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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)
PRIDE COMPANIES, L.P.
(Name of Issuer)
COMMON LIMITED PARTNERSHIP UNITS
(Title of Class of Securities)
741537302
(CUSIP Number)
GEORGE G. HICKS
VARDE PARTNERS, INC.
3600 WEST 80TH STREET
MINNEAPOLIS, MN 55431
TEL. NO.: (612) 893-1554
WITH A COPY TO:
KENNETH M. SCHNEIDER, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NY 10019-6064
TEL. NO.: (212) 373-3000
(Name, Address and Telephone Number of
Persons Authorized to Receive Notices
and Communications)
JANUARY 30, 1998
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
statement because of Rule 13d-1(b)(3) or (4), check the following box [ ].
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Page 1 of 9 Pages
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CUSIP NO. 741537302 13D Page 2 of 9 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Varde Partners, Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A)[ ]
(B)[ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
[ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
7 SOLE VOTING POWER
NUMBER OF 2,273,308 Common Units, assuming
conversion of all Series B Preferred
SHARES Units and Series C Preferred Units.
BENEFICIALLY 8 SHARED VOTING POWER
0
OWNED
BY 9 SOLE DISPOSITIVE POWER
2,273,308 Common Units, assuming
EACH REPORTING conversion of all Series B Preferred
Units and Series C Preferred Units.
PERSON WITH
10 SHARED DISPOSITIVE POWER
0
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,273,308 Common Units, assuming conversion of all Series B Preferred
Units and Series C Preferred Units.
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
[ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
Approximately 33.6%, based on information contained in the Issuer's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on January 15, 1998.
14 TYPE OF REPORTING PERSON
CO
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CUSIP NO. 741537302 13D Page 3 of 9 Pages
AMENDMENT NO. 1 TO SCHEDULE 13D
This Amendment No. 1 to Schedule 13D (the "Amendment") amends
and restates in its entirety the Schedule 13D filed with the Securities and
Exchange Commission on February 9, 1998. The sole purpose of this Amendment is
to add an electronic copy of the exhibits to Schedule 13D previously filed on
February 9, 1998 in paper format pursuant to a temporary hardship exemption.
Item 1. SECURITY AND ISSUER.
This Statement on Schedule 13D (the "Statement") relates to
the Common Limited Partnership Units (the "Common Units") of Pride Companies,
L.P., a Delaware limited partnership (the "Issuer"). The principal executive
offices of the Issuer are located at 1209 North Fourth Street, Abilene, Texas
79601.
Item 2. IDENTITY AND BACKGROUND.
This Statement is being filed by Varde Partners, Inc., a
Delaware corporation ("Varde").
Varde acts as the general partner of the general partner of
various investment funds. The address of the principal business and principal
office of Varde is 3600 West 80th Street, Minneapolis, MN 55431.
During the last five years, Varde has not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
During the last five years, Varde has not been a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or
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CUSIP NO. 741537302 13D Page 4 of 9 Pages
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
The name, business address, present principal occupation or
employment (and the name, principal business and address of any corporation or
other organization in which such employment is conducted) and the citizenship of
each director and executive officer of Varde is set forth on Exhibit 1 hereto
and is incorporated herein by reference.
Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The Issuer issued, and Varde acquired from the Issuer, Series
B Preferred Units, stated value $1,000 per unit, in the total amount of
$9,321,851, and Series C Preferred Units, stated value $1,000 per unit, in the
total amount of $5,000,000, pursuant to and upon the terms and subject to the
conditions set forth in the Restructuring and Override Agreement (a copy of
which is attached hereto as Exhibit 2), dated as of December 31, 1997, by and
among Varde, the Issuer, the managing general partner of the Issuer and the
special general partner of the Issuer. The Series B Preferred Units and the
Series C Preferred Units (together, the "Preferred Units") were purchased with
the funds of (i) the various domestic investment funds for which Varde acts as
the general partner of the general partner thereof and (ii) an investment
account and an offshore investment fund managed by affiliates of Varde and with
respect to which Varde is serving as the nominee of the investment managers
thereof. Under the Restructuring and Override Agreement, Varde also acquired
certain other securities and made certain loans to the Company. The total amount
invested by Varde in the Issuer was $29,000,000. There was no allocation made
among the various securities acquired and loans made by Varde.
