection) at a price per
unit that is less than Fair Market Price, then the Conversion Price upon
each such issuance shall be reduced

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(but never increased) to a price determined by multiplying the existing
Conversion Price by the following fraction, where O, N and P have the
meanings specified in paragraph (ii) of this subsection (h) and M is the
Fair Market Price:

O + (N X P divided by M)
------------------------
O + N

(v) If the Company at any time while any of the Series B Units are
outstanding shall issue any Common Unit Equivalents (as defined below) and
the price per unit for which Additional Common Units may be issuable
thereafter pursuant to such Common Unit Equivalents is less than the
Conversion Price, or less than the Fair Market Price but greater than the
Conversion Price, or if, after any such issuance, the price per unit for
which Additional Common Units may be issuable thereafter is amended and
such price as so amended is less than the Conversion Price, or less than
the Fair Market Price but greater than the Conversion Price, at the time of
such amendment, then the Conversion Price upon each such issuance or
amendment shall be adjusted as provided in paragraph (ii), (iii) or (iv) of
this subsection, as applicable, as if the underlying Additional Common
Units had been issued directly. The consideration for Additional Common
Units issuable pursuant to any Common Unit Equivalents shall be the
consideration received by the Company for issuing such Common Unit
Equivalents plus the additional consideration payable to the Company upon
the exercise, conversion or exchange of such Common Unit Equivalents. If
the Conversion Price is adjusted upon the issuance of Common Unit
Equivalents and such Common Unit Equivalents are thereafter cancelled
without having been converted or exercised, and without any Additional
Common Units having been issued in respect thereof, then the Conversion
Price shall be readjusted to the Conversion Price that would have been in
effect if such Common Unit Equivalents had never been issued. No adjustment
of the Conversion Price shall be made under paragraph (ii), (iii) or (iv)
of this subsection (h) upon the issuance of any Additional Common Units
that are issued pursuant to any Common Unit Equivalents if upon the
issuance of such Common Unit Equivalents adjustments shall previously have
been made pursuant to this paragraph (v) to the same extent as would have
been made under paragraph (ii), (iii) or (iv) if such Additional Common
Units had been issued directly.

(vi) No adjustment shall be made to the Conversion Price with respect
to the issuance of any Additional Common Units (or any Common Unit
Equivalents pursuant to which such Additional Common Units are issuable) at
a price per unit that is greater than both the Conversion Price and the
Fair Market Price.

(vii) For purposes of making the adjustments in the Conversion Price
as provided in this Section 10(h), the consideration received by the
Company shall be deemed to be the following: to the extent that any
Additional Common Units or any Common Unit Equivalents shall be issued for
cash consideration, the consideration received by the Company therefor; if
such Additional Common Units or Common Unit Equivalents are offered by the
Company for subscription, the subscription price; if such Additional Common
Units or Common Unit Equivalents are sold to underwriters or dealers for
public offering, the initial public offering price, in any such case
excluding any amount received for accrued interest or accrued distributions
and without deduction of any commissions, discounts or expenses paid or
incurred by the Company in connection with the issue thereof; and to the
extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the fair market value
of such consideration at the time of such issuance as determined in good
faith by the Managing General Partner of the Company. In the event of the
issuance at any time of any Additional Common Units or Common Unit
Equivalents in payment or satisfaction of any distribution upon any class
or series of units other than Common Units, the Company shall be deemed to
have received for such Additional Common Units or Common Unit Equivalents
consideration equal to the amount of such distribution so paid or
satisfied; provided, that nothing herein shall be deemed to permit the
Company to issue Common Units for such purpose under circumstances in which
such issuance is not otherwise permitted. In any case in which the
consideration to be received shall be other than cash, the Managing General
Partner shall notify each holder of Series B Units of its determination of
the fair market value of such consideration

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prior to accepting receipt thereof. If, within 10 days of receipt of such
notice, the holders of Series B Units representing 51% or more of the
aggregate Stated Value of Series B Units then outstanding shall notify the
Managing General Partner in writing of their objection to such
determination, a determination of the fair market value of such
consideration shall be made by an independent investment banker (with an
established national reputation) selected by the Managing General Partner,
with the written approval of the holders of Series B Units representing 51%
or more of the aggregate Stated Value of the then outstanding Series B
Units.

(viii) If any event occurs as to which, in the good faith judgment of
the holders of Series B Units representing 51% or more of the aggregate
Stated Value of the outstanding Series B Units, the other provisions of
this Section 10(h) are not strictly applicable or if strictly applicable
would not fairly protect the conversion rights of the holders of Series B
Units in accordance with the essential intent and principles of such
provisions, then the Managing General Partner shall appoint a firm of
independent public accountants (with an established national reputation)
who are satisfactory to the holders of Series B Units representing 51% or
more of the aggregate Stated Value of the then outstanding Series B Units
(which may be the Company's regular independent auditors) which shall give
their opinion upon the adjustment, if any, on a basis consistent with such
essential intent and principles, necessary to preserve, without dilution,
the rights of the holders of Series B Units. Upon receipt of such opinion,
the Managing General Partner shall forthwith make the adjustments described
therein; provided, that no such adjustment shall have the effect of
increasing the Conversion Price as otherwise determined pursuant to this
Section 10.

(ix) The Company may give notice to the holders that the proceeds of
certain Additional Common Units will be used to redeem all outstanding
Series B Units, which notice shall be given prior to the actual issuance of
such Additional Common Units. If such notice is given and such proceeds are
used for such purpose within 60 days after receipt thereof, such Additional
Common Units shall not be considered in determining an adjustment to the
Conversion Price under this Section 10(h) with respect to any Series B
Units which become subject to an election to convert after delivery of such
notice.

(i) If at any time the Company shall be a party to any transaction
(including, without limitation, a merger, consolidation, sale of all or
substantially all the Company's assets, liquidation, or recapitalization of the
Common Units) in which the previously outstanding Common Units shall be changed
into or exchanged for different securities of the Company or common stock or
other securities of another corporation or interests in a noncorporate entity or
other property (including cash) or any combination of any of the foregoing or in
which the Common Units cease to be a publicly traded security either listed on
the New York Stock Exchange or the American Stock Exchange or quoted by the
NASDAQ National Market System or any successor thereto or comparable system
(each such transaction being herein called the "Transaction," the date of
consummation of the Transaction being herein called the "Consummation Date," the
Company (in the case of a recapitalization of the Common Units or any other such
transaction in which the Company retains substantially all its assets and
survives as a limited partnership) or such other corporation or entity (in each
other case) being herein called the "Acquiring Company," and the common stock
(or equivalent equity interests) of the Acquiring Company being herein called
the "Acquirer's Common Stock"), then, as a condition of the consummation of the
Transaction, lawful and adequate provisions shall be made so that the holder of
Series B Units, upon the conversion thereof at any time on or after the
Consummation Date (but subject, in the case of an election pursuant to clause
(B) or (C) below, to the time limitation hereinafter provided for such
election),

(A) shall be entitled to receive, and such Series B Units shall
thereafter be convertible into, in lieu of the Common Units issuable upon
such conversion prior to the Consummation Date, shares of the Acquirer's
Common Stock, unless the Acquiring Company fails to meet the requirements
set forth in clauses (D), (E), and (F) below, in which case shares of the
common stock of the corporation or other entity (herein called a "Parent")
which directly or indirectly controls the Acquiring Company if it meets the
requirements set forth in clauses (D), (E), and (F) below, at a conversion
price per share equal to the lesser of (1) the Conversion Price in effect
immediately prior to the Consummation Date multiplied by a fraction the
numerator of which is the market price per share (determined in the same
manner as

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provided in the definition of Fair Market Price) of the Acquirer's Common
Stock or the Parent's common stock or equivalent equity security, as the
case may be, immediately prior to the Consummation Date and the denominator
of which is the Fair Market Price immediately prior to the Consummation
Date, or (2) the market price per share (as so determined) of the
Acquirer's Common Stock or the Parent's common stock or equivalent equity
security, as the case may be, immediately prior to the Consummation Date
(subject in each case to adjustments from and after the Consummation Date
as nearly equivalent as possible to the adjustments provided for in this
Section 10),

or at the election of the holder of Series B Units pursuant to notice given to
the Company on or before the later of (1) the 30th day following the
Consummation Date, and (2) the 60th day following the date of delivery or
mailing to such holder of the last proxy statement relating to the vote on the
Transaction by the holders of the Common Units,

(B) shall be entitled to receive, and such Series B Units shall
thereafter be convertible into, in lieu of the Common Units issuable upon
such conversion prior to the Consummation Date, the highest amount of
securities or other property to which such holder would actually have been
entitled as a holder of Common Units upon the consummation of the
Transaction if such holder had converted such holder's Series B Units
immediately prior thereto (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to the adjustments
provided for in this Section 10), provided that if a purchase, tender or
exchange offer shall have been made to and accepted by the holders of more
than 50% of the outstanding Common Units, and if the holder of Series B
Units so designates in such notice given to the Company, the holder of
Series B Units shall be entitled to receive in lieu thereof, the highest
amount of securities or other property to which such holder would actually
have been entitled as a holder of Common Units if such holder had converted
the Series B Units prior to the expiration of such purchase, tender or
exchange offer and accepted such offer (subject to adjustments from and
after the consummation of such purchase, tender or exchange offer as nearly
equivalent as possible to the adjustments provided for in this Section 10),

or, if neither the Acquiring Company nor the Parent meets the requirements set
forth in clauses (D), (E), and (F) below, at the election of the holder of
Series B Units pursuant to notice given to the Company on or before the later of
(1) the 30th day following the Consummation Date, and (2) the 60th day following
the date of delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the Common Units,

(C) shall be entitled to receive, within 15 days after such election,
in full satisfaction of the conversion rights afforded to such holder under
this Section 10, an amount in cash equal to the fair market value of such
conversion rights as of the Consummation Date, as determined by an
independent investment banker (with an established national reputation as a
valuer of equity securities) selected by the Managing General Partner, with
the written approval of the holders of Series B Units representing 51% or
more of the aggregate Stated Value of the then outstanding Series B Units,
such fair market value to be determined with regard to all material
relevant factors (including without limitation the holder's right to
receive the consideration described in paragraphs (A) and (B) above,
including the provisos thereto, if applicable) but without regard to the
effects on such value of the Transaction.

The Company agrees to obtain, and deliver to each holder of Series B Units a
copy of, the determination of the independent investment banker (selected and
approved as provided above) necessary for the valuation under clause (C) above
within 15 days after the Consummation Date of any Transaction to which clause
(C) is applicable.

The requirements referred to above in the case of the Acquiring Company or
its Parent are that immediately after the Consummation Date:

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<PAGE> 132

or any successor thereto or comparable system, and such common stock (or
equivalent equity security) continues to meet such requirements for such
listing or quotation;

(E) it is required to file, and in each of its three fiscal years
immediately preceding the Consummation Date has filed, reports with the
Securities and Exchange Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended; and

(F) in the case of the Parent, such Parent is required to include the
Acquiring Company in the consolidated financial statements contained in the
Parent's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission and is not itself included in the consolidated
financial statements of any other Person (other than its consolidated
subsidiaries).

Notwithstanding anything contained herein to the contrary, the Company shall not
effect any Transaction unless prior to the consummation thereof each corporation
or entity (other than the Company) which may be required to deliver any
securities or other property upon the conversion of Series B Units, the
surrender of Series B Units, or the satisfaction of conversion rights as
provided herein shall assume, by written instrument delivered to each holder of
Series B Units, the obligation to deliver to such holder such securities or
other property to which, in accordance with the foregoing provisions, such
holder may be entitled, and such corporation or entity shall have similarly
delivered to each holder of Series B Units an opinion of counsel for such
corporation or entity, satisfactory to the holders of Series B Units
representing not less than 51% of the aggregate Stated Value of the then
outstanding Series B Units, which opinion shall state that Series B Units,
including, without limitation, the conversion provisions applicable to Series B
Units, shall thereafter continue in full force and effect and shall be
enforceable against such corporation or entity in accordance with the terms
hereof, together with such other matters as such holder may reasonably request.

Notwithstanding any of the foregoing provisions of this subsection (i), in
connection with any Transaction, each holder of Series B Units, at its election,
pursuant to notice given to the Company on or before the later of (1) the 30th
day following the Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement relating to the
vote on the Transaction by the holders of the Common Units, shall be entitled to
receive, and such Series B Units shall thereafter be convertible into, in lieu
of the Common Units issuable upon such conversion prior to the Consummation
Date, an amount in cash equal to the aggregate Stated Value of such Series B
Units plus the amount of accrued and unpaid distributions thereon for all
distribution payment periods ending on or prior to the date on which such cash
payment is received by the holder and for the partial distribution period
beginning on the date immediately following the most recent Distribution Payment
Date through and including the date of such receipt.

(j) Upon the occurrence of any event requiring an adjustment of the
Conversion Price, then and in each such case the Company shall promptly deliver
to each holder of Series B Units an officer's certificate stating the Conversion
Price resulting from such adjustment and the increase or decrease, if any, in
the number of Common Units issuable upon conversion of each Series B Unit,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. If, within 10 days of receipt of any such
officer's certificate, the holders of Series B Units representing not less than
51% of the aggregate Stated Value of the then outstanding Series B Units shall
notify the Managing General Partner in writing of their objection to such
calculations, then, within 30 days after receipt of such notice from such
holders, the Company will obtain and deliver to each holder of Series B Units
the opinion of its regular independent auditors or another firm of independent
public accountants of recognized national standing selected by the Managing
General Partner who are satisfactory to the holders of Series B Units
representing not less than 51% of the aggregate Stated Value of the outstanding
Series B Units, which opinion shall confirm the statements and calculations in
such officer's certificate. It is understood and agreed that the independent
public accountants rendering any such opinion shall be entitled expressly to
assume in such opinion the accuracy of any determination of Fair Market Price,
or of the fair market value of conversion rights, made by an independent
investment banker in accordance with this Section 10.

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merger of the Company with, or sale of all or substantially all its assets to,
another partnership, corporation or other entity; (iii) there shall be a
voluntary or involuntary dissolution, liquidation, or winding-up of the Company;
or (iv) there shall be any other Transaction, then, in any one or more of such
cases, the Company shall give to all holders of Series B Units (a) at least 30
days prior to any event referred to in clause (i), (ii) or (iii) above, and
within five business days after it has knowledge of any pending Transaction,
written notice of the date on which the books of the Company shall close or a
record shall be taken for such distribution or Rights Offering or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, or Transaction and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation,
winding-up, or Transaction known to the Company, at least 30 days prior written
notice of the date (or, if not then known, a reasonable approximation thereof by
the Company) when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such distribution or
Rights Offering, the date on which the holders of Common Units shall be entitled
thereto, and such notice in accordance with the foregoing clause (b) shall also
specify the date on which the holders of Common Units shall be entitled to
exchange their Common Units for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, or Transaction, as the case may be. Such notice shall
also state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933, as
amended, or to a favorable vote of security holders, if either is required.

(l) No fractional Common Units shall be issued in connection with any
conversion hereunder, but in lieu of such fractional Common Units, the Company
shall make a cash payment therefor upon the basis of the Conversion Price then
in effect.

(m) For purposes of this Section 10, the following definitions shall apply:

(i) "Additional Common Units" shall mean all Common Units of the
Company issued or to be issued by the Company after the Initial Issuance
Date, except Common Units which have been or may be issued upon conversion
of the Series B Units, the Series C Units and the other convertible
securities, convertible instruments, warrants, options and rights
outstanding on the Initial Issuance Date referred to in subsection (c) of
this Section 10.

(ii) "Common Unit Equivalent" shall mean any convertible security or
any warrant, option or other right to subscribe for or purchase any
Additional Common Units or any such convertible security. The term
"convertible security" means any evidence of indebtedness, limited
partnership unit or other security that is convertible into or exchangeable
for Additional Common Units.

(iii) "Common Units" shall be deemed to include the Common Units and
any other Junior Securities the issuance of which would have any dilutive
effect on the value of the Common Units issuable upon conversion of the
Series B Units.

(iv) For purposes of any computation under this Section 10, the "Fair
Market Price" per Common Unit on any date shall be deemed to be (1) the
average of the daily last reported sale prices of the Common Units for the
20 consecutive Business Days commencing 25 Business Days before such date,
as reported on the principal national securities exchange on which the
Common Units are then listed, or if the Common Units are not then listed on
a national securities exchange, the average of the daily last reported sale
prices for such Business Days on the Nasdaq National Market System or in
the over-the-counter market as reported by Nasdaq, (2) if last sale prices
are not reported for the Common Units, the average of the daily closing bid
and asked prices on such Business Days as so reported or (3) if no last
sale prices or bid and asked prices are publicly reported, the Fair Market
Price of a Common Unit shall be determined by an independent investment
banker (with an established national reputation as a valuer of equity
securities) selected by the Managing General Partner, with the written
approval of the holders of Series B Units representing not less than 51% of
the aggregate Stated Value of the then outstanding Series B Units.

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Section 11. Rights Offerings.

(a) If the Company, at any time while any of the Series B Units are
outstanding, shall distribute pro rata to holders of Common Units any warrants
or other rights ("Rights") to purchase Additional Common Units (a "Rights
Offering"), the holder of each Series B Unit shall receive the number of Rights
that such holder would have been entitled to receive in connection with the
Rights Offering if the holder had converted the Series B Unit into Common Units
in accordance with Section 10, at the then current Conversion Price and Stated
Value, immediately prior to the record date for distribution of the Rights (or
if no record date is established, prior to the date on which the Rights Offering
otherwise commences). Holders of Series B Units shall receive Rights as provided
in the preceding sentence whether or not such holders are at such time entitled
to convert their Series B Units into Common Units pursuant to Section 10.
Holders of Series B Units shall have the right to exercise such Rights
(including any step-up or over-subscription privileges) as fully as any other
recipient thereof, without the necessity of converting any Series B Units into
Common Units.

(b) Subject to compliance with subparagraph (a), the distribution of Common
Units pursuant to any Rights Offering shall not trigger any adjustment of the
Conversion Price pursuant to the terms of Section 10(h) hereof.

(c) The Company shall not commence or conduct more than one Rights Offering
in any 12-month period nor more than two Rights Offerings within the four-year
period following completion of the Restructuring, as defined in Paragraph 10(a)
of the Note Purchase Agreement. The exercise price of any Rights (as initially
distributed or subsequently amended) shall not be less than 66 2/3% of the
Conversion Price in effect at the time of distribution of such Rights. The
Company shall not, while any Series B Units are outstanding, commence or conduct
Rights Offerings that result in, or are likely to result in, aggregate cash
proceeds to the Company from all such Rights Offerings in excess of $7.5
million. The Company shall provide reports to the holders of Series B Units on a
regular basis for the duration of the period during which Rights may be
exercised, but in any event no less frequently than weekly, setting forth the
number of Rights exercised during the periods covered by such reports and
cumulatively from the date of commencement of the Rights Offering (separately
identifying Rights that have been exercised by the Company or its Affiliates).

(d) If any Rights distributed by the Company are transferable, the Company
shall have an assignable right of first refusal to purchase Rights proposed to
be sold, assigned, transferred or otherwise disposed of ("transferred") by a
holder of Series B Units in certain circumstances, as follows:

(i) The Company's right of first refusal provided herein shall be
applicable only with respect to proposed transfers of Rights by the Banks,
which are the initial holders of Series B Units, and shall not be
applicable with respect to proposed transfers of Rights by the Banks to any
of their respective Affiliates. In the event of a transfer to such an
Affiliate, the Affiliate shall receive and hold the Rights subject to the
terms and provisions of this Section 11(d).

(ii) If either Bank desires to transfer all or any part of its Rights,
other than to an Affiliate, the Bank shall give written notice to the
Managing General Partner of its intention to transfer all or a specified
part of its Rights (which notice shall set forth in reasonable detail the
terms and provisions of the proposed transfer) and shall by such notice
offer such Rights for sale to the Company at the aggregate purchase price
offered by a bona fide third party purchaser. The Company, at its option
within 20 days after delivery of such notice of intention, shall have the
right to purchase all, but not less than all, of the Rights being offered
at the specified price and shall give written notice to such Bank within
such 20-day period of the exercise of its right to purchase all such
Rights.

(iii) If the Company does not elect to purchase all the Rights
proposed to be transferred by a Bank, the Bank shall then be free to
transfer the Rights to the third party, at the price previously specified
to the Managing General Partner, at any time within 90 days after the
expiration of the 20-day period referred to in paragraph (ii) above. If
such transfer is not completed within that 90-day period, the Rights will
again be subject to the terms and provisions of this subsection (d).

(iv) If the Company elects to purchase all the Rights proposed to be
transferred by a Bank, the Bank shall, within 10 days after receipt of
written notice from the Managing General Partner of the

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exercise by the Company of its right to purchase, deliver the certificate
or certificates representing the Rights to be sold at the principal place
of business of the Managing General Partner, duly endorsed for transfer or
accompanied by appropriate transfer documents. The Company shall,
simultaneously with the delivery of the Rights to the principal place of
business of the Managing General Partner, pay to the Bank in cash at such
principal place of business the specified price of the Rights being
purchased.

(v) Any attempted transfer of Rights without compliance with the terms
of this subsection (d) shall be invalid and of no effect, and the Company
shall have the right to compel the holder or the purported transferee to
transfer and deliver the same to the Company in accordance herewith, in
which event the price payable by the Company for such Rights shall be the
price paid or that was to have been paid by the purported transferee.

(e) The Company and the Managing General Partner will use their reasonable
best efforts to cause an active trading market to be established and maintained
for any Rights distributed by it and to engage an independent investment banker
(with an established national reputation) to serve as a "standby" underwriter to
support any Rights Offering by agreeing to purchase from the Company any Common
Units offered in the Rights Offering and not subscribed for.

Section 12. Registration Rights and Transfer Restrictions. Holders of
Series B Units have certain registration rights with respect to Common Units
issued upon the exercise of Series B Units, and the transfer of such Common
Units is subject to certain restrictions, all as set forth in that certain
Registration Rights and Transfer Restriction Agreement dated as of ,
1996 by and between the Company and the Banks.

Section 13. Record Holders. The Company and the Transfer Agent may deem and
treat the record holder of any Units as the true and lawful owner thereof for
all purposes.

Section 14. Notices. Except as otherwise expressly provided herein, all
notices required or permitted to be given hereunder shall be in writing, and all
notices hereunder shall be deemed to have been given upon the earlier of receipt
of such notice or three Business Days after the mailing of such notice if sent
by registered or certified mail, return receipt requested, with postage prepaid,
addressed: (a) if to the Company, to the offices of the Managing General Partner
at 1209 N. 4th, Abilene, Texas 79601 (Attention: Brad Stephens), fax no. (915)
676-8792, or other agent of the Company designated as permitted hereby; or (b)
if to any holder of the Series B Units, to such holder at the address of such
holder as listed in the record books of the Company (which shall include the
records of the Transfer Agent), or to such other address as the Company or
holder, as the case may be, shall have designated by notice similarly given. As
of the Initial Issuance Date, the Banks' addresses for notices are:

NationsBank of Texas, N.A.
901 Main Street
66th Floor
Dallas, Texas 75202
Fax no. (214) 508-0604
Attention: Jay T. Wampler, Vice President

with a copy to:

James W. McKellar
Thompson & Knight,
A Professional Corporation
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Fax no. (214) 969-1751

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and

Bank One, Texas, N.A.
1717 Main Street
Dallas, Texas 75201
Fax no. (214) 240-2740
Attention: Randall B. Durant, Vice President

with a copy to:

Robert N. Rule, Jr.
Gardere & Wynne
1601 Elm Street, 26th Floor
Dallas, Texas 75201
Fax no. (214) 999-4162

15. Successors and Transferees. The provisions applicable to Series B Units
shall bind and inure to the benefit of and be enforceable by the Company, the
respective successors to the Company and by any holder of Series B Units.

IN WITNESS WHEREOF, this Certificate has been executed by the Managing
General Partner, on behalf of the Company, by its as of the day
of , 199 .

PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its managing general partner

By:

------------------------------------
Name:
Title:

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CERTIFICATE OF DESIGNATIONS

SERIES C CUMULATIVE CONVERTIBLE PREFERRED UNITS

PRIDE COMPANIES, L.P.
---------------------

Pursuant to [Second Amended and Restated Agreement
of Limited Partnership
effective as of [ ]
---------------------

SERIES C CUMULATIVE CONVERTIBLE PREFERRED UNITS

Section 1. Number of Units and Designation. There is hereby established a
series of preferred limited partnership units of the Company with the
designation "Series C Cumulative Convertible Preferred Units" (herein referred
to as the "Series C Units" or the "Units"), which shall consist of a maximum of
15,850 Units, with a Stated Value per Unit of $1,000 (the "Stated Value").

Section 2. Definitions. In addition to the definitions set forth elsewhere
herein, the following terms shall have the meanings indicated:

"Business Day" means any day other than a Saturday, Sunday or a day on
which commercial banks in Dallas, Texas are required or authorized to
close.

"Common Units" means the common limited partnership units of the
Company issued or authorized for issuance pursuant to of the
Partnership Agreement.

"Funded Debt" of a Person on any date means, without duplication, (a)
any obligation of such Person for borrowed money; (b) any obligation of
such Person for the deferred purchase price of assets or services having a
final maturity of one or more than one year from the date such obligation
was originally incurred (or which is renewable or extendable at the option
of such Person to a maturity beyond one year from the date of incurrence
thereof), (c) the face amount of all letters of credit, bankers acceptances
or Mother similar facilities, whether drawn or undrawn, for which such
Person is the account party, (d) all

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"Initial Issuance Date" means the date on which the first issuance of
Series C Units occurs, whether such phrase is used in reference to Units
issued on such date or on any subsequent date.

"Junior Securities" means the Common Units and any other class or
series of equity of the Company ranking junior to the Series C Units as to
distributions or upon liquidation, dissolution or winding up, and the units
thereof.

"LOC Facility" means the letter of credit facility provided for in
Article III of the Credit Agreement.

"Managing General Partner" means the corporation or other entity
designated to serve as managing general partner of the Company pursuant to
the Partnership Agreement.

"Parity Securities" means any class or series of equity of the Company
ranking on a parity with the Series C Units as to distributions or upon
liquidation, dissolution or winding up, and the units thereof.

"Partnership Agreement" means that certain Second Amended and Restated
Agreement of Limited Partnership of Pride Companies, L.P., effective as of
, as such agreement may be amended.

"payable in kind" or "paid in kind," when used in reference to any
distribution payable with respect to the Units, means payment of the
distribution by issuance of that number (or fraction) of additional Series
C Units that has an aggregate Stated Value equal to the dollar amount of
the distribution then payable. Units issued as distributions payable in
kind shall be duly authorized and validly issued and, upon issuance, shall
have rights (including without limitation distribution, voting, conversion
and redemption rights) identical to the outstanding Series C Units in
respect of which they are issued.

"Person" means an any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization
or government or any department or agency thereof.

"Revolving Notes" has the meaning specified in Section 1.01 of the
Credit Agreement.

"Senior Securities" means any class or series of equity of the Company
ranking senior to the Series C Units as to distributions or upon
liquidation, dissolution or winding up, and the units thereof.

"Series A Notes" means the Convertible Senior Secured Series A
Promissory Notes of the Company in the aggregate initial principal amount
of $2,500,000 maturing November 30, 1997, issued

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pursuant to the Note Purchase Agreement and the unsecured promissory notes
into which the same shall have been converted in accordance with the Note
Purchase Agreement.

"Series B Units" means the Series B Cumulative Convertible Preferred
Units of the Company issued in accordance with Section of the Partnership
Agreement and the Certificate of Designations dated , 199
relating to such series. Series B Units are Parity Securities.

"SGP Agreement" means the Agreement of Pride SGP dated August 13,
1996, by and between the Special General Partner and the Company.

"Special General Partner" means Pride SGP, Inc., a Texas corporation,
or any successor in its capacity as special general partner of the Company.

"Term Loans" has the meaning specified in Section 4(e) hereof.

"Transfer Agent" means such agent or agents of the Company as may be
designated by the Managing General Partner as the transfer agent for the
Series C Units.

Section 3. Distributions.

(a) The Company shall pay to the holders of the Series C Units, out of the
assets of the Company at any time legally available for the payment of
distributions, preferential quarterly distributions at the times and at the
rates provided for in this Section 3. Distributions shall accrue cumulatively on
each Unit from and including the date of original issuance of such Unit to and
including the date on which such Unit shall have been converted into Common
Units or redeemed and the redemption price shall have been paid in full as
contemplated by Section 6 hereof, whether or not such distributions are declared
by the Company and whether or not there shall be (at the time such distribution
becomes payable or at any other time) profits, surplus or other funds of the
Company legally available for the payment of distributions.

(iii) thereafter, at the rate of 15% per annum of the Stated Value of
the Unit, payable in cash only.

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(f) So long as any Series C Units are outstanding:

(ii) No distribution, except as described in the next succeeding
sentence, shall be declared or paid, or set apart for payment on or in
respect of any Parity Securities, for any period unless full cumulative
distributions on all outstanding Series C Units have been or
contemporaneously are declared and paid for all distribution periods
terminating on or prior to the date set for payment of such distribution on
the Parity Securities. When distributions are not paid in full, as
aforesaid, on the Series C Units and any Parity Securities, all
distributions declared upon such Parity Securities shall be declared and
paid pro rata with the Series C Units so that the amounts of distributions
per unit declared and paid on the Series C Units and such Parity Securities
shall in all cases bear to each other the same ratio that unpaid cumulative
distributions per unit on the Series C Units and on such Parity Securities
bear to each other, and shall in all cases be paid to the same extent in
cash, other assets and/or securities of the same class as the securities on
which the respective distributions are being paid.

(iii) Unless full cumulative distributions on all outstanding Series C
Units have been paid (or contemporaneously are declared and paid) in cash
for all prior distribution periods (1) no rental payments shall be made to
the Special General Partner pursuant to the Pipeline Lease and (2) the
Special General Partner shall not declare or pay, or set apart for payment,
any dividend or distribution in respect of any of the outstanding
securities of the Special General Partner. If the Company shall have paid
any distributions on the Series C Units in kind, the condition specified in
the preceding sentence

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shall not be deemed to be satisfied unless all Units issued in payment of
such distributions have been redeemed by the Company for cash.

Section 4. Certain Covenants and Restrictions.

So long as any Series C Units are outstanding:

(c) The Company shall not effect any split, reverse split or any other
subdivision or combination of the Common Units or any other class or series of
equity securities of the Company.

(d) Neither the Company nor the Managing General Partner shall amend, alter
or rescind (whether by merger, consolidation or otherwise) any of the provisions
of the Partnership Agreement, this Certificate of Designations, the Articles of
Corporation, bylaws or other organizational document of the Managing General
Partner or any agreement entered into for the benefit of holders of Series C
Units in any manner so as to affect adversely any of the preferences, rights or
powers of the Series C Units.

(i) Funded Debt represented by the Series A Notes;

(ii) Funded Debt representing revolving credit debt not to exceed at
any time outstanding $10,000,000;

(iii) Funded Debt with respect to letters of credit necessary for the
normal conduct of the crude oil purchase and exchange business of the
Company;

(iv) Funded Debt in respect to other letters of credit, drawn or
undrawn, up to the amount of $5,000,000;

(v) Guaranty Liabilities of the Subsidiaries of the Company with
respect to the Funded Debt permitted hereby;

(vii) Funded Debt represented by the $450,000 Loan;

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(viii) Funded Debt under notes to finance insurance premiums over the
term of the applicable coverage period;

(xi) Funded Debt represented by that certain promissory note dated
November 30, 1994, made to Diamond Shamrock Refining and Marketing Company
in the original principal amount of $6,000,000;

(xii) Funded Debt with respect to the Pipeline Lease;

(g) All money, property or other consideration received by the Company or
any Subsidiary outside the ordinary course of business, including but not
limited to consideration for or in connection with the sale, lease, transfer or
other disposition of any assets or properties of the Company (other than the
sale of goods and services in the ordinary course of business), or any shares or
partnership interests in any Subsidiary (whether such interests are now or
hereafter issued, outstanding or created) but excluding consideration received
in connection with (A) the sale or disposition of any asset of the Company which
is sold for fair consideration not in excess of $25,000 or in the aggregate not
in excess of $250,000 (provided that to the extent consideration from any such
excluded sale or disposition is applied by the Company in accordance with this
Section 4(g), the amount of such consideration shall not reduce the $250,000
aggregate limitation) and (B) Litigation Settlements or Equity Offerings, shall
be applied (or converted into cash and then applied, if applicable) by the
Company (i) first to the repayment of principal and accrued interest outstanding
under the Term Loans, 50% to installments in order of maturity and 50% to
installments in inverse order of maturity, (ii) then to the repayment of
principal and accrued interest outstanding under the Series A Notes (whether or
not then due) until all principal and accrued interest under the Series A Notes
has been paid, and (iii) then to the redemption of outstanding Series B Units in
accordance with Section 6 hereof; provided, however, that if the creditor under
the Term Loans does not require the application described in clause (i) of this
paragraph, such funds shall be applied in the order provided in clauses (ii) and
(iii); and provided further, that funds applied to the redemption of Series B
Units as provided in clause (iii) shall be so applied with respect to the

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initial Stated Value of the Units being redeemed and any portion of the
Redemption Price of such Units attributable to adjustments to Stated Value shall
be paid out of other funds of the Company.

(j) The Company shall not at any time pay, or contact or agree to pay,
interest on the $450,000 Loan at a rate in excess of the cash distribution rate
then in effect with respect to the Series C Units pursuant to Section 3(b)
hereof, and the Company shall not pay any principal or interest on, or redeem,
purchase or otherwise acquire for any consideration (or pay to a sinking fund or
otherwise set apart any money, property or other consideration for such purchase
or redemption) the Subordinate Preferred Units or pay, provide or distribute to
the holders of the Subordinate Preferred Units, as such, any money, property,
rights or other consideration.

(l) The Company shall deliver to each holder of Series C Units one (1) copy
of each of the following:

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(ii) Annual Statements. As soon as available after each fiscal year
end, and in any event within 90 days thereafter, copies of the consolidated
balance sheet of the Company as of the close of such fiscal year and
statements of income and retained earnings and cash flows of the Company
for such fiscal year, in each case setting forth in comparative form the
figures for the preceding fiscal year, all in reasonable detail and
accompanied by an opinion thereon (which shall be without a "going concern"
or like qualification or exception) of Ernst & Young or of other
independent public accountants of recognized national standing selected by
the Company and satisfactory to the holders of Series C Units representing
51% or more of the aggregate Stated Value of the outstanding Series C
Units, to the effect that such consolidated financial statements have been
prepared in accordance with GAAP consistently maintained and applied
(except for changes in which such accountants concur) and that the
examination of such accounts in connection with such financial statements
has been made in accordance with generally accepted auditing standards and,
accordingly, includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances.

(iv) Other Information. Such other information concerning the
business, properties or financial condition of the Company as the holders
of Series C Units representing 51% or more of the aggregate Stated Value of
the outstanding Series C Units shall reasonably request.

Compliance by the Company with any covenant contained in this Section 4 may
be waived in writing by the holders of Series C Units representing 51% or more
of the aggregate Stated Value of the outstanding Series C Units. No such waiver
shall be deemed to be a continuing waiver nor a waiver with respect to any other
covenant of the Company or any other term, condition or provision hereof.

Section 5. Liquidation Preference.

(a) In the event of any liquidation, dissolution or winding up of the
Company (in connection with the bankruptcy or insolvency of the Company or
otherwise), whether voluntary or involuntary, before any payment or distribution
of the assets of the Company (whether capital or surplus) shall be made to or
set apart for the holders of Common Units or any other class or series of Junior
Securities, the holder of each Series C Unit shall be entitled to receive in
cash an amount equal to the Stated Value per Unit plus an amount equal to the
aggregate dollar amount of all accrued and unpaid distributions through the date
of final distribution to such holders (including a prorated distribution from
the most recent Distribution Payment Date to such date of final distribution).
No payment on account of any such liquidation, dissolution or winding up of the
Company shall be made to the holders of any class or series of Parity Securities
unless there shall be paid at the same time to the holders of the Series C Units
proportionate amounts in cash determined ratably in proportion to the full
amounts to which the holders of all outstanding Series C Units and the holders
of all such outstanding Parity Securities are respectively entitled with respect
to such distribution. For purposes of this Section 5, neither a consolidation or
merger of the Company with one or more partnerships, corporations

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or other entities nor a sale, lease, exchange or transfer of all or any part of
the Company's assets for cash, securities or other property shall be deemed to
be a liquidation, dissolution or winding up, voluntary or involuntary if (i) the
surviving entity in any such consolidation, merger, sale, lease, exchange or
transfer assumes in writing all the Company's obligations under this Certificate
of Designations, the Registration Rights and Transfer Restriction Agreement
referred to in Section 12 hereof, the SGP Agreement, and the Warrants to
Purchase Common Units, issued by the Company to each holder of Series B Units or
Series C Units and (ii) an agreement shall be entered into by such surviving
entity, or by its general partner or equivalent entity, and its shareholders
with the holders of the Series B and Series C Units substantially to the same
effect as that certain Voting Agreement dated as of , 1996 among the
Managing General Partner, NationsBank of Texas, N.A. and Bank One, Texas, N.A.
and the shareholders of the Managing General Partner.

(b) Subject to the rights of the holders of any class or series of Parity
Securities or Senior Securities, upon any liquidation, dissolution or winding up
of the Company, after payment shall have been made in full to the holders of
Series C Units, as provided in this Section 5, any class or series of Junior
Securities shall, subject to the respective terms and provisions (if any)
applicable thereto, be entitled to receive any and all assets remaining to be
paid or distributed, and the holders of Series C Units shall not be entitled to
share therein.

(c) Written notice of the commencement of any proceeding for or that may
result in any liquidation, dissolution or winding up of the Company shall be
given to holders of Series C Units in accordance with Section 10(k), but neither
the giving of such notice nor anything in this Section 5 or any other provision
hereof shall relieve the Company of its obligation to obtain consent from
holders of Units as provided in Section 9.

Section 6. Optional and Mandatory Redemption.

(a) The Company may, at the option of the Managing General Partner:

(i) redeem for cash at any time after the Series A Retirement Date,
from any source of funds legally available therefor, in whole or in part,
in the manner provided below any and all of the outstanding Series C Units
at a redemption price per Unit (the "Redemption Price") equal to the Stated
Value per Unit redeemed plus an amount in cash equal to the aggregate
dollar amount of all accrued and unpaid distributions through the
Redemption Date (including a prorated distribution from the most recent
Distribution Payment Date to the Redemption Date) that have not been added
to the Stated Value of such Units; or

(ii) redeem at any time after the Series A Retirement Date, in whole
or in part, in the manner provided below any and all of the outstanding
Series C Units in consideration of the payment and delivery to the holder
of each Series C Unit being redeemed a number of Common Units equal to the
number of Common Units that such Series C Unit, based on its then current
Stated Value (as adjusted to reflect any accrued and unpaid distributions
through the Redemption Date, including a prorated distribution from the
most recent Distribution Payment Date to the Redemption Date), would be
convertible at the Conversion Price (as defined below) then if effect,
whether or not such holder otherwise would have the right to effect such
conversion at such time pursuant to Section 10; provided, however, that the
Company shall not have the right to redeem any Series C Units for Common
Units as provided in this paragraph (ii): (A) if the Series A Notes have
theretofore been paid or collected after maturity or as a result of default
or (B) at any time when (1) the Company is in default with respect to any
of its obligations under or with respect to the Series A Notes or (2) the
Company has not paid in full in cash all accrued distributions on the
Series B Units (notwithstanding any right the Company may have had to pay
any such distributions in kind) or has failed to effect any mandatory
redemption of Series B Units.

"Redemption Date" means the date fixed by the Managing General Partner for
redemption. "Series A Retirement Date" means the date on which the Series A
Notes are repaid in full or converted by the holder(s) thereof in full into
Common Units.

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(b) The Company shall, at the Redemption Price and in the manner provided
in this Section 6, redeem for cash from any source of funds legally available
therefor, all Series C Units outstanding on the first to occur of:

(i) the date that is five years and three months after the Initial
Issuance Date;

(ii) the date that is 30 days after any default (a "Cross-Default") by
the Company in its obligations to make payments under or with respect to
any Funded Debt with an outstanding principal amount in excess of $500,000;
provided, however, that the Company need not effect such mandatory
redemption because of a Cross-Default if such Cross-Default is cured prior
to the end of such 30-day period to the satisfaction of the holders of
Series C Units representing 51% or more of the aggregate Stated Value of
the then outstanding Series C Units or the right to require the Company to
effect such redemption is waived in writing by the holders of 51% or more
in Stated Value (as adjusted, if applicable) of the Series C Units; no such
waiver shall be deemed to be a continuing waiver nor a waiver with respect
to any other or subsequent Cross-Default;

(iii) the date that is 30 days after any failure by the Company to pay
in full in cash on any Distribution Payment Date any distribution payable
only in cash on such Distribution Payment Date; or

(iv) the date that is 30 days after any default or failure of
compliance by the Company with any covenant or restriction contained in
Section 3(f) or Section 4 hereof, unless such default or failure of
compliance is cured prior to the end of such 30-day period to the
satisfaction of the holders of Series C Units representing 51% or more of
the aggregate Stated Value of the then outstanding Series C Units; or

(v) the Business Day immediately preceding any Change in Control of
the Company. For this purpose, a "Change in Control" means (1) a change in
the direct or indirect power to direct or cause the direction of the
management and policies of the Company, the Managing General Partner or the
Special General Partner, whether through the ownership of voting
securities, by contract or otherwise, or to elect a majority of any of such
entities' Boards of Directors or equivalent governing bodies; (2) any
reorganization, reclassification or change in any outstanding securities of
the Company; (3) the Company's consolidation or merger with or into another
partnership, corporation or other entity; (4) the sale, lease or other
transfer of the property of the Company as an entirety or substantially as
an entirety; (5) the termination of the SGP Guarantee or of the pledge of
all of the Special General Partner's assets securing its obligations
thereunder, or any event or circumstance as a result of which the SGP
Guarantee or such pledge shall no longer be in full force and effect; or
(6) the redemption, purchase or other acquisition by the Special General
Partner for any consideration any of the Special General Partner's
outstanding securities (or the payment of any money to a sinking fund or
the setting apart of any money, property or other consideration for the
purchase or redemption of any such securities) or the payment, provision or
distribution to the holders of any of its outstanding securities, as such,
any money, property, rights or other consideration, other than ordinary pro
rata dividends to all holders of a class of such outstanding securities;
provided, however, that in the case of clause (2), (3) or (4) of this
sentence, any reorganization, reclassification, change, consolidation,
merger, sale or transfer that has been approved by the holders of Series C
Units representing 51% or more of the aggregate Stated Value of the then
outstanding Series C Units in accordance with Section 9(b) shall not
constitute a Change in Control.

If there are insufficient legally available funds for redemption under this
subsection (b), the Company shall redeem such lesser number of Series C Units
(on a pro rata basis from all holders of Series C Units, in proportion to the
number of Units held), to the extent there are funds legally available therefor,
and shall redeem all or part of the remainder of the Series C Units as soon as
the Company has sufficient funds that are legally available therefor. If the
redemption is delayed because of insufficient legally available funds,
distributions shall continue to accrue on Series C Units outstanding, and shall
be added to and become a part

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of the Redemption Price of such Units, until the Redemption Price, as so
adjusted, for such Units is paid in full.

(d) In connection with any optional or mandatory redemption of Units, at
least 20 days and not more than 60 days prior to the Redemption Date, written
notice (the "Redemption Notice") shall be sent simultaneously by certified mail,
return receipt requested, and by telecopy to each holder of record of the Series
C Units at the post office address last shown on the records of the Company for
such holder. The Redemption Notice shall state:

(i) whether all or less than all the outstanding Series C Units are to
be redeemed and the total number of Series C Units being redeemed;

(ii) the number of Series C Units held by the holder that the Company
intends to redeem;

(iii) the Redemption Date and the Redemption Price;

(iv) that the holder is to surrender to the Company, in the manner and
at the place designated, the certificate or certificates representing the
Series C Units to be redeemed; and

(v) that an Escrow Account as described in the following paragraph has
been established at a bank specified in the Redemption Notice.

Not later than the date on which a Redemption Notice is mailed by the
Company, the Company shall deposit in an escrow account (the "Escrow Account")
for the pro rata benefit of the holders of the Units to be redeemed the funds
necessary for such redemption with a bank or trust company having capital and
surplus of at least $500 million and approved in writing by the holders of
Series C Units representing 51% or more of the aggregate Stated Value of the
then outstanding Series C Units (the "Escrow Agent"). Any such funds (i) that
represent the Redemption Price of Units converted into Common Units pursuant to
Section 10 prior to the applicable Redemption Date or (ii) that are unclaimed at
the end of two years after the applicable Redemption Date shall revert to the
general funds of the Company and, upon such reversion, the Escrow Agent shall,
upon demand, pay such funds over to the Company and be relieved of all
responsibility in respect thereof and any holder of Units entitled to receive
any of such funds shall thereafter look only to the Company for the payment of
the Redemption Price. Any interest on funds included in the Escrow Account shall
be for the account of the Company. The failure to establish the Escrow Account
by the date specified in this paragraph shall cause the Redemption Notice that
required such Escrow Account to have been established to be ineffective, and the
Company shall not have any right to redeem any Units pursuant to such Redemption
Notice. Such failure shall not relieve the Company of any obligation to effect a
mandatory redemption of Units.

On or before the Redemption Date each holder of Series C Units shall
surrender to the Company the certificate or certificates representing such Units
to be redeemed, in the manner and at the place designated in the Redemption
Notice, and thereupon the Redemption Price for such Units shall be payable in
cash on the Redemption Date to the Person whose name appears on such certificate
or certificates as the owner thereof, and each surrendered certificate shall be
cancelled and retired. In the event that less than all Units represented by any
such certificate are redeemed, a new certificate shall be issued representing
the unredeemed Units.

In the event of a redemption of only a portion of the then outstanding
Series C Units, the Company shall effect such redemption pro rata according to
the number of Units held by each holder.

Unless the Company defaults in the payment in full of the Redemption Price,
distributions on the Series C Units called for redemption shall cease to
accumulate on the Redemption Date, and the holders of

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such Units redeemed shall cease to have any further rights with respect thereto
on the Redemption Date, other than to receive the Redemption Price without
interest.

Holders of all Series C Units shall have the right at any time from and
after the date on which the Company calls any Series C Units for redemption and
prior to the Redemption Date for such Units to convert all or any part of the
outstanding Units held by them into Common Units at the Conversion Price (as
defined in Section 10), notwithstanding anything herein to the contrary, and
whether or not such holders otherwise would have the right to effect such
conversion at such time pursuant to Section 10.

Section 8. Ranking.

(a) No equity securities of the Company shall rank senior to the Series C
Units with respect to the payments required or permitted to be made to the
holders thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series C Units pursuant hereto.
The Company shall not issue any debt security (except as permitted by Section
4(e)).

(b) The following equity securities of the Company, and no others, shall
rank on a parity with the Series C Units with respect to the payments required
or permitted to be made to the holders thereof pursuant to their respective
governing instruments and the payments required to be made to holders of the
Series C Units pursuant hereto: the Series B Units.

(c) Without limiting the definition of "Junior Securities" contained in
Section 2, the following equity securities of the Company shall rank junior to
the Series C Units with respect to the payments required or permitted to be made
to the holders thereof pursuant to their respective governing instruments and
the payments required to be made to holders of the Series C Units pursuant
hereto: the Subordinate Preferred Units and the Common Units.

Section 9. Voting.

(a) So long as any Series C Units remain outstanding, the Company will not,
without the affirmative vote at a meeting, or by written consent with or without
a meeting, of the holders Series B and Series C Units representing two-thirds or
more of the aggregate Stated Value of the then outstanding Series B and Series C
Units, voting as one class, (i) create, authorize, issue or reissue any class or
series of Senior Securities, or any units of any such class or series, or (ii)
amend, alter or rescind (whether by merger, consolidation or otherwise) any of
the provisions of the Partnership Agreement, the Certificate of Designations of
the Series B Units or the Certificate of Designations of the Series C Units that
prescribe the terms and conditions of the Series B or Series C Units; provided,
however, that any proposed amendment, alteration or rescission of any provision
of the Partnership Agreement or of the Certificate of Designations of the Series
B or Series C Units, as contemplated by clause (ii) of this sentence, shall
require the approval of the holders of Series B Units and the holders of Series
C Units representing two-thirds or more of the aggregate Stated Value of the
then outstanding Series B Units and Series C Units, respectively, each voting as
a separate class.

(b) So long as any Series C Units remain outstanding, the Company will not,
without the affirmative vote at a meeting, or by written consent with or without
a meeting, of the holders Series B and Series C Units representing 51% or more
of the aggregate Stated Value of the then outstanding Series B and Series C
Units, voting as one class, (i) create, authorize, issue or reissue any class or
series of Parity Securities, or any units of any such class or series, including
without limitation any authorized but unissued Series B or Series C Units (other
than Series B or Series C Units issued as distributions in kind to the existing
holders thereof in accordance with their respective Certificates of
Designations); (ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the Certificate
of Designations of the Series B Units or the Certificate of Designations of the
Series C Units that set forth the restrictions and covenants of the Company
(including without limitation restrictions regarding capital

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expenditures, issuance of Funded Debt and payment of distributions to holders of
Parity Securities or Junior Securities) that benefit or protect the rights of
holders of the Series B or Series C Units; (iii) commence any voluntary
proceeding (under bankruptcy, insolvency or similar laws or otherwise) for or
that may result in the liquidation, dissolution or winding up of the Company,
consent to the entry of an order for relief in an involuntary proceeding under
any federal or state bankruptcy, insolvency or similar laws or to the
appointment of a receiver, liquidator, assignee, custodian, trustee or other
similar official of the Company or of any substantive part of its properties, or
make an assignment for the benefit of its creditors or admit in writing its
inability to pay its debts generally as they become due; or (iv) reorganize,
reclassify or change any outstanding securities, consolidate or merge with or
into another partnership, corporation or other entity or sell or transfer the
property of the Company as an entirety or substantially as an entirety.

(c) In addition, if the Initial Issuance Date and the date on which Series
C Units are first issued shall not have occurred by March 31, 1998, the
Partnership Agreement shall be deemed to be amended to provide that the vote
necessary to remove or replace the Managing General Partner of the Company shall
be 51% of all outstanding limited partnership units of the Company, including
the Series A Notes, the Series B Units and the Series C Units, voting as a
single class. For purposes of such vote, the holder of each Series A Note,
Series B Unit or Series C Unit shall be entitled to the same number of votes as
the holder of a number of Common Units equivalent to the number of Common Units
into which such Series A Note, Series B Unit or Series C Unit is convertible at
the Conversion Price then in effect (whether or not such holder has the right to
effect such conversion at such time). [This must be reflected in a current
amendment to the Partnership Agreement.]

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sentence, shall nominate a replacement director, and the shareholders of the
Managing General Partner shall be obligated to elect such replacement, in
accordance with the procedures outlined in this Section 9(d). The shareholders
of the Managing General Partner shall also use their best efforts to cause the
removal of any Series B and C Director if requested to do so by the holders of
Series B and Series C Units representing 51% or more of the aggregate Stated
Value of the then outstanding Series B and Series C Units, treated as a single
class (or of the then outstanding Series B Units or Series C Units, as
applicable, if such Series B and C Directors were nominated by the holders of
one such series), and, upon such removal, the resulting vacancy shall be filled
as provided in the preceding sentence.

The charter and bylaws of the Managing General Partner, as amended prior to
the Initial Issuance Date, contain provisions that authorize and require the
election of the Series B and C Directors in the circumstances and at the times
described in this subsection (c), and so long as any Series C Units are
outstanding, the Managing General Partner shall not adopt, approve or permit any
rescission, amendment or modification of such provisions or adopt, approve or
permit the enactment or any other provisions inconsistent therewith. If a
meeting of the voting shareholders of the Managing General Partner (if such
meeting is required to elect the Series B and C Directors) is not called and
held immediately upon the occurrence of any circumstance requiring the election
of the Series B and C Directors, or if at any time a vacancy shall exist in the
office of a Series B and C Director previously elected, the holders of
outstanding Series B and Series C Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series B and Series C Units (or
of the affected Series, as the case may be) shall be entitled (without limiting
any other rights or remedies that may be available to such holders), by written
notice to the Secretary of the Managing General Partner, to require a proper
officer of the Managing General Partner to call a special meeting for the
purpose of electing the Series B and C Director or Directors. Any such meeting
shall be held at the earliest practicable date, and in any event no later than
20 days after the notice referred to in the preceding sentence is given to the
Secretary of the Managing General Partner. [Separate voting agreement with
shareholders of MGP also will be executed.]

(e) Except as expressly set forth herein or in the Partnership Agreement or
as required by applicable law, holders of Series C Units shall not have any
right to vote on any question presented to the holders of voting securities of
the Company.

Section 10. Conversion Rights.

(a) Each Series C Unit shall be convertible at the option of the holder
thereof into fully paid Common Units at any time during the Conversion Period;
provided that the frequency of conversions shall be subject to the limitations
set forth in Section 6B(v) of the Note Purchase Agreement. The number of Common
Units deliverable upon conversion of one Series C Unit shall be determined by
dividing the Stated Value of the Series C Unit by the Conversion Price (as
defined below) then in effect. The "Conversion Period" shall commence on the
earlier to occur of (i) the date the last remaining outstanding principal amount
of the Series A Note is paid or converted into Common Units or (ii) the date on
which the Series A Conversion

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Period (as defined in Paragraph 10A of the Note Purchase Agreement Commences,
and shall end on the date on which all outstanding Series C Units have been
redeemed and the aggregate Redemption Price has been paid in full in accordance
with Section 6 hereof. The Conversion Period shall also commence on any date on
which the Company calls any Series C Units for redemption pursuant to Section 6.

(b) Conversion of any Series C Unit may be effected by the holder thereof
by the surrender of the certificate for such Unit to the Company at the
principal office of the Transfer Agent in the State of Texas or at the office of
any successor Transfer Agent for the Series C Units, or to such other agent or
agents of the Company as may be designated by the Managing General Partner. If
any Series C Units are called for redemption pursuant to a Redemption Notice in
accordance Section 6 hereof, such right of conversion shall cease and terminate
as to the Units called for redemption at the close of business on the Redemption
Date, unless the Company shall default in the payment of the Redemption Price
(in which event such conversion right shall remain in effect until full payment
of the Redemption Price has been made) or shall have failed to establish an
Escrow Account as required by Section 6 (in which event such call for redemption
shall be ineffective, as provided in Section 6, and such conversion right shall
be unaffected by such Redemption Notice).

(c) The price at which holders of Series C Units may acquire Common Units
pursuant to the conversion rights set forth in this Section 10 (the "Conversion
Price") initially shall be $ per Common Unit, which price has been
determined on the basis of the number of outstanding Common Units, on a fully
diluted basis, as of the Initial Issuance Date, so that if Series C Units had
been convertible and converted into Common Units on such date, the holders of
Series C Units representing an aggregate Stated Value of $1.0 million would have
received 2.0% of such outstanding Common Units, on a fully diluted basis, as of
such date. For this purpose, the number of outstanding Common Units, on a fully
diluted basis, includes (i) Common Units actually outstanding on the Initial
Issuance Date and (ii) Common Units into which all convertible securities,
convertible debt and other convertible instruments (including without limitation
the Series A Notes, the Series B and Series C Units, the $450,000 Loan and the
Subordinate Preferred Units) and all warrants, options or other rights to
acquire any Common Units of the Company issued and outstanding on the Initial
Issuance Date are convertible, exchangeable or exercisable (notwithstanding that
such conversion, exchange or exercise rights may not have been fully vested on
the Initial Issuance Date). The Conversion Price and Stated Value of the Units,
for purposes of conversion, are subject to adjustment as provided herein.

(d) The Stated Value of each Series C Unit, for purposes of conversion,
shall be $1,000 plus the amount of accrued and unpaid distributions for all
distribution payment periods ending on or prior to the date such Units are
surrendered to the Company for conversion and for the partial distribution
period beginning on the date immediately following the most recent Distribution
Payment Date through and including the date on which such Units are surrendered
for conversion. Notwithstanding the foregoing, holders of Series C Units
surrendered for conversion shall have the option to require the Company to make
payment in cash of all such accrued and unpaid distributions, in lieu of such
adjustment to the Stated Value, whether or not funds are legally available
therefor and whether or not declared.

(e) As promptly as practicable after the surrender of Series C Units for
conversion, the Company shall issue and deliver or cause to be issued and
delivered to the holder of such Units certificates representing the number of
Common Units into which such Series C Units have been converted in accordance
with the provisions of this Section 10. Subject to the following provisions of
this Section 10, such conversion shall be deemed to have been made as of the
close of business on the date on which the Series C Units shall have been
surrendered for conversion in the manner herein provided, so that the rights of
the holder of the Series C Units so surrendered shall cease at such time and the
Person or Persons entitled to receive the Common Units upon conversion thereof
shall be treated for all purposes as having become the record holder or holders
of such Common Units at such time; provided, however, that any such surrender on
any date when the unit transfer books of the Company are closed shall be deemed
to have been made, and shall be effective to terminate the rights of the holder
or holders of the Series C Units so surrendered for conversion and to constitute
the Person or Persons entitled to receive such Common Units as the record holder
or holders thereof for all purposes, at the opening of business on the next
succeeding day on which such transfer books are open and such conversion

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shall be at the Conversion Price in effect at such time. The Company will not at
any time close its transfer books against the transfer of any Series C Unit or
of any Common Unit issued or issuable upon the conversion of any Series C Unit
in any manner which interferes with the timely conversion of such Series C Unit.

(f) The Company shall not at any time limit the number of Common Units that
may be issued by the Company or take any other action that would impair the
Company's ability to issue Common Units sufficient to permit the conversion of
all outstanding Series C Units and the conversion, exchange or exercise of all
other securities and instruments convertible or exchangeable into or exercisable
for Common Units. The Company shall not, by amendment of its Partnership
Agreement or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Section 10 by the Company or any of the terms
of its Partnership Agreement which are applicable to Common Units issuable upon
conversion of the Series C Units, but will at all times in good faith assist in
the carrying out of all of the provisions of this Section 10 and in the taking
of all such other action as may reasonably be requested by any holder in order
to protect the conversion privilege and other rights of the Series C Units and
of the Common Units issuable upon conversion of the Series C Units against any
impairment.

(g) The Company covenants and agrees that all Common Units that may be
issued upon the exercise of the conversion rights of Series C Units will, upon
issuance, be fully paid, without any obligations to make additional capital
contributions to the Company, and free from all taxes, liens and charges with
respect to the issue thereof.

(h) The number and kind of securities purchasable upon the exercise of the
conversion rights of the Series C Units shall be subject to adjustment from time
to time upon the happening of certain events, as follows:

(i) If the Company, at any time while any of the Series C Units are
outstanding, shall subdivide or combine its Common Units, the Conversion
Price shall be proportionately reduced, in case of subdivision of units, as
of the effective date of such subdivision, or if the Company shall take a
record of holders of its Common Units for the purpose of so subdividing, as
of such record date, whichever is earlier, or shall be proportionately
increased, in the case of a combination of units, as of the effective date
of such combination or, if the Company shall take a record of holders of
its Common Units for the purpose of so combining, as of such record date,
whichever is earlier; provided, however, that nothing in this paragraph
shall be deemed to permit the Company to effect any such subdivision or
combination in violation of any other provision, including Section 4(c),
hereof.

(ii) If the Company at any time while any of the Series C Units are
outstanding shall:

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effect immediately prior to such date by a fraction (i) the numerator of
which shall be the total number of Common Units outstanding immediately
prior to such issuance or payment, and (ii) the denominator of which
shall be the total number of Common Units outstanding immediately after
such issuance or payment.

(iii) If the Company, at any time while any of the Series C Units are
outstanding and the Fair Market Price of the Common Units is less than or
equal to the Conversion Price, shall issue any Additional Common Units
(other than as provided in the foregoing paragraphs (i) and (ii) of this
subsection) at a price per unit less than the Conversion Price or without
consideration, then the Conversion Price upon each such issuance shall be
reduced (but never increased) to a price determined by multiplying the
existing Conversion Price by the following fraction, where O is the number
of Common Units outstanding, on a fully diluted basis, prior to such
issuance; N is the number of Additional Common Units being issued; P is the
amount of consideration received per unit by the Company in exchange for
issuance of such Additional Common Units; and C is the existing Conversion
Price:

O + (N X P divided by C)
------------------------
O + N

(iv) If the Company, at any time while any of the Series C Units are
outstanding and the Fair Market Price of the Common Units is greater than
the Conversion Price, shall issue any Additional Common Units (other than
as provided in paragraphs (i) and (ii) of this subsection) at a price per
unit that is less than Fair Market Price, then the Conversion Price upon
each such issuance shall be reduced (but never increased) to a price
determined by multiplying the existing Conversion Price by the following
fraction, where O, N and P have the meanings specified in paragraph (ii) of
this subsection (h) and M is the Fair Market Price:

O + (N X P divided by M)
------------------------
O + N

(v) If the Company at any time while any of the Series C Units are
outstanding shall issue any Common Unit Equivalents (as defined below) and
the price per unit for which Additional Common Units may be issuable
thereafter pursuant to such Common Unit Equivalents is less than the
Conversion Price, or less than the Fair Market Price but greater than the
Conversion Price, or if, after any such issuance, the price per unit for
which Additional Common Units may be issuable thereafter is amended and
such price as so amended is less than the Conversion Price, or less than
the Fair Market Price but greater than the Conversion Price, at the time of
such amendment, then the Conversion Price upon each such issuance or
amendment shall be adjusted as provided in paragraph (ii), (iii) or (iv) of
this subsection, as applicable, as if the underlying Additional Common
Units had been issued directly. The consideration for Additional Common
Units issuable pursuant to any Common Unit Equivalents shall be the
consideration received by the Company for issuing such Common Unit
Equivalents plus the additional consideration payable to the Company upon
the exercise, conversion or exchange of such Common Unit Equivalents. If
the Conversion Price is adjusted upon the issuance of Common Unit
Equivalents and such Common Unit Equivalents are thereafter cancelled
without having been converted or exercised, and without any Additional
Common Units having been issued in respect thereof, then the Conversion
Price shall be readjusted to the Conversion Price that would have been in
effect if such Common Unit Equivalents had never been issued. No adjustment
of the Conversion Price shall be made under paragraph (ii), (iii) or (iv)
of this subsection (h) upon the issuance of any Additional Common Units
that are issued pursuant to any Common Unit Equivalents if upon the
issuance of such Common Unit Equivalents adjustments shall previously have
been made pursuant to this paragraph (v) to the same extent as would have
been made under paragraph (ii), (iii) or (iv) if such Additional Common
Units had been issued directly.

(vi) No adjustment shall be made to the Conversion Price with respect
to the issuance of any Additional Common Units (or any Common Unit
Equivalents pursuant to which such Additional

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Common Units are issuable) at a price per unit that is greater than both
the Conversion Price and the Fair Market Price.

(vii) For purposes of making the adjustments in the Conversion Price
as provided in this Section 10(h), the consideration received by the
Company shall be deemed to be the following: to the extent that any
Additional Common Units or any Common Unit Equivalents shall be issued for
cash consideration, the consideration received by the Company therefor; if
such Additional Common Units or Common Unit Equivalents are offered by the
Company for subscription, the subscription price; if such Additional Common
Units or Common Unit Equivalents are sold to underwriters or dealers for
public offering, the initial public offering price, in any such case
excluding any amount received for accrued interest or accrued distributions
and without deduction of any commissions, discounts or expenses paid or
incurred by the Company in connection with the issue thereof; and to the
extent that such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the fair market value
of such consideration at the time of such issuance as determined in good
faith by the Managing General Partner of the Company. In the event of the
issuance at any time of any Additional Common Units or Common Unit
Equivalents in payment or satisfaction of any distribution upon any class
or series of units other than Common Units, the Company shall be deemed to
have received for such Additional Common Units or Common Unit Equivalents
consideration equal to the amount of such distribution so paid or
satisfied; provided, that nothing herein shall be deemed to permit the
Company to issue Common Units for such purpose under circumstances in which
such issuance is not otherwise permitted. In any case in which the
consideration to be received shall be other than cash, the Managing General
Partner shall notify each holder of Series C Units of its determination of
the fair market value of such consideration prior to accepting receipt
thereof. If, within 10 days of receipt of such notice, the holders of
Series C Units representing 51% or more of the aggregate Stated Value of
Series C Units then outstanding shall notify the Managing General Partner
in writing of their objection to such determination, a determination of the
fair market value of such consideration shall be made by an independent
investment banker (with an established national reputation) selected by the
Managing General Partner, with the written approval of the holders of
Series C Units representing 51% or more of the aggregate Stated Value of
the then outstanding Series C Units.

(viii) If any event occurs as to which, in the good faith judgment of
the holders of Series C Units representing 51% or more of the aggregate
Stated Value of the outstanding Series C Units, the other provisions of
this Section 10(h) are not strictly applicable or if strictly applicable
would not fairly protect the conversion rights of the holders of Series C
Units in accordance with the essential intent and principles of such
provisions, then the Managing General Partner shall appoint a firm of
independent public accountants (with an established national reputation)
who are satisfactory to the holders of Series C Units representing 51% or
more of the aggregate Stated Value of the then outstanding Series C Units
(which may be the Company's regular independent auditors) which shall give
their opinion upon the adjustment, if any, on a basis consistent with such
essential intent and principles, necessary to preserve, without dilution,
the rights of the holders of Series C Units. Upon receipt of such opinion,
the Managing General Partner shall forthwith make the adjustments described
therein; provided, that no such adjustment shall have the effect of
increasing the Conversion Price as otherwise determined pursuant to this
Section 10.

(ix) The Company may give notice to the holders that the proceeds of
certain Additional Common Units will be used to redeem all outstanding
Series C Units, which notice shall be given prior to the actual issuance of
such Additional Common Units. If such notice is given and such proceeds are
used for such purpose within 60 days after receipt thereof, such Additional
Common Units shall not be considered in determining an adjustment to the
Conversion Price under this Section 10(h) with respect to any Series C
Units which become subject to an election to convert after delivery of such
notice.

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in a noncorporate entity or other property (including cash) or any combination
of any of the foregoing or in which the Common Units cease to be a publicly
traded security either listed on the New York Stock Exchange or the American
Stock Exchange or quoted by the NASDAQ National Market System or any successor
thereto or comparable system (each such transaction being herein called the
"Transaction," the date of consummation of the Transaction being herein called
the "Consummation Date," the Company (in the case of a recapitalization of the
Common Units or any other such transaction in which the Company retains
substantially all its assets and survives as a limited partnership) or such
other corporation or entity (in each other case) being herein called the
"Acquiring Company," and the common stock (or equivalent equity interests) of
the Acquiring Company being herein called the "Acquirer's Common Stock"), then,
as a condition of the consummation of the Transaction, lawful and adequate
provisions shall be made so that the holder of Series C Units, upon the
conversion thereof at any time on or after the Consummation Date (but subject,
in the case of an election pursuant to clause (B) or (C) below, to the time
limitation hereinafter provided for such election),

(A) shall be entitled to receive, and such Series C Units shall
thereafter be convertible into, in lieu of the Common Units issuable upon
such conversion prior to the Consummation Date, shares of the Acquirer's
Common Stock, unless the Acquiring Company fails to meet the requirements
set forth in clauses (D), (E), and (F) below, in which case shares of the
common stock of the corporation or other entity (herein called a "Parent")
which directly or indirectly controls the Acquiring Company if it meets the
requirements set forth in clauses (D), (E), and (F) below, at a conversion
price per share equal to the lesser of (1) the Conversion Price in effect
immediately prior to the Consummation Date multiplied by a fraction the
numerator of which is the market price per share (determined in the same
manner as provided in the definition of Fair Market Price) of the
Acquirer's Common Stock or the Parent's common stock or equivalent equity
security, as the case may be, immediately prior to the Consummation Date
and the denominator of which is the Fair Market Price immediately prior to
the Consummation Date, or (2) the market price per share (as so determined)
of the Acquirer's Common Stock or the Parent's common stock or equivalent
equity security, as the case may be, immediately prior to the Consummation
Date (subject in each case to adjustments from and after the Consummation
Date as nearly equivalent as possible to the adjustments provided for in
this Section 10),

or at the election of the holder of Series C Units pursuant to notice given to
the Company on or before the later of (1) the 30th day following the
Consummation Date, and (2) the 60th day following the date of delivery or
mailing to such holder of the last proxy statement relating to the vote on the
Transaction by the holders of the Common Units,

(B) shall be entitled to receive, and such Series C Units shall
thereafter be convertible into, in lieu of the Common Units issuable upon
such conversion prior to the Consummation Date, the highest amount of
securities or other property to which such holder would actually have been
entitled as a holder of Common Units upon the consummation of the
Transaction if such holder had converted such holder's Series C Units
immediately prior thereto (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to the adjustments
provided for in this Section 10), provided that if a purchase, tender or
exchange offer shall have been made to and accepted by the holders of more
than 50% of the outstanding Common Units, and if the holder of Series C
Units so designates in such notice given to the Company, the holder of
Series C Units shall be entitled to receive in lieu thereof, the highest
amount of securities or other property to which such holder would actually
have been entitled as a holder of Common Units if such holder had converted
the Series C Units prior to the expiration of such purchase, tender or
exchange offer and accepted such offer (subject to adjustments from and
after the consummation of such purchase, tender or exchange offer as nearly
equivalent as possible to the adjustments provided for in this Section 10),

or, if neither the Acquiring Company nor the Parent meets the requirements set
forth in clauses (D), (E), and (F) below, at the election of the holder of
Series C Units pursuant to notice given to the Company on or before the later of
(1) the 30th day following the Consummation Date, and (2) the 60th day following
the date of delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the Common Units,

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(C) shall be entitled to receive, within 15 days after such election,
in full satisfaction of the conversion rights afforded to such holder under
this Section 10, an amount in cash equal to the fair market value of such
conversion rights as of the Consummation Date, as determined by an
independent investment banker (with an established national reputation as a
valuer of equity securities) selected by the Managing General Partner, with
the written approval of the holders of Series C Units representing 51% or
more of the aggregate Stated Value of the then outstanding Series C Units,
such fair market value to be determined with regard to all material
relevant factors (including without limitation the holder's right to
receive the consideration described in paragraphs (A) and (B) above,
including the provisos thereto, if applicable) but without regard to the
effects on such value of the Transaction.

The Company agrees to obtain, and deliver to each holder of Series C Units a
copy of, the determination of the independent investment banker (selected and
approved as provided above) necessary for the valuation under clause (C) above
within 15 days after the Consummation Date of any Transaction to which clause
(C) is applicable.

The requirements referred to above in the case of the Acquiring Company or
its Parent are that immediately after the Consummation Date:

(D) it is a solvent corporation organized under the laws of any state
of the United States of America having its common stock (or equivalent
equity security, if not a corporation) listed on the New York Stock
Exchange or the American Stock Exchange or quoted by the NASDAQ National
Market System or any successor thereto or comparable system, and such
common stock (or equivalent equity security) continues to meet such
requirements for such listing or quotation;

Notwithstanding anything contained herein to the contrary, the Company shall not
effect any Transaction unless prior to the consummation thereof each corporation
or entity (other than the Company) which may be required to deliver any
securities or other property upon the conversion of Series C Units, the
surrender of Series C Units, or the satisfaction of conversion rights as
provided herein shall assume, by written instrument delivered to each holder of
Series C Units, the obligation to deliver to such holder such securities or
other property to which, in accordance with the foregoing provisions, such
holder may be entitled, and such corporation or entity shall have similarly
delivered to each holder of Series C Units an opinion of counsel for such
corporation or entity, satisfactory to the holders of Series C Units
representing not less than 51% of the aggregate Stated Value of the then
outstanding Series C Units, which opinion shall state that Series C Units,
including, without limitation, the conversion provisions applicable to Series C
Units, shall thereafter continue in full force and effect and shall be
enforceable against such corporation or entity in accordance with the terms
hereof, together with such other matters as such holder may reasonably request.

Notwithstanding any of the foregoing provisions of this subsection (i), in
connection with any Transaction, each holder of Series C Units, at its election,
pursuant to notice given to the Company on or before the later of (1) the 30th
day following the Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement relating to the
vote on the Transaction by the holders of the Common Units, shall be entitled to
receive, and such Series C Units shall thereafter be convertible into, in lieu
of the Common Units issuable upon such conversion prior to the Consummation
Date, an amount in cash equal to the aggregate Stated Value of such Series C
Units plus the amount of accrued and unpaid distributions thereon for all
distribution payment periods ending on or prior to the date on which such cash
payment is received by the holder and for the partial distribution period
beginning on the date

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immediately following the most recent Distribution Payment Date through and
including the date of such receipt.

(j) Upon the occurrence of any event requiring an adjustment of the
Conversion Price, then and in each such case the Company shall promptly deliver
to each holder of Series C Units an officer's certificate stating the Conversion
Price resulting from such adjustment and the increase or decrease, if any, in
the number of Common Units issuable upon conversion of each Series C Unit,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. If, within 10 days of receipt of any such
officer's certificate, the holders of Series C Units representing not less than
51% of the aggregate Stated Value of the then outstanding Series C Units shall
notify the Managing General Partner in writing of their objection to such
calculations, then, within 30 days after receipt of such notice from such
holders, the Company will obtain and deliver to each holder of Series C Units
the opinion of its regular independent auditors or another firm of independent
public accountants of recognized national standing selected by the Managing
General Partner who are satisfactory to the holders of Series C Units
representing not less than 51% of the aggregate Stated Value of the outstanding
Series C Units, which opinion shall confirm the statements and calculations in
such officer's certificate. It is understood and agreed that the independent
public accountants rendering any such opinion shall be entitled expressly to
assume in such opinion the accuracy of any determination of Fair Market Price,
or of the fair market value of conversion rights, made by an independent
investment banker in accordance with this Section 10.

(k) If at any time (i) the Company shall commence any Rights Offering (as
defined in Section 11); (ii) there shall be any capital reorganization or
reclassification of the Common Units, or consolidation or merger of the Company
with, or sale of all or substantially all its assets to, another partnership,
corporation or other entity; (iii) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company; or (iv) there shall be
any other Transaction, then, in any one or more of such cases, the Company shall
give to all holders of Series C Units (a) at least 30 days prior to any event
referred to in clause (i), (ii) or (iii) above, and within five business days
after it has knowledge of any pending Transaction, written notice of the date on
which the books of the Company shall close or a record shall be taken for such
distribution or Rights Offering or for determining rights to vote in respect of
any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, winding-up, or Transaction and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, or Transaction known to the Company, at least 30 days
prior written notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such distribution or Rights Offering, the date on which the holders
of Common Units shall be entitled thereto, and such notice in accordance with
the foregoing clause (b) shall also specify the date on which the holders of
Common Units shall be entitled to exchange their Common Units for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, or
Transaction, as the case may be. Such notice shall also state that the action in
question or the record date is subject to the effectiveness of a registration
statement under the Securities Act of 1933, as amended, or to a favorable vote
of security holders, if either is required.

(m) For purposes of this Section 10, the following definitions shall apply:

(ii) "Common Unit Equivalent" shall mean any convertible security or
any warrant, option or other right to subscribe for or purchase any
Additional Common Units or any such convertible security. The

A-103
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term "convertible security" means any evidence of indebtedness, limited
partnership unit or other security that is convertible into or exchangeable
for Additional Common Units.

(iv) For purposes of any computation under this Section 10, the "Fair
Market Price" per Common Unit on any date shall be deemed to be (1) the
average of the daily last reported sale prices of the Common Units for the
20 consecutive Business Days commencing 25 Business Days before such date,
as reported on the principal national securities exchange on which the
Common Units are then listed, or if the Common Units are not then listed on
a national securities exchange, the average of the daily last reported sale
prices for such Business Days on the Nasdaq National Market System or in
the over-the-counter market as reported by Nasdaq, (2) if last sale prices
are not reported for the Common Units, the average of the daily closing bid
and asked prices on such Business Days as so reported or (3) if no last
sale prices or bid and asked prices are publicly reported, the Fair Market
Price of a Common Unit shall be determined by an independent investment
banker (with an established national reputation as a valuer of equity
securities) selected by the Managing General Partner, with the written
approval of the holders of Series C Units representing not less than 51% of
the aggregate Stated Value of the then outstanding Series C Units.

Section 11. Rights Offerings.

(a) If the Company, at any time while any of the Series C Units are
outstanding, shall distribute pro rata to holders of Common Units any warrants
or other rights ("Rights") to purchase Additional Common Units (a "Rights
Offering"), the holder of each Series C Unit shall receive the number of Rights
that such holder would have been entitled to receive in connection with the
Rights Offering if the holder had converted the Series C Unit into Common Units
in accordance with Section 10, at the then current Conversion Price and Stated
Value, immediately prior to the record date for distribution of the Rights (or
if no record date is established, prior to the date on which the Rights Offering
otherwise commences). Holders of Series C Units shall receive Rights as provided
in the preceding sentence whether or not such holders are at such time entitled
to convert their Series C Units into Common Units pursuant to Section 10.
Holders of Series C Units shall have the right to exercise such Rights
(including any step-up or over-subscription privileges) as fully as any other
recipient thereof, without the necessity of converting any Series C Units into
Common Units.

(c) The Company shall not commence or conduct more than one Rights Offering
in any 12-month period nor more than two Rights Offerings within the four-year
period following completion of the Restructuring, as defined in Paragraph 10(a)
of the Note Purchase Agreement. The exercise price of any Rights (as initially
distributed or subsequently amended) shall not be less than 66 2/3% of the
Conversion Price in effect at the time of distribution of such Rights. The
Company shall not, while any Series C Units are outstanding, commence or conduct
Rights Offerings that result in, or are likely to result in, aggregate cash
proceeds to the Company from all such Rights Offerings in excess of $7.5
million. The Company shall provide reports to the holders of Series C Units on a
regular basis for the duration of the period during which Rights may be
exercised, but in any event no less frequently than weekly, setting forth the
number of Rights exercised during the periods covered by such reports and
cumulatively from the date of commencement of the Rights Offering (separately
identifying Rights that have been exercised by the Company or its Affiliates).

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applicable with respect to proposed transfers of Rights by the Banks to any
of their respective Affiliates. In the event of a transfer to such an
Affiliate, the Affiliate shall receive and hold the Rights subject to the
terms and provisions of this Section 11(d).

(iv) If the Company elects to purchase all the Rights proposed to be
transferred by a Bank, the Bank shall, within 10 days after receipt of
written notice from the Managing General Partner of the exercise by the
Company of its right to purchase, deliver the certificate or certificates
representing the Rights to be sold at the principal place of business of
the Managing General Partner, duly endorsed for transfer or accompanied by
appropriate transfer documents. The Company shall, simultaneously with the
delivery of the Rights to the principal place of business of the Managing
General Partner, pay to the Bank in cash at such principal place of
business the specified price of the Rights being purchased.

Section 12. Registration Rights and Transfer Restrictions. Holders of
Series C Units have certain registration rights with respect to Common Units
issued upon the exercise of Series C Units, and the transfer of such Common
Units is subject to certain restrictions, all as set forth in that certain
Registration Rights and Transfer Restriction Agreement dated as of ,
1996 by and between the Company and the Banks.

Section 13. Record Holders. The Company and the Transfer Agent may deem and
treat the record holder of any Units as the true and lawful owner thereof for
all purposes.

Section 14. Notices. Except as otherwise expressly provided herein, all
notices required or permitted to be given hereunder shall be in writing, and all
notices hereunder shall be deemed to have been given upon the earlier of receipt
of such notice or three Business Days after the mailing of such notice if sent
by registered or certified mail, return receipt requested, with postage prepaid,
addressed: (a) if to the Company, to the offices of the Managing General Partner
at 1209 N. 4th, Abilene, Texas 79601 (Attention: Brad Stephens), fax no. (915)
676-8792, or other agent of the Company designated as permitted hereby; or (b)
if to any holder of the Series C Units, to such holder at the address of such
holder as listed in the record books of the Company (which shall include the
records of the Transfer Agent), or to such other address as the Company or
holder, as

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<PAGE> 160

the case may be, shall have designated by notice similarly given. As of the
Initial Issuance Date, the Banks' addresses for notices are:

NationsBank of Texas, N.A.
901 Main Street
66th Floor
Dallas, Texas 75202
Fax no. (214) 508-0604
Attention: Jay T. Wampler, Vice President

with a copy to:

James W. McKellar
Thompson & Knight,
A Professional Corporation
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Fax no. (214) 969-1751

and

Bank One, Texas, N.A.
1717 Main Street
Dallas, Texas 75201
Fax no. (214) 240-2740
Attention: Randall B. Durant, Vice President

with a copy to:

Robert N. Rule, Jr.
Gardere & Wynne
1601 Elm Street, 26th Floor
Dallas, Texas 75201
Fax no. (214) 999-4162

15. Successors and Transferees. The provisions applicable to Series C Units
shall bind and inure to the benefit of and be enforceable by the Company, the
respective successors to the Company and by any holder of Series C Units.

IN WITNESS WHEREOF, this Certificate has been executed by the Managing
General Partner, on behalf of the Company, by its as of the day
of , 199 .

PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its managing general partner

By:

------------------------------------
Name:
Title:

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<PAGE> 161

APPENDIX B
<PAGE> 162

October [ ], 1996

Board of Directors of
Pride Refining, Inc.

Gentlemen:

We have acted as your financial advisor in connection with the adoption of
certain amendments (the "Proposed Amendments") to the Agreement of Limited
Partnership of Pride Companies, L.P. (the "Partnership"), under which all of the
currently outstanding preferred and common units and their respective cumulative
distribution arrearages will be changed into a single class of limited partner
units of the Partnership with no outstanding arrearages (the "Transaction"). The
terms and conditions of the Transaction are more fully set forth in the Pride
Companies, L.P. Consent Solicitation Statement dated October [ ], 1996, (the
"Consent Solicitation Statement").

You have requested our opinion as to the fairness to the disinterested
preferred unit holders of the Partnership from a financial point of view of the
consideration to be received by them in the Transaction. For purposes of this
opinion, the term "disinterested preferred unit holders" means holders of the
Partnership's one class of publicly traded preferred units other than (1)
directors, officers and employees of Pride Refining, Inc. (the "Managing General
Partner"), and (2) any holder of ten percent or more of the outstanding units of
such class.

In connection with rendering our opinion we have:

(i) analyzed certain publicly available financial statements and
reports regarding the Partnership;

(ii) analyzed certain internal financial statements and other
financial and operating data (including financial projections) concerning
the Partnership prepared by the Managing General Partner;

(iii) analyzed, on a pro forma basis, the effect of the Transaction on
the Partnership's balance sheet, capitalization ratios, earnings and book
value both in the aggregate and, where applicable, on a per unit basis;

(iv) reviewed the reported prices and trading activity for the
preferred units;

(v) compared the financial performance of the Partnership and the
prices and trading activity of the preferred units with that of certain
other comparable publicly-traded companies and their securities;

(vi) reviewed the financial terms, to the extent publicly available,
of certain comparable transactions;

(vii) reviewed the Consent Solicitation Statement and related
documents;

(viii) discussed with the Managing General Partner the operations of
and future business prospects for the Partnership and the anticipated
financial consequences of the Transaction to the Partnership;

(ix) assisted in your deliberations regarding the material terms of
the Transaction; and

(x) performed such other analyses and provided such other services as
we have deemed appropriate.

We have relied on the accuracy and completeness of the information and
financial data provided to us by the Managing General Partner, and our opinion
is based upon such information. We have inquired into the reliability of such
information and financial data only to the limited extent necessary to provide a
reasonable basis for our opinion, recognizing that we are rendering only an
informed opinion and not an appraisal or certification of value. With respect to
the financial projections prepared by Managing General Partner, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Partnership.

As part of our investment banking business, we regularly issue fairness
opinions and are continually engaged in the valuation of companies and their
securities in connection with business reorganizations, private placements,
negotiated underwritings, mergers and acquisitions and valuations for estate,
corporate and other purposes. In the ordinary course of business, Stephens Inc.
and its affiliates at any time may hold long or short

B-1
<PAGE> 163

positions, and may trade or otherwise effect transactions as principal or for
the accounts of customers, in debt or equity securities or options on securities
of the Partnership. Stephens is receiving a fee, and reimbursement of its
expenses, in connection with the issuance of this fairness opinion.

Based on the foregoing and our general experience as investment bankers,
and subject to the qualifications stated herein, we are of the opinion on the
date hereof that the consideration to be received by the disinterested preferred
unit holders of the Partnership in the Transaction is fair to them from a
financial point of view.

Neither this opinion nor its substance may be disclosed by you to anyone
other than your advisors without our written permission.

This opinion and a summary discussion of our underlying analyses and role
as your financial advisor may be included in communications to the Company's
shareholders provided that we approve of such disclosures prior to publication.

Very truly yours,

STEPHENS INC.

B-2
<PAGE> 164

APPENDIX C
<PAGE> 165

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS
OVERVIEW

Pride Companies, L.P. is a Delaware limited partnership formed on January
17, 1990, to acquire, own and operate a petroleum refining business
("Refinery"), products pipeline business ("Products System"), and crude oil
gathering business ("Crude Gathering System").

The Crude Gathering System is the primary source of crude supply for the
Refinery, although some gathering is done for others. It gathers crude at the
wellhead and then buys and sells crude oil so that it can deliver crude through
its Crude Gathering System to the Refinery. After the crude is processed into
petroleum products at the Refinery, it is marketed and if necessary transported
to the Partnership's terminals through the Products System's pipelines.

The following is a discussion of the results of operations for the
Partnership. This discussion should be read in conjunction with the financial
statements included in this report.

GENERAL

The Partnership's operating results depend principally on the rate of
utilization of the Refinery, the margins between the prices of its refined
petroleum products and the cost of crude oil, the volume throughput on the
Products System, and the volume throughput on and margins from the
transportation and resale of crude oil from its Crude Gathering System. Higher
Refinery utilization allows the Partnership to spread its fixed costs across
more barrels, thereby lowering the fixed costs per barrel of crude oil
processed. The refining business is highly competitive, and the Partnership's
margins are significantly impacted by general industry margins. Industry margins
are determined by a variety of regional, national, and global trends, including
oil prices, weather, and economic conditions, among other things. The Refinery's
JP-8 (a grade of military aviation fuel) prices are influenced by these trends
since the pricing for JP-8 is based on Jet A, a kerosene-based product, and the
price of diesel and heating fuels affect the price of kerosene.

In 1991, the Partnership completed construction of the catalytic reformer
unit ("CRU") that allows it to refine naphtha into unleaded gasoline. Prior to
construction of the CRU, almost all naphtha went into the production of JP-4, a
grade of military jet fuel. The CRU provided the Partnership an alternative
market for its naphtha in the short-term and prepared it for the conversion of
the military fuel from JP-4 to JP-8 that was effective in April 1994 for East
and Gulf Coast bases. JP-8 is a kerosene-based fuel and without the CRU the
Partnership would not have had a market for its naphtha. As a result of the CRU,
the Partnership has entered into sales and exchange agreements with eight major
oil companies.

When the diesel desulfurization unit ("DDU") went on line in the third
quarter of 1993, it marked the completion of a three-year diversification
process that allows the Partnership to refine more valuable products and expand
its markets. In addition to completing the diversification process, the
construction of the DDU also met the challenge of present environmental
regulations. Federal law required the sulfur content in all diesel produced for
highway use to be reduced by October 1, 1993.

Margins in the Crude Gathering System are influenced by the level of
competition and the price of crude oil. When prices are higher, crude oil can
generally be resold at higher margins. Additionally, transportation charges
trend upward when higher crude oil prices stimulate increased exploration and
development. Conversely, when crude oil prices decrease, margins on the resale
of crude oil as well as transportation charges tend to decrease.

In evaluating the financial performance of the Partnership, management
believes it is important to look at operating income, excluding depreciation in
addition to operating income which is after depreciation. Operating income,
excluding depreciation measures the Partnership's ability to generate and
sustain working capital and ultimately cash flows from operations. However, such
measure is before debt service so it does not indicate the amount available for
distribution, reinvestment or other discretionary uses. Gross revenues

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primarily reflect the level of crude oil prices and are not necessarily an
accurate reflection of the Partnership's profitability. Also important to the
evaluation of the Refinery's performance are barrels of crude oil refined, gross
margin (revenue less cost of crude) per barrel, and operating expense per
barrel, excluding depreciation.

SECOND QUARTER 1996 COMPARED TO SECOND QUARTER 1995

General. Net loss for the second quarter of 1996 was $1.4 million compared
to net income of $26,000 for the second quarter of 1995. The decline was
primarily a result of increased credit and loan fees of $1.2 million and weak
refining margins during the second quarter of 1996. Credit and loan fees
increased due to facility fees incurred in the second quarter of 1996. In the
second quarter of 1995, a facility fee was not required. In addition, the
Partnership had a one-time nonrecurring reversal of facility fees of $683,000
related to periods prior to the second quarter of 1995 as a result of an
amendment to the then existing credit agreement.

Operating income was $739,000 for the second quarter of 1996 compared to
operating income of $1.3 million for the second quarter of 1995. Operating
income, excluding depreciation, for the second quarter of 1996 decreased to $2.5
million from $3.0 million for the second quarter of 1995 as a result of weak
refining margins which was partially offset by strong crude gathering margins.

The following table details the operating income (loss); depreciation; and
the operating income (loss), excluding depreciation (in thousands), for the
second quarter of 1996 and 1995.

<TABLE>
<CAPTION>
OPERATING
INCOME (LOSS)
OPERATING EXCLUDING
INCOME (LOSS) DEPRECIATION DEPRECIATION
------------- ------------ -------------
<S> <C> <C> <C>
Second quarter 1996
Refinery and Products System.............. $(3,269) $1,251 $(2,018)
Crude Gathering System.................... 4,008 504 4,512
------- ------ -------
Total............................. $ 739 $1,755 $ 2,494
======= ====== =======
Second quarter 1995
Refinery and Products System.............. $ 434 $1,231 $ 1,665
Crude Gathering System.................... 840 515 1,355
------- ------ -------
Total............................. $ 1,274 $1,746 $ 3,020
======= ====== =======
</TABLE>

Refinery and Products System. Operating loss of the Refinery and Products
System was $3.3 million for the second quarter of 1996 compared to operating
income of $434,000 for the second quarter of 1995. Depreciation expense for the
Refinery and Products System was approximately $1.3 million for the second
quarter of 1996 and $1.2 million for the second quarter of 1995. Operating loss,
excluding depreciation, of the Refinery and Products System was $2.0 million for
the second quarter of 1996 compared to operating income, excluding depreciation,
of $1.7 million for the second quarter of 1995.

Operating loss of the Refinery was $3.5 million for the second quarter of
1996 compared to $27,000 for the same period in 1995. The decline was due to the
higher cost of crude relative to the posting price of crude in the second
quarter of 1996. However, this was mostly offset by the higher sales price for
crude realized by the Crude Gathering System on such sale to Refining.
Depreciation expense for the Refinery alone was $1.0 million for both the second
quarter of 1996 and the second quarter of 1995. Operating loss, excluding
depreciation, of the Refinery was $2.5 million for the second quarter of 1996
compared to operating income, excluding depreciation, of $986,000 for the second
quarter of 1995.

Refinery gross margin per barrel was $0.57 for the second quarter of 1996
versus $1.80 for the same period in 1995. Refinery throughput averaged 31,352
BPD for the second quarter of 1996 versus 31,664 BPD for the same period in
1995. Operating expenses per barrel, excluding depreciation, were $1.07 for the
second quarter of 1996 compared to $0.98 for the second quarter of 1995 due to
higher utility costs and repair and maintenance in the second quarter of 1996.

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Operating income for the Products System was $262,000 for the second
quarter of 1996 compared to $461,000 for the second quarter of 1995.
Depreciation expense for the Products System was $220,000 for the second quarter
of 1996 compared to $218,000 for the second quarter of 1995. Operating income,
excluding depreciation, for the Products System decreased to $482,000 for the
second quarter of 1996 from $679,000 for the same period in 1995 principally as
a result of decreased pipeline volumes to the Aledo and San Angelo terminals in
the second quarter of 1996. Total transportation volumes were 12,806 BPD for the
second quarter of 1996 compared to 16,078 BPD for the same period in 1995.

Crude Gathering System. Operating income for the Crude Gathering System was
$4.0 million for the second quarter of 1996 compared to $840,000 for the same
period in 1995 due to the higher sales price of crude relative to the posting
price of crude in the second quarter of 1996 as mentioned above. Depreciation
expense for the Crude Gathering System decreased to $504,000 for the second
quarter of 1996 from $515,000 for the second quarter of 1995. Operating income,
excluding depreciation, for the Crude Gathering System was $4.5 million for the
second quarter of 1996 and $1.4 million for the second quarter of 1995. The net
margin was $0.74 per barrel for the second quarter of 1996 versus $0.13 per
barrel for the same period in 1995. Due to the elimination of several marginal
contracts, the volume of crude oil gathered by the Crude Gathering System
decreased to 59,854 BPD for the second quarter of 1996 from 68,569 BPD for the
second quarter of 1995.

FIRST SIX MONTHS 1996 COMPARED TO FIRST SIX MONTHS 1995

General. Net loss for the first six months of 1996 was $848,000 compared to
net loss of $5.5 million for the first six months of 1995. The improvement was
primarily a result of stronger refining and crude gathering margins during the
first six months of 1996. This was partially offset by higher interest and
credit and loan fees of $1.3 million during the first six months of 1996 due to
facility fees of $694,000 and expenses of $378,000 related to the restructuring
and recapitalization of the Partnership's debt and equity incurred during the
first six months of 1996. Also, the Partnership had a one-time nonrecurring
reversal of an accrual for facility fees of $234,000 for the first six months of
1995 for periods prior to 1995.

Operating income was $3.5 million for the first six months of 1996 compared
to an operating loss of $2.1 million for the first six months of 1995. Operating
income, excluding depreciation, increased for the first six months of 1996 to
$7.0 million from $1.4 million for the first six months of 1995.

The table below details the operating income (loss); depreciation; and the
operating income (loss), excluding depreciation by division (in thousands) for
the first six months of 1996 and 1995.

<TABLE>
<CAPTION>
OPERATING
INCOME (LOSS)
OPERATING EXCLUDING
INCOME (LOSS) DEPRECIATION DEPRECIATION
------------- ------------ -------------
<S> <C> <C> <C>
First six months 1996
Refinery and Products System................ $(2,685) $2,500 $ (185)
Crude Gathering System...................... 6,182 1,020 7,202
------- ------ -------
Total............................... $ 3,497 $3,520 $ 7,017
======= ====== =======
First six months 1995
Refinery and Products System................ $(3,603) $2,484 $(1,119)
Crude Gathering System...................... 1,503 1.030 2,533
------- ------ -------
Total............................... $(2,100 $3,514 $ 1,414
======= ====== =======
</TABLE>

Refinery and Products System. Operating loss of the Refinery and Products
System was $2.7 million for the first six months of 1996 compared to operating
loss of $3.6 million for the first six months of 1995. Depreciation expense for
the Refinery and Products System was $2.5 million for the first six months of
1996 and the first six months of 1995. Operating loss, excluding depreciation,
of the Refinery and Products System was $185,000 for the first six months of
1996 compared to operating loss, excluding depreciation, of $1.1 million for the
first six months of 1995.

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Operating loss of the Refinery was $3.3 million for the first six months of
1996 compared to $4.5 million for the first six months of 1995. Refining margins
increased for the first six months of 1996 due to the colder winter experienced
during the first few months of 1996 as compared to the same period in 1995.
However, this was somewhat offset by the higher cost of crude relative to the
posting price of crude during the first six months of 1996. Depreciation expense
for the Refinery alone was $2.1 million for the first six months of 1996 and
$2.0 million for the first six months of 1995. Operating loss, excluding
depreciation, of the Refinery was $1.2 million for the first six months of 1996
compared to $2.4 million for the first six months of 1995.

Refinery gross margin per barrel was $1.30 for the first six months of 1996
versus $1.11 for the same period in 1995. Refinery throughput averaged 32,264
BPD during the first six months of 1996 versus 32,077 BPD for the same period in
1995. Operating expenses per barrel, excluding depreciation, were $1.08 for the
first six months of 1996 versus $1.06 for the same period in 1995.

Operating income for the Products System was $610,000 for the first six
months of 1996 compared to $848,000 for the first six months of 1995.
Depreciation expense for the Products System was $441,000 for the first six
months of 1996 and $436,000 for the first six months of 1995. Operating income,
excluding depreciation, for the Products System decreased to $1.1 million for
the first six months of 1996 from $1.3 million for the same period in 1995 as a
result of decreased volumes. Total transportation volumes were 13,392 BPD for
the first six months of 1996 compared to 15,585 BPD for the same period in 1995.

Crude Gathering System. Operating income for the Crude Gathering System was
$6.2 million for the first six months of 1996 compared to $1.5 million for the
same period in 1995 due to the higher sales price of crude relative to the
posting price of crude in the first six months of 1996. Depreciation expense for
the Crude Gathering System was $1.0 million for both the first six months of
1996 and the first six months of 1995. Operating income, excluding depreciation,
for the Crude Gathering System was $7.2 million for the first six months of 1996
and $2.5 million for the first six months of 1995. The net margin was $0.54 per
barrel for the first six months of 1996 compared to $0.12 per barrel for the
first six months of 1995. Due to the elimination of several marginal contracts,
the volume of crude oil gathered by the Crude Gathering System decreased to
63,212 BPD for the first six months of 1996 from 70,472 BPD for the first six
months of 1995.

FACTORS AND TRENDS AFFECTING OPERATING RESULTS

A number of factors have affected the Partnership's operating results, both
indirectly and directly, such as environmental compliance, other regulatory
matters, industry trends and price of crude oil, inventory prices, and
seasonality and weather. The Managing General Partner of the Partnership expects
that such conditions will continue to affect the Partnership's business to
varying degrees in the future. The order in which these factors are discussed is
not intended to represent their relative significance.

Effective January 1, 1995, the Clean Air Act Amendment of 1990 required
that certain areas of the country use reformulated gasoline ("RFG"). The Abilene
and San Angelo market areas do not require RFG. Collin, Dallas, Denton, and
Tarrant Counties, which comprise the Dallas-Fort Worth ("DFW") metroplex area,
do require RFG; however, the Partnership's Aledo terminal lies outside this area
and is allowed to supply conventional gasoline that is not destined for sale in
these four counties. In addition to the requirement for RFG in certain areas,
new but much less restrictive regulations took effect that impose new quality
standards for conventional gasoline in the rest of the country. Management does
not anticipate that these have had or will have a material adverse effect on the
Partnership's operations.

In early 1993, the United States Environmental Protection Agency ("EPA")
filed an administrative complaint and compliance order against the Partnership.
The complaint initially proposed an assessment of

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<PAGE> 169

$553,000 in penalties and fulfillment of a compliance order at an unspecified
cost against the Partnership. The principal violations alleged by the EPA
include the failure to properly monitor ground water and to implement a ground
water monitoring program. Management believes that it has complied or is
complying with the matter specified by the EPA and has filed an answer to the
complaint. On February 8, 1996, the Partnership received a letter from the EPA
offering to settle the complaint for $405,000 in penalties plus fulfillment of
the compliance order. The Partnership will continue to vigorously contest the
matter until a more favorable settlement can be reached with the EPA.

Other Regulatory Requirements. The Partnership is also subject to the rules
and regulations of Occupational Safety and Health Administration, Texas Air
Control Board, Texas Railroad Commission, and Texas Water Commission.

Industry Trends and Price of Crude Oil. Industry trends and the price of
crude oil will continue to affect the Partnership's business. While refined
products are generally sold at a margin above crude oil prices, fluctuations in
the price of crude oil can have a significant short-term effect on refining
margins because there is usually a lag in the movement of product prices, both
up and down, in relation to the movement of crude oil prices. The general level
of crude oil prices can also have a significant effect on the margins in the
crude gathering business. Margins in the Crude Gathering System generally tend
to be influenced by competition and the general price level of crude oil. When
prices are higher, crude oil can generally be resold at higher margins.
Additionally, transportation charges are slightly less competitive when higher
crude oil prices result in increased exploration and development. Conversely,
when crude oil prices decrease, margins on the resale of crude oil and
transportation charges generally tend to decrease.

Inventory Prices. In 1993, the Partnership adopted the last-in/first-out
(LIFO) method of determining inventory values. This change should minimize the
effect of fluctuations in inventory prices on earnings by matching current costs
with current revenue. The LIFO method is the predominant method used in the
refining industry.

Seasonality and Weather. Gasoline consumption is typically highest in the
United States in the summer months and lowest in the winter months. As a result,
margins for gasoline tend to be higher in the summer months. Diesel consumption
in the southern United States is generally higher just prior to and during the
winter months when commercial trucking is routed on southern highways to avoid
severe weather conditions further north. Additionally, diesel fuel prices tend
to increase during the winter months when refiners divert heating fuels to
northern areas. During unseasonably warm winters, as was experienced during
1995, diesel prices do not trend up as in colder, longer winters. The Refinery's
JP-8 prices are influenced by these trends since the pricing for JP-8 is based
on Jet A, a kerosene based product, and the price of diesel and heating fuels
affect the price of kerosene.

Other Factors. The Partnership has been awarded contracts from the United
States Government for the right to supply 106 million gallons of JP-8 to ten
military installations in Texas for the period from April 1, 1996 through March
31, 1997.

FINANCIAL CONDITION

INFLATION

The Partnership's operations would be adversely impacted by significant,
sustained increases in crude oil and other energy prices. Although the
Partnership's operating costs are generally impacted by inflation, the Managing
General Partner does not expect general inflationary trends to materially
adversely impact the Partnership's businesses.

FINANCIAL RESOURCES AND LIQUIDITY

The Partnership's operations require substantial amounts of working capital
and open lines of credit which the Partnership believes are currently adequate
to provide funds to sustain operations at present levels. The Partnership
receives payments from the United States Government, major oil companies, and
other

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<PAGE> 170

customers within approximately 7 to 15 days from shipment in the case of
products sales and by the 20th of the following month in the case of third-party
crude oil sales and exchanges. The Partnership maintains inventory in the amount
of approximately 10 to 20 days of sales. The Partnership generally pays for
crude oil feedstock on the 20th of the month following the month in which it is
received. As a result, the Partnership's operating cycle is such that it
generally receives cash for the refined products on a basis roughly equal to the
average terms on which it pays for the crude oil feedstock.

Letters of credit are an integral part of the operations of the Crude
Gathering System since the Partnership takes title to both first purchased
barrels and custom gathered barrels. On August 13, 1996, the Partnership's
credit facility was restated and amended to extend the maturity date to July 31,
1997. Under this credit facility, the Partnership has a $6,500,000 standby
letter of credit facility for general corporate purposes and the purchase of
crude oil and other refinery feedstocks ("Facility A") and a $45,000,000 standby
letter of credit facility for the purchase of crude oil ("Facility B"). The fee
on outstanding Facility A and Facility B standby letters of credit is 1 and
1/2% per annum. For the unused portion of the standby letter of credit
facility, the fee is one-half of 1% per annum. Though no advances had been drawn
under either the Facility A or Facility B letter of credit facility, the
Partnership did have approximately $721,000 and $44.1 million, respectively, in
outstanding standby letters of credit as of June 30, 1996. The prior agreement
also provided an additional $8,000,000 standby letter of credit facility for the
purchase of crude oil and other refinery feedstocks ("Special LC Facility"). The
fee on outstanding Special LC Facility standby letters of credit was 3% per
annum. There was no commitment fee for the unused portion of the Special LC
Facility. The Partnership had approximately $1.6 million outstanding under the
Special LC Facility as of June 30, 1996.

Under the restated and amended credit facility, the Partnership has
available to it a revolving line of credit of $8.0 million (the "Revolver") and
a $45.0 million term loan (the "Term Loan"). The amount available under the
Revolver is subject to a borrowing base which includes a reduction by the amount
of letters of credit issued under Facility A. Advances under the Revolver and
Term Loan bear interest at prime plus 2% and 3%, respectively, payable monthly.
The prime rate was 8.25% as of June 30, 1996. The Term Loan is subject to a
facility fee of 5% per annum commencing January 1, 1996 and payable at maturity
which is July 31, 1997. Such fee will be canceled upon the completion of phase
two of the Partnership's restructuring plan (see below). The Partnership has
pledged substantially all its assets as collateral. In addition, the General
Partners guaranteed the facility and Pride SGP as guarantor has pledged its
assets as collateral for such loans. The Partnership may elect to prepay the
credit facilities without any prepayment penalty. The fee for the unused portion
of the Revolver is one-half of 1% per annum. At June 30, 1996, the Partnership
had no advances outstanding on the Revolver; the balance outstanding on the Term
Loan was $42.9 million. The Partnership is required to make scheduled principal
payments of $120,000 each month beginning September 5, 1996 plus quarterly
principal payments in the amount of 80% of excess cash, as defined in the credit
agreement, for the preceding quarter. Accordingly, the Partnership has
classified $1.8 million of the Term Loan as current as of June 30, 1996.

Advances under the Revolver are subject to repayment on a daily basis.
Subject to the borrowing base, the Partnership may borrow any amounts previously
paid.

The facility also includes a $2.5 million uncommitted line of credit
("Uncommitted Line"). Advances under the Uncommitted Line are made solely at the
lenders' discretion and bear interest at the prime rate plus 4%. The Uncommitted
Line must be completely paid off for fifteen consecutive days each month. There
were no advances outstanding under the Uncommitted Line at June 30, 1996.

The amended credit facility also requires the Partnership to pay a monthly
fee of $10,000 and restricts the payment of distributions to unitholders
throughout the term of the amended credit agreement. Future distributions will
be dependent on payment in full of bank debt, expiration of all liabilities for
letters of credit, and the termination of the credit agreement.

C-6
<PAGE> 171

Monthly principal payments are made to Diamond Shamrock based on the number of
throughput barrels for the prior month in the Texas Plains Pipeline System.
Current maturities are estimated to be $158,000 at June 30, 1996. In 1996, the
Partnership acquired the other 50% interest in the Texas Plains System from
Scurlock Permian.

Pride SGP has made unsecured loans to the Partnership in the principal
amount of $2.5 million bearing interest at prime plus 2%. The loans mature July
31, 1997.

The Partnership's operations have generated losses in each of the last five
years and current ratios of less than one to one in each of the last three
years. These conditions and financial results were primarily a result of
depressed refining margins along with increasing depreciation expense and
interest expense and related fees. Crude gathering volumes have also decreased.

The Partnership's return to profitability and long-term viability is
dependent upon restructuring its credit facility, increased volumes and/or
improved profit margins, as well as continued cost control initiatives.
Management believes the extension of the existing credit facility to July 31,
1997 sufficiently alleviates any short-term threats to the liquidity of the
Partnership. Though management has and will continue to pursue options regarding
increasing volumes and margins and reducing costs, including limiting any
significant capital expenditures, these improvements will be gradual and, in
many cases, will take sustained periods of time to implement in order to achieve
profitability. The most significant and urgent need of the Partnership is to
effect a complete restructuring and recapitalization of the Partnership's debt
and equity. On August 13, 1996, the Partnership completed the first ("Phase 1")
of three phases which called for the execution of documents with the
Partnership's bank lenders. In phase two ("Phase 2"), the Partnership will seek
unitholder approval to convert the outstanding preferred units into common
units. If approved, the preferred unitholders will own at least 95% of the
outstanding common units of the Partnership upon conversion and all preferred
and common unit arrearages will be canceled. In addition, the credit facility
will automatically be extended to November 30, 1997, the term loan will be
reduced to $25.0 million, three notes will be created for the remaining portion
of the previously outstanding term loan, the interest rate on the debt will be
reduced, and the facility fee which is now required will be canceled. Phase
three ("Phase 3") anticipates the refinancing of the letter of credit line, the
revolving line, and the term loan. Upon completion of Phase 3, the banks will
convert two of the notes to equity. The third note, if not refinanced, can be
converted to equity at the banks' election. During the first six months of 1996,
the Partnership expensed $378,000 related to this proposed restructuring of its
credit facility. This is in addition to the $873,000 expensed for the year ended
December 31, 1995.

The Partnership will be preparing proxy solicitation material related to
the second phase. The Partnership expects to send out the material to
unitholders in September or October of 1996. The Managing General Partner is
hopeful Phase 2 will be completed during the fourth quarter of 1996 and Phase 3
will be completed in either the fourth quarter of 1996 or first quarter of 1997.
There can be no assurance the Partnership will be able to complete each of the
phases outlined. If the Partnership fails to complete them, it will have to
pursue

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<PAGE> 172

other means of effecting a restructuring and recapitalization prior to the
maturity of its credit facility on July 31, 1997. If the Partnership is
successful in completing the restructuring and recapitalization of the
Partnership, the Managing General Partner believes it will enhance the
Partnership's financial strength, flexibility and future access to capital
markets as well as lowering interest expense.

CAPITAL EXPENDITURES

The Partnership incurred maintenance capital expenditures of $559,000 for
the second quarter of 1996.

CASH DISTRIBUTIONS

At June 30, 1996, 4,700,000 Preferred Units were outstanding, representing
an approximate 46.3% limited partner interest in the Partnership. The Preferred
Units are cumulative, entitled to a minimum quarterly distribution of $0.65 per
unit through the Initial Conversion Date which is the first day of the third
calendar quarter in which the payment of all cumulative arrearages to Preferred
Unitholders have been paid, and all arrearages must be paid before the Common
Unitholders may receive distributions. The Preferred Units are convertible into
Common Units on the Initial Conversion Date. The Common Units are also
cumulative and entitled to a quarterly distribution of $0.65 per unit; however,
no Common Unit arrearages, will be paid after the Initial Conversion Date, and
any such accumulated arrearages then existing will be canceled. The general
partners are entitled to 2% of all distributions. At June 30, 1996, cumulative
arrearages were $13.00 per Common Unit which totaled $68.3 million and $11.35
per Preferred Unit which totaled $53.3 million.

Under the terms of the Partnership's credit agreement, the bank restricted
the payment of distributions to unitholders throughout the term of the credit
agreement. Future distributions will be dependent on payment in full of the bank
debt, expiration of all liabilities for letters of credit, and the termination
of the credit agreement.

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<PAGE> 173

PRIDE COMPANIES, L.P.

BALANCE SHEETS
(UNAUDITED)

ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(IN)THOUSANDS,
EXCEPT UNIT AMOUNTS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 706 $ 288
Accounts receivable, less allowance for doubtful accounts.......... 13,794 16,205
Inventories........................................................ 16,079 14,248
Prepaid expenses................................................... 937 1,606
-------- --------
Total current assets....................................... 31,516 32,347
Property, plant and equipment........................................ 135,810 137,778
Accumulated depreciation............................................. 33,791 32,941
-------- --------
Property, plant and equipment -- net............................... 102,019 104,837
Other assets......................................................... 1,117 1,122
-------- --------
$134,652 $138,306
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................................... $ 35,317 $ 34,631
Accrued payroll and related benefits............................... 1,787 1,568
Accrued taxes...................................................... 3,300 3,797
Other accrued liabilities.......................................... 3,060 2,807
Current portion of long-term debt.................................. 2,881 3,447
-------- --------
Total current liabilities.................................. 46,345 46,250
Long-term debt, excluding current portion............................ 50,488 53,053
Deferred income taxes................................................ 2,654 2,718
Other long-term liabilities.......................................... -- 272
Partners' capital:
Preferred units (4,700,000 units authorized and outstanding)....... 17,346 17,739
Common units (5,250,000 units authorized and outstanding).......... 17,854 18,022
General partners' interest......................................... 235 252
-------- --------
Total partners' capital.................................... 35,165 36,013
-------- --------
$134,652 $138,306
======== ========
</TABLE>

See accompanying notes.

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<PAGE> 174

PRIDE COMPANIES, L.P.

STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER UNIT AMOUNTS)
<S> <C> <C>
Revenues............................................................... 154,422 $147,589
Cost of sales and operating expenses, excluding depreciation........... 149,401 141,829
Marketing, general and administrative expenses......................... 2,527 2,740
Depreciation........................................................... 1,755 1,746
-------- --------
Operating income (loss)................................................ 739 1,274
Other income (expense):
Interest income...................................................... 66 13
Interest expense..................................................... (1,432) (1,663)
Credit and loan fees................................................. (756) 434
Other -- net......................................................... 8 (40)
-------- --------
Income (loss) before income taxes...................................... (1,375) 18
Income tax expense (benefit)......................................... (19) (8)
-------- --------
Net income (loss)...................................................... $ (1,356) $ 26
======== ========
General partners' interest............................................. $ (27) $ --
-------- --------
Net income (loss) allocable to unitholders............................. $ (1,329) $ 26
-------- --------
Net income (loss) per unit............................................. $ (0.13) $ .00
-------- --------
</TABLE>

See accompanying notes.

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<PAGE> 175

PRIDE COMPANIES, L.P.

STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER UNIT AMOUNTS)
<S> <C> <C>
Revenues............................................................. $304,786 $298,015
Cost of sales and operating expenses, excluding depreciation......... 292,675 291,105
Marketing, general and administrative expenses....................... 5,094 5,496
Depreciation......................................................... 3,520 3,514
-------- --------
Operating income (loss).............................................. 3,497 (2,100)
Other income (expense):
Interest income.................................................... 86 63
Interest expense................................................... (2,923) (3,323)
Credit and loan fees............................................... (1,561) (259)
Other -- net....................................................... 35 74
-------- --------
Income (loss) before income taxes.................................... (866) (5,545)
Income tax expense (benefit)....................................... (18) (13)
-------- --------
Net income (loss).................................................... $ (848) $ (5,532)
======== ========
General partners' interest........................................... $ (17) $ (111)
-------- --------
Net income (loss) allocable to unitholders........................... $ (831) $ (5,421)
-------- --------
Net income (loss) per unit........................................... $ (0.08) $ (.54)
-------- --------
</TABLE>

See accompanying notes.

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<PAGE> 176

PRIDE COMPANIES, L.P.

STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $ (848) $ (5,532)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Noncash charges (credits) to earnings:
Depreciation.................................................... 3,520 3,514
(Gain) loss on sale of property, plant and equipment............ (26) (1)
Deferred tax benefit............................................ (64) (55)
Cash provided by (used in) current assets and current liabilities:
(Increase) decrease in accounts receivable...................... 2,411 (1,961)
(Increase) decrease in inventories.............................. (1,831) 5,130
(Increase) decrease in prepaid expenses......................... 669 634
Increase (decrease) in accounts payable......................... 686 (290)
Increase (decrease) in accrued liabilities...................... (25) (385)
-------- --------
Total adjustments............................................ 5,340 6,586
-------- --------
Net cash provided by (used in) operating activities.................... 4,492 1,054
Cash flows from investing activities:
Purchases of property, plant and equipment........................... (964) (555)
Proceeds from disposal of property, plant and equipment.............. 43 89
Other................................................................ (18) 116
-------- --------
Net cash provided by (used in) investing activities.................... (939) (350)
Cash flows from financing activities:
Proceeds from debt and credit facilities............................. 9,235 14,525
Payments on debt and credit facilities............................... (12,366) (15,165)
Other................................................................ (4) (82)
-------- --------
Net cash provided by (used in) financing activities.................... (3,135) (722)
-------- --------
Net increase (decrease) in cash and cash equivalents................... 418 (18)
Cash and cash equivalents at the beginning of the period............... 288 35
-------- --------
Cash and cash equivalents at the end of the period..................... $ 706 $ 17
======== ========
</TABLE>

See accompanying notes.

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<PAGE> 177

PRIDE COMPANIES, L.P.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

Pride Companies, L.P. (the "Partnership"), a Delaware limited partnership,
owns and operates a modem simplex petroleum refinery facility located near
Abilene, Texas (the "Refinery"), a crude oil gathering business (the "Crude
Gathering System") that gathers, transports, and resells and redelivers crude
oil in the Texas and New Mexico markets, and certain integrated product pipeline
operations (the "Products System"). The Partnership's operations are considered
a single industry segment, the refining of crude oil and the sale of the
resulting petroleum products. The primary purpose of the Crude Gathering System
is to supply the Refinery with crude oil at strategic locations for input into
the Refinery. The Crude Gathering System consists of a series of gathering lines
and a fleet of trucks which transport crude oil into third party pipelines and
into the system's primary asset, a common carrier pipeline which delivers crude
oil to and terminates at the Refinery. The Products System consists of certain
product pipelines which originate at the Refinery and terminate at the
Partnership's marketing terminals.

Pride SGP ("Pride SGP" or the "Special General Partner") serves as special
general partner of the Partnership and owns a 0.1% general partner interest and
the 5,250,000 common units ("Common Units"). Pride Refining, Inc. serves as the
managing general partner of the Partnership and owns a 1.9% general partner
interest (the "Managing General Partner").

2. ACCOUNTING POLICIES

The financial statements of the Partnership include all of its majority
owned subsidiaries including limited partnership interests where the Partnership
has significant control through related parties. All intercompany transactions
have been eliminated and minority interest has been provided where applicable.
The financial statements included in this quarterly report on Form 10-Q are
unaudited and condensed and do not contain all information required by generally
accepted accounting principles to be included in a full set of financial
statements. In the opinion of management, all material adjustments necessary to
present fairly the financial position, results of operations, and cash flows for
such periods have been included. Interim period results are not necessarily
indicative of the results to be achieved for the full year. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.

The financial statements of the Partnership presented in its Annual Report
on Form 10-K for the year ended December 31, 1995 include a summary of
significant accounting policies that should be read in conjunction with this
quarterly report on Form 10-Q. The Partnership has two subsidiaries that are
corporations which are separate taxable entities whose operations are subject to
federal income taxes.

Net Income (Loss) per Unit is calculated using the weighted average number
of Units outstanding during the period (4,700,000 convertible preferred units
and 5,250,000 Common Units) divided into the Partnership's net income (loss)
after adjusting for general partner allocations.

3. RELATED PARTY TRANSACTIONS

In accordance with the Amended and Restated Agreement of Limited
Partnership of Pride Companies, L.P. ("Partnership Agreement"), the Managing
General Partner conducts, directs and exercises control over substantially all
of the activities of the Partnership. The Managing General Partner has a 1.9%
interest in the income and cash distributions of the Partnership, subject to
certain adjustments. Certain members of the management of the Managing General
Partner are also members of the management of Pride SGP, which has a 0.1%
general partner interest and a 51.7% limited partner interest in the
Partnership.

The Partnership has no directors or officers; however, directors and
officers of the Managing General Partner are employed by the Partnership to
function in this capacity. Compensation of these persons and any

C-13
<PAGE> 178

PRIDE COMPANIES, L.P.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

other expenses incurred on behalf of the Partnership by the Managing General
Partner and Pride SGP are paid by the Partnership.

Certain conflicts of interest, including potential non-arm's length
transactions, could arise as a result of the relationships described above. The
Board of Directors and management of the Managing General Partner have a duty to
manage the Partnership in the best interests of the unitholders and consequently
must exercise good faith and integrity in handling the assets and affairs of the
Partnership.

4. INVENTORIES

Inventories are valued at the lower of cost or market and June 30, December
31, consist of:

<TABLE>
<CAPTION>
AT AT
JUNE 30, DECEMBER 31,
1996 1995
-------- -------------
(IN THOUSANDS)
<S> <C> <C>
Crude oil.................................................. $ 10,874 $10,981
Refined products and blending materials.................... 9,885 5,589
------- -------
20,759 16,570
LIFO reserve............................................... (5,754) (3,426)
------- -------
Petroleum inventories...................................... 15,005 13,144
Spare parts and supplies................................... 1,074 1,104
------- -------
$ 16,079 $14,248
======= =======
</TABLE>

The last-in/first-out (LIFO) inventory cost method is used for crude oil
and refined products and blending materials. The weighted average inventory cost
method is used for spare parts and supplies.

5. LONG-TERM DEBT

On August 13, 1996, the Partnership's credit facility was restated and
amended to extend the maturity date to July 31, 1997. Under this credit
facility, the Partnership has a $6,500,000 standby letter of credit facility for
general corporate purposes and the purchase of crude oil and other refinery
feedstocks ("Facility A") and a $45,000,000 standby letter of credit facility
for the purchase of crude oil ("Facility B"). The fee on outstanding Facility A
and Facility B standby letters of credit is 1 1/2% per annum. For the unused
portion of the standby letter of credit facility, the fee is one-half of 1% per
annum. Though no advances had been drawn under either the Facility A or Facility
B letter of credit facility, the Partnership did have approximately $721,000 and
$44.1 million, respectively, in outstanding standby letters of credit as of June
30, 1996. The prior credit agreement also provided an additional $8,000,000
standby letter of credit facility for the purchase of crude oil and other
refinery feedstocks ("Special LC Facility"). The fee on outstanding Special LC
Facility standby letters of credit was 3% per annum. There was no commitment fee
for the unused portion of the Special LC Facility. The Partnership had
approximately $1.6 million outstanding under the Special LC Facility as of June
30, 1996.

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<PAGE> 179

PRIDE COMPANIES, L.P.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

SGP as guarantor has pledged its assets as collateral for such loans. The
Partnership may elect to prepay the credit facilities without any prepayment
penalty. The fee for the unused portion of the Revolver is one-half of 1% per
annum. At June 30, 1996, the Partnership had no advances outstanding on the
Revolver; the balance outstanding on the Term Loan was $42.9 million. Under the
new credit facility, the Partnership is required to make scheduled principal
payments of $120,000 each month beginning September 5, 1996 plus quarterly
principal payments in the amount of 80% of excess cash, as defined in the credit
agreement, for the preceding quarter. Accordingly, the Partnership has
classified $1.8 million of the Term Loan as current as of June 30, 1996.

Advances under the Revolver are subject to repayment on a daily basis.
Subject to the borrowing base, the Partnership may borrow any amounts previously
paid.

The Partnership has a nonrecourse loan from Diamond Shamrock with an
outstanding principal balance of $5.8 million at June 30, 1996, bearing interest
at 8% per annum with monthly principal and interest payments. The assets of
Pride Borger, Inc., a wholly owned subsidiary of the Partnership, which owns 50%
of the Texas Plains Pipeline System, are pledged as collateral. Pride Borger,
Inc. has also guaranteed the note. Monthly principal payments are made to
Diamond Shamrock based on the number of throughput barrels for the prior month
in the Texas Plains Pipeline System. Current maturities are estimated to be
$158,000 at June 30, 1996. In 1996, the Partnership acquired the other 50%
interest in the Texas Plains System from Scurlock Permian.

Pride SGP has made unsecured loans to the Partnership in the principal
amount of $2.5 million bearing interest at prime plus 2%. The loans mature July
31, 1997.

On January 9, 1995, the Partnership executed a note to a local bank related
to the renovation and refinancing of its administrative offices in Abilene.
Previously, the Partnership leased additional office space from a third party.
The note bears interest at prime plus one-half of 1% and had an outstanding
principal balance of $381,000 at June 30, 1996. The note matures January 9,
2000. The Partnership has classified $16,000 of the note as current as of June
30, 1996.

6. PREFERRED AND COMMON UNITS

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<PAGE> 180

PRIDE COMPANIES, L.P.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and all arrearages must be paid before the Common Unitholders may receive
distributions. The Preferred Units are convertible into Common Units on the
Initial Conversion Date. The Common Units are also cumulative and entitled to a
quarterly distribution of $0.65 per unit; however, no Common Unit arrearages
will be paid after the Initial Conversion Date, and any such accumulated
arrearages then existing will be canceled. The general partners are entitled to
2% of all distributions. At June 30, 1996, cumulative arrearages were $13.00 per
Common Unit which totaled $68.3 million and $11.35 per Preferred Unit which
totaled $53.3 million.

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<PAGE> 181

APPENDIX D
<PAGE> 182
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

GENERAL

The following is a discussion of the financial condition and results of
operations of the Partnership. This discussion should be read in conjunction
with the financial statements included in this report.

The Partnership's operating results depend principally on the rate of
utilization of the Refinery, the margins between the prices of its refined
petroleum products and the cost of crude oil, the volume throughput on the
Products System, and the volume throughput on and margins from the
transportation and resale of crude oil from its Crude Gathering System. Higher
Refinery utilization allows the Partnership to spread its fixed costs across
more barrels, thereby lowering the fixed costs per barrel of crude oil
processed. The refining business is highly competitive, and the Partnership's
margins are significantly impacted by general industry margins. Industry
margins are determined by a variety of regional, national, and global trends,
including oil prices, weather, and economic conditions, among other things.
The Refinery's JP-8 (a grade of military aviation fuel) prices are influenced
by these trends since the pricing for JP-8 is based on Jet A, a kerosene-based
product, and the price of diesel and heating fuels affect the price of
kerosene.

In 1991, the Partnership completed construction of the catalytic
reformer unit ("CRU") that allows it to refine naphtha into unleaded gasoline.
Prior to construction of the CRU, almost all naphtha went into the production
of JP-4, a grade of military jet fuel. The CRU provided the Partnership an
alternative market for its naphtha in the short-term and prepared it for the
conversion of the military fuel from JP-4 to JP-8 that was effective in April
1994 for East and Gulf Coast bases. JP-8 is a kerosene-based fuel and without
the CRU the Partnership would not have had a market for its naphtha. The
Partnership can now market up to 7,600 barrels per day (BPD) of conventional
gasoline and has entered into sales and exchange agreements with eight major
oil companies.

In evaluating the financial performance of the Partnership, management
believes it is important to look at operating income, excluding depreciation,
in addition to operating income which is after depreciation. Operating income,
excluding depreciation, measures the Partnership's ability to generate and
sustain working capital and ultimately cash flows from operations. However,
such measure is before

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debt service, so it does not indicate the amount available for distribution,
reinvestment or other discretionary uses. Gross revenues primarily reflect the
level of crude oil prices and are not necessarily an accurate reflection of the
Partnership's profitability. Also important to the evaluation of the
Refinery's performance are barrels of crude oil refined, gross margin (revenue
less cost of crude) per barrel, and operating expenses per barrel, excluding
depreciation.

YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994

General. Net loss for the year ended December 31, 1995 increased to
$8.6 million as compared to $5.4 million for the year ended December 31, 1994.
Non-operating expenses increased for the year ended December 31, 1995 due to
increased interest expense and credit and loan fees of $1.9 million over the
same period in 1994. Of the increase, $1.4 million is related to increased
interest costs which are attributable to a higher average prime rate in 1995
compared to the 1994 average and the debt related to the purchase of Diamond
Shamrock's pipeline. In addition, the Partnership incurred $873,000 in
expenses associated with a proposed restructuring. The credit and loan fees
for the year ended December 31, 1995 have been reduced by a one-time
nonrecurring reversal of an accrual for facility fees of $234,000 for periods
prior to 1995. Such fees were eliminated by the Partnership's principal
creditors concurrent with the amendment to the credit agreement in August,
1995. Depreciation expense increased to $7.0 million for the year ended
December 31, 1995 from $6.5 million for the year ended December 31, 1994 as a
result of the Texas Plains System acquisition.

Operating loss for the year ended December 31, 1995 decreased to $92,000
as compared to operating income of $1.4 million for the year ended December 31,
1994. The results for the year ended December 31, 1995 were lower due to weak
refining margins in the first quarter of 1995 and higher depreciation expense
for the Crude Gathering System which was partially offset by a $785,000
reduction in marketing, general and administrative expenses in 1995.
Marketing, general and administrative expenses declined due to the relocation
of the corporate offices in late 1994 and reduced professional fees in 1995.
Operating income, excluding depreciation, decreased for the year ended December
31, 1995 to $6.9 million as compared to $8.0 million for the year ended
December 31, 1994.

Refinery and Products System. Operating loss for the Refinery and
Products System was $3.9 million for the year ended December 31, 1995 compared
to an operating loss of $1.6 million for the year ended December 31, 1994.
Depreciation expense for the Refinery and Products System increased to $5.0
million for the year ended December 31, 1995 from $4.9 million for the year
ended December 31, 1994. Operating income, excluding depreciation, of the
Refinery and Products System was $1.1 million for the year ended December 31,
1995 compared to $3.3 million for the year ended December 31, 1994.

Operating loss for the Refinery alone was $5.6 million for the year
ended December 31, 1995 compared to an operating loss of $2.9 million for the
same period in 1994. The weak first quarter of 1995 caused average refining
margins to be lower in 1995 than those realized in 1994, but 1995 margins
improved significantly throughout the remainder of 1995. Depreciation expense
for the Refinery was $4.1 million for both the year ended December 31, 1995 and
for the year ended December 31, 1994. Operating loss, excluding depreciation,
of the Refinery alone decreased to $1.5 million for the year ended December 31,
1995 compared to operating income of $1.2 million for the year ended December
31, 1994.

Refinery gross margin per barrel was $1.42 for the year ended December
31, 1995 compared to $1.85 for the year ended December 31, 1994. The decrease
in the gross margin reflects the weaker products margins for the Partnership in
the first quarter of 1995 compared to the first quarter of 1994.

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<PAGE> 184
Refinery throughput averaged 29,806 BPD during the year ended December 31, 1995
compared to 30,483 BPD for the year ended December 31, 1994. Operating
expenses per barrel, excluding depreciation, decreased to $1.07 for the year
ended December 31, 1995 from $1.25 for the year ended December 31, 1994 due to
lower utility costs, environmental compliance, and maintenance costs during
1995.

Operating income for the Products System increased to $1.7 million for
the year ended December 31, 1995 compared to $1.3 million for the year ended
December 31, 1994. Depreciation expense for the Products System increased to
$874,000 for the year ended December 31, 1995 from $848,000 for the year ended
December 31, 1994. Operating income, excluding depreciation, for the Products
System increased to $2.6 million for the year ended December 31, 1995 from $2.1
million for the year ended December 31, 1994 resulting from increased
transportation volumes and lower operating expenses. Transportation volumes
increased to 15,585 BPD for the year ended December 31, 1995 from 13,722 BPD
for the year ended December 31, 1994.

Crude Gathering System. Operating income for the Crude Gathering System
was $3.8 million for the year ended December 31, 1995 compared to $3.0 million
for the year ended December 31, 1994. Depreciation expense for the Crude
Gathering System increased to $2.1 million for the year ended December 31, 1995
from $1.6 million for the year ended December 31, 1994 reflecting the
acquisition of the Texas Plains System. Operating income, excluding
depreciation, for the Crude Gathering System increased to $5.8 million for the
year ended December 31, 1995 from $4.7 million for the year ended December 31,
1994. Due to the elimination of several marginal contracts, the volume of
crude oil gathered by the Crude Gathering System decreased to 66,869 BPD for
the year ended December 31, 1995 from 74,676 BPD for the year ended December
31, 1994. For the year ended December 31, 1995, net margin, excluding
depreciation, increased to $0.24 per barrel from $0.17 per barrel for the year
ended December 31, 1994.

YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993

General. Net loss for the year ended December 31, 1994 decreased to
$5.4 million as compared to $5.8 million for the year ended December 31, 1993.
Net loss for the year ended December 31, 1993 includes a charge of $3.6 million
due to the cumulative effect of a change in accounting principle. Loss before
the cumulative effect of change in accounting principle for the year ended
December 31, 1994 increased to $5.4 million from $2.1 million for the year
ended December 31, 1993. Non-operating expenses increased for the year ended
December 31, 1994 due to increased interest expense and credit loan fees of
$2.0 million over the same period in 1993. Depreciation expense increased to
$6.5 million for the year ended December 31, 1994 from $5.9 million for the
year ended December 31, 1993 as a result of capital additions.

Operating income for the year ended December 31, 1994 decreased to $1.4
million as compared to $2.4 million for the year ended December 31, 1993. The
results for the year ended December 31, 1994 were lower due to weaker crude
gathering margins and higher depreciation expense which was partially offset by
a $1.8 million reduction in marketing, general and administrative expenses.
Marketing, general and administrative expenses declined due to the cancellation
of the lease for a turboprop airplane in 1993 and reduced administrative
personnel in 1993. Operating income, excluding depreciation, decreased for the
year ended December 31, 1994 to $8.0 million as compared to $8.3 million for
the year ended December 31, 1993.

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<PAGE> 185
Refinery and Products System. Operating loss for the Refinery and
Products System was $1.6 million for the year ended December 31, 1994 compared
to $2.2 million for the year ended December 31, 1993. Depreciation expense for
the Refinery and Products System increased to $4.9 million for the year ended
December 31, 1994 from $4.4 million for the year ended December 31, 1993 as a
result of the capital additions that were part of an expansion program
completed in 1993. Operating income, excluding depreciation, of the Refinery
and Products System was $3.3 million for the year ended December 31, 1994
compared to $2.2 million for the year ended December 31, 1993.

Operating loss for the Refinery alone was $2.9 million for the year
ended December 31, 1994 and 1993. Depreciation expense for the Refinery
increased to $4.1 million for the year ended December 31, 1994 from $3.5
million for the year ended December 31, 1993. This increase resulted from the
capital additions that were part of an expansion program. Operating income,
excluding depreciation, of the Refinery alone increased to $1.2 million for the
year ended December 31, 1994 compared to $557,000 for the year ended December
31, 1993. The increase was due principally to lower overall expenses in 1994
compared to 1993.

Refinery gross margin per barrel was $1.85 for the year ended December
31, 1994 compared to $1.79 for the year ended December 31, 1993. Refinery
throughput averaged 30,483 BPD during the year ended December 31, 1994 compared
to 32,215 BPD for the year ended December 31, 1993. The Refinery throughput
was lowered in the later part of 1994 due to the weak refining margins
experienced in the second half of 1994. Operating expenses per barrel,
excluding depreciation, increased to $1.25 for the year ended December 31, 1994
from $1.15 for the year ended December 31, 1993 due to the addition of the DDU
which was placed in service in the third quarter of 1993.

Operating income for the Products System increased to $1.3 million for
the year ended December 31, 1994 from $769,000 for the year ended December 31,
1993. Depreciation expense for the Products System decreased to $848,000 for
the year ended December 31, 1994 from $872,000 for the year ended December 31,
1993. Operating income, excluding depreciation, for the Products System
increased to $2.1 million for the year ended December 31, 1994 from $1.6
million for the year ended December 31, 1993 resulting from increased
transportation volumes and lower operating expenses. Transportation volumes
increased to 13,722 BPD for the year ended December 31, 1994 from 12,719 BPD
for the year ended December 31, 1993.

Crude Gathering System. Operating income for the Crude Gathering System
decreased to $3.0 million for the year ended December 31, 1994 from $4.6
million for the year ended December 31, 1993. Depreciation expense for the
Crude Gathering System increased to $1.6 million for the year ended December
31, 1994 from $1.5 million for the year ended December 31, 1993. Operating
income, excluding depreciation, for the Crude Gathering System decreased to
$4.7 million for the year ended December 31, 1994 from $6.1 million for the
year ended December 31, 1993. Part of the decrease is attributable to the
lower volume of crude oil gathered for the year ended December 31, 1994.
Operating expenses also increased as a result of operating a new trucking
district. The volume of crude oil gathered by the Crude Gathering System
decreased to 74,676 BPD for the year ended December 31, 1994 from 77,875 BPD
for the year ended December 31, 1993 due to a general decline in crude oil
production in Texas and New Mexico. For the year ended December 31, 1994, net
margin, excluding depreciation, decreased to $0.17 per barrel from $0.21 per
barrel for the year ended December 31, 1993.

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FACTORS AND TRENDS AFFECTING OPERATING RESULTS

A number of factors have affected the Partnership's operating results,
both indirectly and directly, such as environmental compliance, other
regulatory requirements, industry trends, price of crude oil, inventory prices,
and seasonality and weather. The Managing General Partner expects that such
conditions will continue to affect the Partnership's business to varying
degrees in the future. The order in which these factors are discussed is not
intended to represent their relative significance.

Environmental Compliance. Increasing public and governmental concern
about air quality is expected to result in continued regulation of air
emissions. Regulations relating to carbon monoxide and regulations on oxygen
content in gasoline and sulfur content in diesel fuel are expected to be
increasingly important as a means of improving air quality in urban areas. In
response to environmental regulations that became effective in October 1993,
the Partnership constructed a DDU at the Refinery that permits the Refinery to
reduce the sulfur content of highway use diesel fuel. See "Business and
Properties -- Environmental Matters." In addition, the Partnership plans to
spend approximately $750,000 in 1996, 1997 and 1998 on several projects to
maintain compliance with various other environmental requirements including
$400,000 for a sewer system upgrade.

Effective January 1, 1995, the Clean Air Act Amendment of 1990 required
that certain areas of the country use reformulated gasoline ("RFG"). The
Abilene and San Angelo market areas do not require RFG. Collin, Dallas,
Denton, and Tarrant Counties, which comprise the Dallas-Fort Worth ("DFW")
metroplex area, do require RFG; however, the Partnership's Aledo terminal lies
outside this area and is allowed to supply conventional gasoline that is not
destined for sale in these four counties. In addition to the requirement for
RFG in certain areas, new but much less restrictive regulations took effect
that impose new quality standards for conventional gasoline in the rest of the
country. Management does not anticipate that these have had or will have a
material adverse effect on the Partnership's operations.

In early 1993, the United States Environment Protection Agency ("EPA")
filed an administrative complaint and compliance order against the Partnership.
The complaint initially proposed an assessment of $553,000 in penalties and
fulfillment of a compliance order at an unspecified cost against the
Partnership. The principal violations alleged by the EPA include the failure
to properly monitor ground water and to implement an adequate ground water
monitoring program. Management believes that it has complied or is complying
with the matters specified by the EPA and has filed an answer to the complaint.
On February 8, 1996, the Partnership received a letter from the EPA offering to
settle the complaint for $405,000 in penalties plus fulfillment of the
compliance order. The Partnership will continue to vigorously contest this
matter until a more favorable settlement can be reached with the EPA.

Other Regulatory Requirements. The Partnership is subject to the rules
and regulations of Occupational Safety and Health Administration, Texas Air
Control Board, Texas Railroad Commission, and Texas Water Commission.

Industry Trends and Price of Crude Oil. Industry trends and the price
of crude oil will continue to affect the Partnership's business. In the last
three years, the posting price for WTI crude oil has varied from approximately
$12.25 to $19.75 per barrel. While refined products are generally sold at a
margin above crude oil prices, fluctuations in the price of crude oil can have
a significant short-term effect on refining margins because there is usually a
lag in the movement of product prices, both up and down, in relation to the
movement of crude oil prices. The general level of crude oil prices can also
have a significant effect on the margins in the crude gathering business.
Margins in the Crude Gathering System generally tend to be influenced by
competition and the general price level of crude oil. When prices are

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higher, crude oil can generally be resold at higher margins. Additionally,
transportation charges are slightly less competitive when higher crude oil
prices result in increased exploration and development. Conversely, when oil
prices decrease, margins on the resale of crude oil and transportation charges
generally tend to decrease.

Inventory Prices. In 1993, the Partnership adopted the
last-in/first-out (LIFO) method of determining inventory values. This change
should minimize the effect of fluctuations in inventory prices on earnings by
matching current costs with current revenue. The LIFO method is the
predominant method used in the refining industry.

Seasonality and Weather. Gasoline consumption is typically highest in
the United States in the summer months and lowest in the winter months. As a
result, margins for gasoline tend to be higher in the summer months. Diesel
consumption in the southern United States is generally higher just prior to and
during the winter months when commercial trucking is routed on southern
highways to avoid severe weather conditions further north. Additionally,
diesel fuel prices tend to increase during the winter months when refiners
divert heating fuels to northern areas. During unseasonably warm winters, as
was experienced in the first quarter of 1995, diesel prices do not trend up as
in colder, longer winters. The Refinery's JP-8 (a grade of military aviation
fuel) prices are influenced by these trends since the pricing for JP-8 is based
on Jet A, a kerosene-based product, and the price of diesel and heating fuels
affect the price of kerosene.

Other Factors. The Partnership has entered into five exchange
agreements and three sales agreements with major oil companies in the Abilene,
San Angelo and Aledo markets. These exchange agreements have allowed Pride to
expand into Amarillo, Texas, El Paso, Texas, Lubbock, Texas, Midland/Odessa,
Texas, San Antonio, Texas, and Wichita Falls, Texas without incurring
transportation costs to these cities. Recently the Partnership began supplying
an existing customer with product out of the Abilene area which should offset
the volume loss due to the termination of the Skinny's contract. See "Markets
and Competition."

In January of 1996, the Partnership signed a three year contract with
Diamond Shamrock to supply it with vacuum gas oil for use in its refining
operations. The new contract is for higher volumes of vacuum gas oil than the
previous contract thus allowing the Partnership to operate its refinery at a
higher throughput level.

The United States Government awarded the Partnership the right to supply
105,600,200 gallons of JP8 for the contract period beginning April 1, 1996 and
ending March 31, 1997. The award is for deliveries to Dyess, Fort Worth Naval
Air Station, Sheppard Air Force Base in Wichita Falls, Texas, Fort Hood
Military Installation in Killeen, Texas, Laughlin Air Force Base in Del Rio,
Texas, Reese Air Force Base in Lubbock, Texas, NAS in Dallas, Texas, AASF in
Dallas, Texas, Lockheed Martin in Fort Worth, Texas, and E-Systems in
Greenville, Texas. See "Business and Properties - Partnership Operations and
Products" above.

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FINANCIAL CONDITION

INFLATION

FINANCIAL RESOURCES AND LIQUIDITY

The Partnership receives payments from the United States Government,
major oil companies, and other customers within approximately 7 to 15 days from
shipment in the case of products sales and by the 20th of the following month
in the case of third-party crude oil sales and exchanges. The Partnership
maintains inventory in the amount of approximately 14 to 20 days of sales. The
Partnership generally pays for crude oil feedstock on the 20th of the month
following the month in which it is received. As a result, the Partnership's
operating cycle is such that it generally receives cash for the refined
products on a basis roughly equal to the average terms on which it pays for the
crude oil feedstock.

Under the amended credit facility, the Partnership has available to it a
revolving line of credit of $8.0 million ("Revolver") and a $45.0 million term
loan ("Term Loan"). The amount available under the Revolver is subject to a
borrowing base which includes a reduction by the amount of letters of credit
issued under Facility A. Advances under the Revolver and Term Loan bear
interest at prime plus 2% and 3%, respectively, payable monthly. The prime
rate was 8 and 1/2% as of December 31, 1995. The Term Loan is subject to a
facility fee of approximately 5% per annum commencing January 1, 1996 and
payable at maturity which is January 1, 1997. The Partnership has pledged
substantially all its assets as collateral. In addition, the General Partners
guaranteed the facility and Pride SGP as guarantor has pledged its assets at no
cost to the Partnership as collateral for such loans. The Partnership may
elect to prepay the credit facilities without any prepayment penalty. The fee
for the unused portion of the Revolver is one-half of 1% per annum. At
December 31, 1995, the balances outstanding on the Revolver and Term Loan were
$1.2 million and $44.3 million, respectively. The Partnership is required to
make quarterly principal payments on the Term Loan in an amount equal to 95% of
any excess cash flow as defined in the agreement until January, 1996.
Thereafter, the Partnership is required to pay monthly principal payments in
the amount of 95% of available cash flow for the second preceding month. The
Partnership has classified $1.2 million of the Term Loan as current as of
December 31, 1995. Advances under the Revolver are subject to repayment on a
daily basis. As a result, the full amount outstanding at December 31, 1995 has
been included in the current portion of long-term debt. Subject to the
borrowing base, the Partnership may borrow any amounts previously repaid.

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prime rate plus 4%. The Uncommitted Line must be completely paid off for
fifteen consecutive days each month. There were no advances under the
Uncommitted Line at December 31, 1995.

During the year ended December 31, 1995, the Partnership had drawn up to
approximately $5.8 million on the Revolver and $2.0 million on the Uncommitted
Line. The weighted average amount outstanding under the Revolver and
Uncommitted Line was approximately $2.5 million and $50,000, respectively. The
weighted average interest rate during the 1995 period for these facilities was
approximately 10.8 percent. During the year ended December 31, 1994, the
Partnership had drawn up to approximately $15.8 million under the previous
revolving credit facility; the weighted average amount outstanding was
approximately $11.6 million, and the weighted average interest rate was
approximately 8.1 percent.

The amended credit facility also requires the Partnership to pay a
monthly fee of $10,000 and restricts the payment of distributions to
unitholders throughout the term of the amended credit agreement. Future
distributions will be dependent on payment in full of the bank debt, expiration
of all liabilities for letters of credit, and the termination of the credit
agreement.

The Partnership has two outstanding financing agreements to fund working
capital with Pride SGP, the special general partner of the Partnership, entered
into on March 26, 1993 and September 7, 1995. Pride SGP has made unsecured
loans to the Partnership in the principal amount of $2.5 million bearing
interest at prime plus 2%. The prime rate was 8 and 1/2% at December 31, 1995.
The loans mature January 1, 1997.

The Partnership also has a nonrecourse loan from Diamond Shamrock with
an outstanding balance of $5.9 million at December 31, 1995, bearing interest
at 8% per annum with monthly interest payments. The assets of Pride Texas
Plains L.P., which owns 50% of the Texas Plains System, are pledged as
collateral and the note is guaranteed by Pride Borger. Monthly principal
payments are made to Diamond Shamrock based on the number of throughput barrels
for the prior month in the Texas Plains System. Current maturities are
estimated to be $117,000 at December 31, 1995.

On January 9, 1995, the Partnership executed a note to a local bank
related to the renovation and refinancing of its administrative offices in
Abilene. Prior to this, the Partnership had to lease additional office space
from a third party. The note bears interest at prime plus one-half of 1% and
had an outstanding principal balance of $388,000 as of December 31, 1995. The
note matures January 9, 2000. The Partnership has classified $14,000 of the
note as current as of December 31, 1995.

During 1995, the Partnership converted non-interest bearing accounts
payable to the United States Government related to pricing adjustments which
had been accrued since 1993 to a $2.4 million installment loan. The principal
balance was $2.3 million as of December 31, 1995. The note bears interest
based on the rate set by the Secretary of the Treasury. This rate was 6.375%
as of December 31, 1995. The note requires monthly payments of $84,000 and two
installments were paid on this note in 1995. The note matures June 1, 1998.
The Partnership has classified $893,000 of the note as current as of December
31, 1995.

Cash flows have been and will continue to be significantly affected by
fluctuations in the cost and volume of crude oil and refined products held in
inventory and the timing of accounts receivable collections. For the year
ended December 31, 1995, cash was provided by the reduction in inventories
(resulting from the liquidation of volumes on hand), decrease in accounts
receivable and increase in accounts payable. For the year ended December 31,
1994, cash was used for inventories (resulting from the increase in the price
of crude oil purchased to replace existing volumes) and increases in accounts
receivable. For the year ended December 31, 1993, cash was provided by the
reduction in inventories (resulting from the decrease in the price of crude oil
purchased to replace existing volumes) and

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significant collections of accounts receivable. The Partnership used cash
flows from operations for the year ended December 31, 1993 and increased
indebtedness to fund the remainder of the refinery expansion program.

The Partnership's operations have generated losses in each of the last
five years, current ratios of less than one to one in each of the last three
years and a net use of cash from operations in 1994. These financial results
are primarily a result of depressed refining margins along with increasing
depreciation expense and interest expense and related fees. Crude gathering
volumes also decreased in 1995 and 1994. During 1994, the United States
refining industry experienced its worst margins since the inception of the
Partnership in 1990. However, by selectively improving the sales mix of
certain products, the Partnership was able to improve refining margins slightly
in 1994 over 1993, but it was not sufficient to offset the other negative
trends mentioned above. As a result of an extremely mild winter, the
Partnership reported a significant loss in the first quarter of 1995. The
Partnership's refining margins improved throughout 1995 over those realized in
the first quarter of 1995. The current contract with the U. S. Government to
supply JP8 and LSJP8 to various military bases in Texas, which began on May 1,
1995 and ends on March 31, 1996, was consummated at higher volumes and prices
than the contract covering the period from April 1, 1994 through April 30,
1995. The Partnership recently received a new contract, beginning April 1,
1996 and ending March 31, 1997. Under the new contract, the Partnership will
supply more fuel than it will supply under the current contract; however, the
prices awarded under this contract are lower than those in the current
contract. Since 1993, the Partnership has been able to achieve reductions in
marketing, general and administrative costs of $2.6 million. The move of the
Partnership's corporate offices has resulted in a cost reduction since the
beginning of 1995. Also, during 1995, certain initiatives were taken to reduce
crude gathering costs. Interest expense and related fees, as well as
depreciation expense, continued to increase in 1995, however.

The losses incurred in the first quarter of 1995 were funded by cash
flow generated from operations in the final three quarters of 1995, a loan from
Pride SGP, and additional funds which became available under its revolving
credit facility due to the reduction of the level of certain letters of credit.

The Partnership's return to profitability and long-term viability is
dependent upon restructuring its credit facility, increased volumes and/or
improved profit margins, as well as continued cost control initiatives.
Management believes the extension of the existing credit facility to January 1,
1997 sufficiently alleviates any short-term threats to the liquidity of the
Partnership. Though management has and will continue to pursue options
regarding increasing volumes and margins and reducing costs, including limiting
any significant capital expenditures, these improvements will be gradual and,
in many cases, will take sustained periods of time to implement in order to
achieve profitability. The most significant and urgent need of the Partnership
is to effect a complete restructuring and recapitalization of the Partnership's
debt and equity. To that end, the Partnership has reached a tentative
agreement with its lenders to restructure the existing bank debt. The
tentative agreement is made up of three phases. Phase one ("Phase One")
contemplates a new loan agreement being executed between the banks and the
Partnership. In phase two ("Phase Two"), the Unitholders will vote on a change
in the equity structure of the Partnership. If Phase Two is approved by the
Unitholders, the banks will convert a portion of their Term Loan into notes,
lower certain interest rates and credit and loan fees and extend the maturity.
In phase three ("Phase Three"), the Partnership plans to refinance with
additional third party creditors the letter of credit facility, the Revolver,
the Term Loan and a portion of the notes set up in Phase Two. The portion of
the notes not refinanced would be converted to a preferred equity security.
During 1995, the Partnership expensed $873,000 related to this proposed
restructuring of its credit facility. The Managing General Partner is hopeful
Phase One will be completed by April 30, 1996, Phase Two will be completed
during the third quarter of 1996 and Phase Three will be completed in either
the fourth quarter of 1996 or first quarter of 1997. There can be no assurance
the Partnership will be able to complete each of the phases outlined. If the
Partnership fails to complete them, it will have to pursue other means of
effecting a restructuring and recapitalization prior to the maturity of its
credit facility on

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<PAGE> 191
January 1, 1997. If the Partnership is successful in arranging a complete
restructuring and recapitalization of the Partnership, the Managing General
Partner believes it will enhance the Partnership's financial strength,
flexibility and future access to capital markets as well as lowering interest
expense.

CAPITAL EXPENDITURES

Capital additions totaled $1.2 million for the year ended December 31,
1995 compared to $11.7 million for the year ended December 31, 1994. Of the
$11.7 million in capital additions for the year ended December 31, 1994, $8.9
million related to the financed acquisition of the Texas Plains System from
Diamond Shamrock. No other significant non- routine expenditures are currently
planned for 1996.

<PAGE> 192

INDEX TO FINANCIAL STATEMENTS

FINANCIAL STATEMENTS AND SCHEDULES
OF PRIDE COMPANIES, L.P.
(AUDITED)

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... D-2
Balance Sheets at December 31, 1995 and 1994.......................................... D-3
Statements of Operations for the years ended December 31, 1995, 1994 and 1993......... D-4
Statements of Changes in Partners' Capital for the years ended December 31, 1995, 1994
and 1993............................................................................ D-5
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993......... D-6
Notes to Financial Statements......................................................... D-7
</TABLE>

All schedules are omitted because they are not applicable or the required
information is shown elsewhere in this report.

D-1
<PAGE> 193

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors of the
Managing General Partner

We have audited the accompanying balance sheets of Pride Companies, L.P. as
of December 31, 1995 and 1994, and the related statements of operations, changes
in partners' capital, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pride Companies, L.P. at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.

As discussed in Note 1 to the financial statements, in 1993 the Partnership
changed its method of accounting for inventories.

ERNST & YOUNG LLP

Fort Worth, Texas

February 14, 1996, except for Note 4, as to
which the date is March 27, 1996

D-2
<PAGE> 194

BALANCE SHEETS

PRIDE COMPANIES, L.P.
AT DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................................ $ 288 $ 35
Accounts receivable, less allowance for doubtful accounts of $187 and
$271, respectively -- Note 6...................................... 16,205 14,900
Inventories -- Note 2................................................ 14,248 17,667
Prepaid expenses..................................................... 1,606 1,868
-------- --------
TOTAL CURRENT ASSETS......................................... 32,347 34,470
PROPERTY, PLANT AND EQUIPMENT, net -- Note 3........................... 104,837 110,884
OTHER ASSETS........................................................... 1,122 1,198
-------- --------
$138,306 $146,552
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable..................................................... $ 34,631 $ 31,408
Accrued payroll and related benefits................................. 1,568 2,044
Accrued taxes........................................................ 3,797 3,793
Other accrued liabilities............................................ 2,807 2,590
Current portion of long-term debt.................................... 3,447 6,626
-------- --------
TOTAL CURRENT LIABILITIES.................................... 46,250 46,461
LONG-TERM DEBT, including $2,450 and $2,000 at December 31, 1995 and
1994, respectively, to a related party -- Note 4..................... 53,053 52,264
DEFERRED INCOME TAXES -- Note 7........................................ 2,718 2,827
OTHER LONG-TERM LIABILITIES............................................ 272 370
COMMITMENTS AND CONTINGENCIES -- Note 5
PARTNERS' CAPITAL -- Notes 4 and 9
Preferred units (5,025,000 units authorized, 4,700,000 units
outstanding)...................................................... 17,739 21,729
Common units (5,250,000 units authorized and outstanding)............ 18,022 22,476
General partners' interest........................................... 252 425
-------- --------
36,013 44,630
-------- --------
$138,306 $146,552
======== ========
</TABLE>

See accompanying notes.

D-3
<PAGE> 195

STATEMENTS OF OPERATIONS

PRIDE COMPANIES, L.P.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues -- Note 6:
Refinery and Products System............................ $ 235,136 $ 220,610 $ 253,008
Crude Gathering System.................................. 527,212 553,847 609,772
Intersegment and other.................................. (201,735) (184,551) (205,518)
--------- --------- ---------
560,613 589,906 657,262
Cost of sales and operating expenses, excluding
depreciation -- Note 8.................................. 543,425 570,877 636,102
Marketing, general and administrative expenses -- Note
8....................................................... 10,274 11,059 12,834
Depreciation.............................................. 7,006 6,546 5,881
--------- --------- ---------
OPERATING INCOME (LOSS)......................... (92) 1,424 2,445
Other income (expense):
Interest expense........................................ (6,575) (5,191) (3,707)
Credit and loan fees.................................... (2,172) (1,651) (1,138)
Other -- net............................................ 175 28 252
--------- --------- ---------
(8,572) (6,814) (4,593)
--------- --------- ---------
LOSS before income taxes and cumulative effect
of change in accounting principle............. (8,664) (5,390) (2,148)
Income tax benefit........................................ 47 -- --
--------- --------- ---------
LOSS before cumulative effect of change in
accounting principle.......................... (8,617) (5,390) (2,148)
Cumulative effect of change in accounting principle....... -- -- (3,605)
--------- --------- ---------
NET LOSS........................................ $ (8,617) $ (5,390) $ (5,753)
========= ========= =========
Loss allocable to Unitholders before cumulative effect of
a change in accounting principle:
Preferred Units......................................... $ (3,990) $ (2,496) $ (995)
Common Units............................................ (4,454) (2,786) (1,110)
General partners' interest.............................. (173) (108) (43)
Cumulative effect allocable to Unitholders of changing to
LIFO from FIFO:
Preferred Units......................................... $ -- $ -- $ (1,669)
Common Units............................................ -- -- (1,864)
General partners' interest.............................. -- -- (72)
Loss per Unit before cumulative effect:
Preferred Units......................................... $ (0.85) $ (0.53) $ (0.21)
Common Units............................................ (0.85) (0.53) (0.21)
Cumulative effect of changing to LIFO per Unit:
Preferred Units......................................... $ -- $ -- $ (0.36)
Common Units............................................ -- -- (0.36)
--------- --------- ---------
Net loss per Unit:
Preferred Units......................................... $ (0.85) $ (0.53) $ (0.57)
Common Units............................................ $ (0.85) $ (0.53) $ (0.57)
========= ========= =========
</TABLE>

The proforma amounts of net loss, net loss applicable to unitholders and
net loss per unit, assuming LIFO method is applied retroactively, is equal to
the amounts shown above as before cumulative effect.

<TABLE>
<S> <C> <C> <C>
Weighted average Units outstanding:
Preferred Units..................................................... 4,700 4,700 4,700
Common Units........................................................ 5,250 5,250 5,250
</TABLE>

See accompanying notes.

D-4
<PAGE> 196

STATEMENTS OF CHANGES IN PARTNERS' CAPITAL

PRIDE COMPANIES, L.P.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
GENERAL
PREFERRED COMMON PARTNERS'
UNITS UNITS INTEREST
--------- ------- ---------
<S> <C> <C> <C>
Balance at December 31, 1992...................................... $ 26,889 $28,236 $ 648
Net loss.......................................................... (2,664) (2,974) (115)
------- ------- -----
Balance at December 31, 1993...................................... 24,225 25,262 533
Net loss.......................................................... (2,496) (2,786) (108)
------- ------- -----
Balance at December 31, 1994...................................... 21,729 22,476 425
Net loss.......................................................... (3,990) (4,454) (173)
------- ------- -----
Balance at December 31, 1995...................................... $ 17,739 $18,022 $ 252
======= ======= =====
</TABLE>

See accompanying notes.

D-5
<PAGE> 197

STATEMENTS OF CASH FLOWS

PRIDE COMPANIES, L.P.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (8,617) $ (5,390) $ (5,753)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Noncash charges (credits) to earnings:
Depreciation......................................... 7,006 6,546 5,881
Deferred tax benefit................................. (109) -- --
Other................................................ 11 (223) (220)
Cumulative effect of change in accounting
principle......................................... -- -- 3,605
Changes in current assets and current liabilities:
Accounts receivable.................................. 1,095 (2,094) 9,157
Inventories.......................................... 3,419 (1,382) 307
Prepaid expenses..................................... 262 (292) (246)
Accounts payable..................................... 3,223 1,571 (8,039)
Accrued liabilities.................................. (255) 877 644
-------- --------- ---------
Total adjustments................................. 14,652 5,003 11,089
-------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES...................................... 6,035 (387) 5,336
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................ (1,224) (2,812) (12,319)
Proceeds from disposal of property, plant and equipment... 262 161 379
Other..................................................... 68 182 (367)
-------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES............. (894) (2,469) (12,307)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt and credit facilities.................. 45,706 106,249 114,251
Payments on debt and credit facilities.................... (50,496) (103,442) (108,201)
Other..................................................... (98) (399) (496)
-------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES...................................... (4,888) 2,408 5,554
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... 253 (448) (1,417)
Cash and cash equivalents at beginning of the period...... 35 483 1,900
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD.................................................... $ 288 $ 35 $ 483
======== ========= =========
</TABLE>

See accompanying notes.

D-6
<PAGE> 198

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND NATURE OF OPERATIONS: Pride Companies, L.P., a Delaware
limited partnership (the "Partnership"), owns and operates a modern simplex
petroleum refinery facility; a crude oil gathering system, that gathers,
transports, and resells and redelivers crude oil; and certain product pipelines.
The Partnership's operations are considered a single industry segment -- the
refining of crude oil and the sale of the resulting petroleum products. The
primary purpose of the crude oil gathering system is to supply the refinery with
crude oil. In that connection, it purchases and resells crude oil in order to
provide a supply of the appropriate grade of crude oil at strategic locations
for input into the refinery. The crude gathering system consists of a series of
gathering lines and a fleet of trucks which transport crude into third party
pipelines and into the system's primary asset, a common carrier pipeline which
delivers crude to and terminates at the refinery. The product pipelines
originate at the refinery and terminate at the Partnership's marketing
terminals. The Partnership's operations are conducted primarily in the State of
Texas.

Pride SGP, Inc. ("Pride SGP") serves as special general partner of the
Partnership and owns a 0.1% general partner interest and the 5,250,000 common
units ("Common Units"). Pride Refining, Inc. serves as the managing general
partner of the Partnership and owns a 1.9% general partner interest (the
"Managing General Partner"). In accordance with the Amended and Restated
Agreement of Limited Partnership of Pride Companies, L.P. ("Partnership
Agreement"), the Managing General Partner conducts, directs and exercises
control over substantially all of the activities of the Partnership. The
Partnership has no directors or officers; however, directors and officers of the
Managing General Partner are employed by the Partnership to function in this
capacity.

USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

OPERATING ENVIRONMENT: The Partnership's operations have generated losses
in each of the last five years, current ratios of less than one to one in each
of the last three years and a net use of cash from operations in 1994. These
financial results are primarily a result of depressed refining margins along
with increasing depreciation expense and interest expense and related fees.
Crude gathering volumes also decreased in 1995 and 1994. During 1994, the United
States refining industry experienced its worst margins since the inception of
the Partnership in 1990. However, by selectively improving the sales mix of
certain products, the Partnership was able to improve refining margins slightly
in 1994 over 1993, but it was not sufficient to offset the other negative trends
mentioned above. As a result of an extremely mild winter, losses continued into
the first quarter of 1995. The Partnership's refining margins improved
throughout 1995 over those realized in the first quarter of 1995. Deliveries
under contracts with the U. S. Government to supply JP8 and LSJP8 to various
military bases in Texas, which began May 1, 1995 were consummated at higher
volumes and prices than the contract covering the period from April 1, 1994
through April 30, 1995. The Partnership recently received a new contract,
beginning April 1, 1996 and ending March 31, 1997. Under the new contract, the
Partnership will supply more fuel than it will supply under the current
contract; however, the prices awarded under this contract are lower than those
in the current contract. Since 1993, the Partnership has been able to achieve
continuous reductions in marketing, general and administrative expenses. The
move of the Partnership's corporate offices has resulted in a cost reduction
since the beginning of 1995. Also, during 1995, certain initiatives were taken
to reduce crude gathering costs. Interest expense and related fees, as well as
depreciation expense, continued to increase in 1995, however.

D-7
<PAGE> 199

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

short-term threats to the liquidity of the Partnership. Though management has
and will continue to pursue options regarding increasing volumes and margins and
reducing costs, including limiting any significant capital expenditures, these
improvements will be gradual and, in many cases, will take sustained periods of
time to implement in order to achieve profitability. The most significant and
urgent need of the Partnership is to effect a complete restructuring and
recapitalization of the Partnership's debt and equity. To that end, the
Partnership has reached a tentative agreement with its lenders to restructure
the existing bank debt. The tentative agreement is made up of three phases.
Phase one ("Phase One") contemplates a new loan agreement being executed between
the banks and the Partnership. In phase two ("Phase Two"), the Unitholders will
vote on a change in the equity structure of the Partnership. If Phase Two is
approved by the Unitholders, the banks will convert a portion of their Term Loan
(see Note 4) into notes, lower certain interest rates and credit and loan fees
and extend the maturity. In phase three ("Phase Three"), the Partnership plans
to refinance with additional third party creditors the letter of credit
facility, the Revolver (see Note 4), the Term Loan and a portion of the notes
set up in Phase Two. The portion of the notes not refinanced would be converted
to a preferred equity security. During 1995, the Partnership expensed $873,000
related to this proposed restructuring of its credit facility. The Managing
General Partner is hopeful Phase One will be completed by April 30, 1996, Phase
Two will be completed during the third quarter of 1996 and Phase Three will be
completed in either the fourth quarter of 1996 or first quarter of 1997. There
can be no assurance the Partnership will be able to complete each of the phases
outlined. If the Partnership fails to complete them, it will have to pursue
other means of effecting a restructuring and recapitalization prior to the
maturity of its credit facility on January 1, 1997. If the Partnership is
successful in arranging a complete restructuring and recapitalization of the
Partnership, the Managing General Partner believes it will enhance the
Partnership's financial strength, flexibility and future access to capital
markets as well as lowering interest expense.

REVENUE RECOGNITION: Revenue is recognized from the sale of crude oil and
refined products at the time of delivery to the customer. Transportation fees
are recognized when the crude oil or products are delivered to the contracted
destination.

NET LOSS PER UNIT: Net loss per unit is calculated using the weighted
average number of units outstanding during each quarter divided into the
Partnership's net income (loss) after adjusting for general partner allocations.

INVENTORIES: Inventories are stated at the lower of cost or market value.
Crude oil and refined product exchanges are accounted for on the inventory
method.

Effective January 1, 1993, the Partnership adopted the last-in, first-out
(LIFO) method of costing petroleum inventories. Previously, the first-in,
first-out (FIFO) method was used. Management believes that the LIFO method
better matches current costs with current revenues and minimizes the effects of
price changes on inventories. In addition, the LIFO method is the predominant
method used in the refining industry. The effect of the change in 1993 was to
reduce the loss before cumulative effect of a change in accounting principle by
approximately $4,013,000 ($0.40 per unit). The negative cumulative effect of
$3,605,000 to apply the LIFO method retroactively to the Partnership's
inception, March 29, 1990, is included in income for 1993.

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at
cost or at the carryover basis of the Partnership's predecessor which was
historical cost. Depreciation is computed by the straight-line method for
financial reporting purposes based upon the estimated useful lives of the
various assets.

Maintenance, repairs, minor renewals and replacements are charged to
expense when incurred. Betterments, major renewals and replacements are
capitalized. Repairs and maintenance expense for the years ended December 31,
1995, 1994 and 1993 was $3,539,000, $3,503,000 and $3,422,000, respectively.

INCOME TAXES: As a limited partnership, the Partnership is not a taxable
entity for federal income tax purposes and any federal income taxes are the
direct responsibility of the individual partners. Accordingly, no federal income
tax provision is made in the accompanying statement of operations related to the
operations of

D-8
<PAGE> 200

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

the Partnership itself. The Partnership's tax bases in assets and liabilities
(other than D-S Pipeline which is included with Pride Borger) are less than the
bases for financial reporting purposes by approximately $17.2 million.

The Partnership's subsidiaries, Pride Borger, Inc. ("Pride Borger") and
Pride Marketing of Texas, are corporations which are separate taxable entities.
As separate taxable entities, Pride Borger's and Pride Marketing of Texas'
operating results are subject to federal income taxes. The carryover tax bases
of D-S Pipeline assets acquired by Pride Borger (see Note 7) are significantly
less than the purchase price. As a result, a deferred tax liability was
established as part of the purchase price allocation.

RETIREMENT PLAN: The Employees' 401(k) Retirement Plan and Trust ("Plan"),
is a defined contribution plan covering substantially all full-time employees.
Under the Plan, the Partnership must make a mandatory contribution equal to 3%
of a participant's compensation and may make discretionary matching
contributions of up to an additional 3% of a participant's compensation. The
Partnership's contributions vest over a seven year period, subject to immediate
vesting upon retirement. Retirement plan expense for the years ended December
31, 1995, 1994 and 1993 was $485,000, $475,000 and $469,000, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash
equivalents approximates fair value. Interest rates associated with
substantially all the Partnership's long-term debt are linked to the prime rate.
These rates and the rates associated with standby letters of credit approximate
current market rates. As a result, management believes that the carrying amount
approximates the fair value of the Partnership's credit facilities which are
linked to the prime rate. A portion of the Partnership's debt is at stated rates
below current market rates. This includes the notes, in the original principal
amounts of $6,000,000 and $2,400,000, discussed in Note 4. The carrying amount
of such debt at December 31, 1995 is $8,137,000 and the estimated fair value is
$7,104,000. The fair value is estimated using discounted cash flow analyses,
based on the Partnership's current incremental borrowing rates for similar types
of borrowing arrangements.

STATEMENTS OF CASH FLOWS: For purposes of the statements of cash flows,
management considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In March 1995, the
Financial Accounting Standards Board issued SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The adoption of SFAS 121 in the first
quarter of 1996 is not expected to have any effect on the Partnership's
financial statements, based on current conditions.

NOTE 2 -- INVENTORIES

Inventories consist of (in thousands):

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Crude oil........................................................ $10,981 $10,337
Refined products and blending materials.......................... 5,589 7,873
------- -------
16,570 18,210
LIFO reserve..................................................... (3,426) (1,776)
------- -------
Petroleum inventories............................................ 13,144 16,434
Spare parts and supplies......................................... 1,104 1,233
------- -------
$14,248 $17,667
======= =======
</TABLE>

At December 31, 1995 and 1994, petroleum inventories valued using the LIFO
method were less than current cost determined using the FIFO method by
$3,426,000 and $1,776,000, respectively.

D-9
<PAGE> 201

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- PROPERTY PLANT AND EQUIPMENT

A summary of property, plant and equipment follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Refinery and related facilities................................ $ 70,840 $ 70,141
Pipelines and related facilities............................... 53,974 53,736
Transportation and terminal equipment.......................... 9,798 9,651
Marketing facilities and equipment............................. 860 918
Administrative facilities and equipment........................ 1,871 1,862
Construction-in-progress....................................... 435 621
-------- --------
137,778 136,929
Less accumulated depreciation.................................. 32,941 26,045
-------- --------
$104,837 $110,884
======== ========
</TABLE>

NOTE 4 -- DEBT AND CREDIT FACILITIES

Subsequent to December 31, 1995, the Partnership amended its credit
agreement to extend the maturity to January 1, 1997. The agreement calls for
monthly interest and fee payments and grants the Partnership a $6,500,000
standby letter of credit facility for general corporate purposes and the
purchase of crude oil and other refinery feedstocks ("Facility A"), a
$45,000,000 standby letter of credit facility for the purchase of crude oil
("Facility B"), an $8,000,000 revolving credit facility ("Revolver"), a
$2,500,000 uncommitted line of credit ("Uncommitted Line") and a term loan
("Term Loan") of $45,000,000. The amended credit agreement requires the
Partnership to pay a monthly fee of $10,000 and requires maintenance of a
specified level of net worth and a borrowing base as defined in the credit
agreement. The Partnership must also maintain compliance with current ratio and
fixed charge coverage covenants, as defined in the credit agreement. In
addition, it contains restrictive covenants including, among other things,
provisions concerning additional indebtedness and commitments, distributions to
partners, capital expenditures, sale of property, investments and affiliate
transactions. Distributions to partners are prohibited under the terms of the
Partnership's amended credit agreement. The agreement is guaranteed by Pride SGP
and the Managing General Partner and secured by substantially all of the assets
of the Partnership.

As of December 31, 1995, the Partnership had $721,000 in outstanding
Facility A standby letters of credit. At December 31, 1995, outstanding Facility
B standby letters of credit were $44,049,000. The Partnership pays fees of 1 and
1/2% per annum on all outstanding letters of credit and a commitment fee of 1/2
of 1% for the unused portion of the facility.

The amount available under the Revolver is reduced by the Facility A
standby letters of credit. The unused portion of the Revolver carries a 1/2 of
1% commitment fee. Outstanding advances of the Revolver accrue interest at a
rate equivalent to the prime rate (8.5% at December 31, 1995) plus 2%. Based on
the amended credit agreement, advances under the Revolver are subject to
repayment on a daily basis. As a result, the full amount outstanding at December
31, 1995 has been included in the current portion of long-term debt. Subject to
the borrowing base, the Partnership may borrow any amounts previously repaid.

Advances under the Uncommitted Line are made solely at the lenders'
discretion and bear interest at the prime rate plus 4%. The Uncommitted Line
must be completely paid off for fifteen consecutive days each month. There were
no advances under the Uncommitted Line at December 31, 1995.

The Term Loan bears interest at a rate equivalent to the prime rate plus
3%. It also contains a facility fee of approximately 5% per annum which is based
on the outstanding balance of the facility commencing January 1, 1996 and such
facility fee is payable at maturity. Under the commitment, the Partnership is
required to make quarterly principal payments of 95% of any excess cash flow, as
defined in the credit

D-10
<PAGE> 202

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

agreement, until January, 1996. Thereafter, the Partnership will pay monthly
principal payments in the amount of 95% of available cash flow for the second
preceding month.

The Partnership has outstanding indebtedness to Pride SGP, due January 1,
1997, with an outstanding balance of $2,450,000 at December 31, 1995, bearing
interest at a rate equivalent to the prime rate plus 2%.

Other installment loans include a $6,000,000 nonrecourse note, due 2014,
payable monthly with interest at 8% and a balance of $5,900,000 at December 31,
1995. The note is supported by a minimum throughput agreement. The assets of
Pride Texas Plains are pledged as collateral and the note is guaranteed by Pride
Borger (see Note 7). Monthly principal payments are based on the number of
throughput barrels.

The Partnership converted certain non-interest bearing accounts payable to
the U. S. Government Defense Fuel Supply Center (netted against accounts
receivable from the same entity at December 31, 1994) to a $2,400,000
installment loan, payable in monthly installments of $84,000, with a balance of
$2,300,000 at December 31, 1995. Two installment payments were made on this note
in 1995. The note bears interest based on the rate set semi-annually by the
Secretary of the Treasury. This rate was 6.375% as of December 31, 1995.

Amounts outstanding under these credit facilities at December 31 (in
thousands):

<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Revolver....................................................... $ 1,230 $ 5,750
Term Loans..................................................... 44,299 44,938
Related Party Loans............................................ 2,450 2,000
Other Installment Loans........................................ 8,521 6,202
------- -------
56,500 58,890
Less current portion........................................... 3,447 6,626
------- -------
$53,053 $52,264
======= =======
</TABLE>

Approximate debt maturities for the next five years are expected as
follows: 1996 -- $3,447,000; 1997 -- $46,642,000; 1998 -- $547,000;
1999 -- $137,000; and 2000 -- $436,000.

Interest paid for the years ended December 31, 1995, 1994 and 1993 was
$6,345,000, $5,097,000 and $3,822,000, respectively. Interest capitalized for
the year ended December 31, 1993 was $476,000.

NOTE 5 -- COMMITMENTS AND CONTINGENCIES

At December 31, 1995, the Partnership is committed to operating leases
which require fixed monthly rentals for administrative office space,
transportation equipment, computers and related equipment and other
miscellaneous equipment, some of which contain residual value guarantees.
Excluding rentals paid to Pride SGP (see Note 8) for certain pipeline segments,
rental expense for the years ended December 31, 1995, 1994 and 1993 was
$3,039,000, $3,186,000 and $3,213,000, respectively. The minimum future rentals
under noncancelable operating leases at December 31, 1995, excluding Pride SGP,
are as follows (in thousands):

<TABLE>
<S> <C>
1996............................................... $ 3,633
1997............................................... 2,637
1998............................................... 2,012
1999............................................... 1,047
2000............................................... 484
Thereafter......................................... 207
-------
$10,020
=======
</TABLE>

D-11
<PAGE> 203

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

During 1994, the Partnership outsourced its information systems department
and entered into a five year service agreement. Fees are dependent primarily on
central processing unit utilization which management estimates will approximate
$68,000 per month.

The Partnership is involved in various claims and routine litigation
incidental to its business for which damages are sought. Management believes
that the outcome of all claims and litigation will not have a material effect on
the Partnership's financial position or results of operations.

During 1993, the Partnership received an administrative complaint and
compliance order from the United States Environmental Protection Agency (EPA).
The principal violations alleged by the EPA include failure to properly monitor
ground water and to implement a ground water monitoring program. The complaint
seeks penalties of $553,000 and fulfillment of the compliance order at an
unspecified cost. Management believes that the Partnership has complied or is
complying with the matters specified by the EPA and does not believe that the
likelihood of a material loss is probable at this time.

In order to comply with future compliance requirements of the Texas Water
Commission and other agencies, certain expenditures will have to be incurred
during 1996, 1997 and 1998. Management's estimates of the costs of compliance
are approximately $724,000.

The Partnership has filed a substantial claim against the U. S. Government
Defense Fuel Supply Center relating to erroneous pricing of fuel purchased over
a period of several years from the Partnership. The ultimate outcome of this
matter cannot presently be determined.

NOTE 6 -- MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK

One of the Partnership's major customers is the U. S. Government Defense
Fuel Supply Center ("DFSC"). Revenues from the DFSC comprised 10% in 1995, 9% in
1994 and 10% in 1993 of total revenues. Substantially all other customers are
engaged in various aspects of the petroleum industry, one of which accounted for
13% of total revenues in 1995, 11% in 1994 and 11% in 1993.

At December 31, 1995, the Partnership had $2,124,000 receivable from the
DFSC and $2,287,000 receivable from one petroleum industry customer. In some
cases, the Partnership requires letters of credit from customers. Historically,
the Partnership's credit losses have been insignificant.

NOTE 7 -- ACQUISITION OF D-S PIPELINE AND FORMATION OF PRIDE TEXAS PLAINS

In December 1994, Pride Borger, a wholly owned subsidiary of the
Partnership, purchased 100% of the stock of D-S Pipeline and immediately
contributed all of D-S Pipeline's assets (a 50% interest in a crude and heavy
products pipeline from Hawley, Texas to Borger, Texas) to a newly formed limited
partnership, Pride Texas Plains. Pride Refining, Inc., the Partnership's
Managing General Partner, is also the managing general partner of Pride Texas
Plains and owns .1%. An entity owned by certain officers of the Managing General
Partner serves as a general partner of Pride Texas Plains and owns 1.9%. Pride
Borger is the limited partner and owns 98%. Pride Texas Plains has succeeded D-S
Pipeline as the operator of the pipeline which will serve as the Partnership's
principal mode of transporting crude oil and vacuum gas oil to the seller, a
significant customer of the Partnership. The purchase price for D-S Pipeline was
$6,050,000 with the seller financing $6,000,000 of the purchase price. The
transaction was treated as a purchase by Pride Borger. Operations of D-S
Pipeline, which are immaterial to the Partnership's operations, are included in
the Partnership's financial statements from the date of acquisition.

NOTE 8 -- RELATED PARTY TRANSACTIONS

The Partnership has an agreement with Pride SGP to lease defined segments
of the Crude Gathering System pipeline until 2000, with an option to extend the
lease through March 2013, as long as certain minimum throughput levels are
maintained. If such throughput levels are not maintained during the extended
term, the lease is cancelable by Pride SGP with ninety days notice. As
consideration for this lease, the

D-12
<PAGE> 204

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Partnership has agreed to perform all routine and emergency maintenance and
repair operations to the pipelines as well as pay all taxes, insurance, etc. The
Partnership also agreed to pay Pride SGP $0.20 per barrel additional rental for
use of a section of this pipeline which was idle prior to 1992. While management
is not able to determine if the terms of the lease are comparable to those which
could have been obtained by unaffiliated parties, management believes such terms
are fair and reasonable given the importance to the Partnership of this segment
of pipeline. The rental under the lease was determined based upon the revenue
generated from the expected throughput, which management believes represents a
fair return on the value of the pipeline as appraised by a consultant. Rentals
accruing to Pride SGP during 1995, 1994 and 1993 totaled $873,000, $1,058,000,
and $1,069,000, respectively. The Partnership has the option to purchase these
pipeline segments for $10,000,000. Beginning in August 1995, payments to Pride
SGP were suspended pursuant to the terms of an amendment to the Partnership's
credit agreement. Approximately $351,000 and $88,000 are included in accounts
payable at December 31, 1995 and December 31, 1994, respectively, related to
unpaid rentals.

During the year ended December 31, 1993, the Partnership purchased crude
oil for $4,539,000 from leases directly or indirectly operated by certain
stockholders of the general partners. The terms of the crude oil purchase
transactions were arranged by or between common management. Because of the
potential conflicts of interest involved with crude oil purchases from these
entities and, at the request of certain affiliates of Pride SGP, the Audit and
Conflicts Committee reviewed the terms of these purchases. As a result of such
review and although prices paid for these purchases were comparable to prices
paid to these related entities by other independent purchasers, they believe the
Partnership paid higher prices for sour crude oil to these entities than it may
have paid if it had purchased sour crude oil from unaffiliated third parties.
Thus, during 1993, these entities refunded the Partnership $750,000 for the
higher prices paid on sour crude and the Partnership ceased buying crude oil
from these entities. Also during 1994, a dispute with one of these shareholders
was settled resulting in the nonpayment of a $300,000 note payable and certain
other payables, net of related receivables to this stockholder.

During the years ended December 31, 1995, 1994 and 1993, the Partnership
sold $3,960,000, $2,809,000 and $1,365,000, respectively, of refined product to
a company in which a stockholder of Pride SGP has a minority interest. The
Partnership had an accounts receivable balance from this customer of $267,000
and $178,000 for the years ended December 31, 1995 and 1994, respectively.

The Partnership leased an airplane from the Managing General Partner
through June 1993 for $24,000 per month. In addition, the Partnership paid pilot
salaries, fuel, maintenance and insurance on the plane and incurred costs of
approximately $207,000 associated with the lease cancellation. The Partnership
now utilizes a smaller plane from time to time, as needed, on a per hour market
rate basis from an entity controlled by two officers of the Managing General
Partner. Payments to this entity totaled $72,000, $84,000 and $28,000 during
1995, 1994 and 1993, respectively.

Through November 1994, the Partnership leased truck tractors from a company
owned by an estate which is a stockholder of Pride SGP for approximately
$6,000-$8,000 per month. The Partnership also leases property from a relative of
one of the officers of the Managing General Partner. Lease payments were
approximately $36,000 in 1995, 1994 and 1993.

Firms associated with a director of the Managing General Partner were paid
$155,000, $17,000 and $24,000 for legal services during 1995, 1994 and 1993,
respectively.

Beginning the latter part of 1995, the Partnership ceased interest payments
on its note payable to Pride SGP. Accrued interest payable at December 31, 1995
amounted to $68,000. At December 31, 1994, the Partnership had a $94,000
receivable from the Managing General Partner and a $126,000 payable to Pride
SGP. The Managing General Partner has a 1.9% interest in the income and cash
distributions of the Partnership, subject to certain adjustments. Certain
members of the management of the Managing General Partner are also members of
the management of Pride SGP, which has a 0.1% general partner interest and 51.7%
limited partner interest in the Partnership. In addition, as discussed in Note
7, the general partner and

D-13
<PAGE> 205

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

1.9% owner of Pride Texas Plains is an entity owned by certain officers of the
Managing General Partner. The Managing General Partner owns .1% and manages
Pride Texas Plains. Compensation of directors and officers of the Managing
General Partner and any other expenses incurred on behalf of the Partnership by
the Managing General Partner and Pride SGP are paid by the Partnership.

Certain conflicts of interest, including potential non-arm's-length
transactions, could arise as a result of the relationships described above. The
Board of Directors and management of the Managing General Partner have a duty to
manage the Partnership in the best interests of the Unitholders and,
consequently, must exercise good faith and integrity in handling the assets and
affairs of the Partnership.

NOTE 9 -- PARTNERS' CAPITAL

At December 31, 1995 and 1994, 4,700,000 Preferred Units are outstanding,
representing an approximate 46.3% limited partner interest in the Partnership.
The Preferred Units are cumulative, entitled to a minimum quarterly distribution
of $0.65 per unit through the Initial Conversion Date, which is the first day of
the third calendar quarter in which the payment of all cumulative arrearages to
Preferred Unitholders have been paid, and all arrearages must be paid before the
Common Unitholders may receive distributions. The Preferred Units are
convertible into Common Units on the Initial Conversion Date. The Common Units
are also cumulative and entitled to a quarterly distribution of $0.65 per unit;
however, no Common Unit arrearages will be paid after the Initial Conversion
Date, and any such accumulated arrearages then existing will be cancelled. The
general partners are entitled to 2% of all distributions. Under its present
credit agreement, the Partnership is prohibited from making distributions. At
December 31, 1995, cumulative arrearages were $11.70 per Common Unit which
totaled $61,425,000 and $10.05 per Preferred Unit which totaled $47,235,000.

NOTE 10 -- QUARTERLY FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

<TABLE>
<CAPTION>
OPERATING INCOME NET INCOME NET INCOME
QUARTER ENDED NET REVENUES (LOSS) (LOSS) (LOSS) PER UNIT
--------------------------------- ------------ ---------------- ---------- ---------------
<S> <C> <C> <C> <C>
March 31, 1994................... $111,971 $ 2,705 $ 1,226 $ 0.13
June 30, 1994.................... 157,653 (1,279) (2,997) (0.30)
September 30, 1994............... 166,981 (106) (1,678) (0.17)
December 31, 1994................ 153,301 104 (1,941) (0.19)
March 31, 1995................... 150,426 (3,374) (5,558) (0.55)
June 30, 1995.................... 147,589 1,274 26 0.00
September 30, 1995............... 126,920 1,690 (286) (0.03)
December 31, 1995................ 135,678 318 (2,799) (0.27)
</TABLE>

D-14
<PAGE> 206

PRIDE COMPANIES, L.P.
1209 NORTH FOURTH STREET
ABILENE, TEXAS 79601

CONSENT AND VOTE FOR ADOPTION OF
PROPOSED AMENDMENTS TO RESTRUCTURE THE PARTNERSHIP

The undersigned limited partner of Pride Companies, L.P., a Delaware
Limited Partnership, hereby revokes all prior consents given with respect to the
matters covered hereunder, and acknowledges receipt of the Consent Solicitation
Statement dated .

THE PARTNERSHIP UNITS REPRESENTED BY THIS SIGNED CONSENT WILL BE TREATED AS
HAVING CAST AN AFFIRMATIVE VOTE IN ACCORDANCE WITH THE BOX YOU MARK BELOW.

Proposal: to approve and adopt the Second Amended and Restated Partnership
Agreement, a copy of which is included in the accompanying Consent Solicitation
Statement as Appendix A, including the proposed amendments described in the
Consent Solicitation Statement, to be the partnership agreement of Pride
Companies, L.P.

/ / FOR / / AGAINST

THE MANAGING GENERAL PARTNER RECOMMENDS A VOTE FOR THE PROPOSAL.

If no box is marked above, but this Consent is otherwise properly completed and
signed, the Units will be voted "for" the Proposal.

The solicitation of Consents will expire at 5:00 p.m., Central Standard Time, on
November 15, 1996, unless extended. Failure to return this Consent will have the
same effect as a vote against the Proposal.

Dated
------------, 1996

------------------------------------
Signature

------------------------------------
Title or Authorization
(if signing in a representative
capacity)

------------------------------------
Signature if jointly held

Please execute this consent as your name appears on this form. When the
partnership units are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such.

PLEASE COMPLETE, SIGN, DATE AND RETURN THIS CONSENT USING THE ENVELOPE PROVIDED,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.