Each of the Certificates of Designations of the Series B
Preferred Units and the Series C Preferred Units (copies of which are attached
hereto as Exhibits 3 and 4) provide that on or after March 31,1998, the
Preferred Units may be converted into such number of Common Units equal to the
product of the number of Preferred Units being converted, multiplied by the
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CUSIP NO. 741537302 13D Page 5 of 9 Pages
quotient of $1,000 divided by the "Conversion Price" (as defined below). The
initial Conversion Price for both the Series B Preferred Units and the Series C
Preferred Units is $6.30, which Conversion Price remains subject to
anti-dilution adjustments described in the Certificates of Designations.
Item 4. PURPOSE OF TRANSACTION.
The Preferred Units (and the Common Units into which they may
be converted) (collectively, the "Units") were acquired for investment purposes.
Varde may consider making additional purchases of equity securities of the
Issuer in open-market or private transactions, the extent of which purchases
would depend upon prevailing market and other conditions. Alternatively, Varde
may sell all or a portion of its Units in open-market or private transactions,
depending upon prevailing market conditions and other factors.
Other than as described in the Restructuring and Override
Agreement, the Certificates of Designations, the Amended and Restated
Registration Rights Agreement and the Registration Rights Agreement (described
below in Item 6), Varde does not have any present plans or proposals which
relate to or would result in: (a) the acquisition by any person of additional
securities of the Issuer, or the disposition of securities of the Issuer; (b) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Issuer or any of its subsidiaries; (c) a sale or
transfer of a material amount of assets of the Issuer or of any of its
subsidiaries; (d) any change in the present board of directors of the general
partner of or management of, the Issuer, including any plans or proposals to
change the number or term of directors or to fill any existing vacancies on the
board of the general partner of the Issuer; (e) any material change in the
present capitalization or dividend policy of the Issuer; (f) any other material
changes in the Issuer's business or partnership structure; (g) changes in the
Issuer's charter, bylaws or instruments corresponding thereto or other actions
that may impede the acquisition of control of the Issuer by any person; (h)
causing a class of securities of the
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CUSIP NO. 741537302 13D Page 6 of 9 Pages
Issuer to be delisted from a national securities exchange or to cease to be
authorized to be quoted in an inter-dealer quotation system of a registered
national securities association; (i) a class of equity securities of the Issuer
becoming eligible for termination of registration pursuant to Section 12(g)(4)
of the Securities Exchange Act of 1934; or (j) any action similar to any of
those enumerated above.
Item 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As of March 31, 1998, Varde will have the right to acquire
up to 2,273,308 Common Units (representing, based on the information contained
in the Issuer's Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 15, 1998, approximately 33.6% of the outstanding
Common Units). Accordingly, Varde may be deemed to be the beneficial owner of
the up to 2,273,308 Common Units (representing approximately 33.6% of the
outstanding Common Units).
Except as set forth in this Item 5(a), Varde does not
beneficially own any Common Units.
(b) Varde has sole voting and dispositive power with respect
to all the Common Units it acquires.
Except as set forth in the preceding sentence, Varde does not
have any power to vote or dispose of any Common Units that may be deemed to be
beneficially owned by it.
(c) Except as described in Item 4 of this Statement, Varde has
not effected any transactions relating to the Common Units which are
beneficially owned by it in the past sixty days.
(d) To the best knowledge of Varde, no person other than
Varde, the investment managers for the investment account and the offshore
investment funds (each a Delaware corporation), and the Management of the Issuer
(as described in Item 6) has the right
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CUSIP NO. 741537302 13D Page 7 of 9 Pages
to receive or the power to direct the receipt of dividends from, and the
proceeds from the sale of, the Common Units owned by it.
(e) Not applicable.
Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
Pursuant to the Restructuring and Override Agreement and the
Assignment Agreements (a form of which is attached hereto as Exhibit 5), certain
designated members of the Issuer's management (the "Management") acquired a
one-third economic interest in the Preferred Units held by Varde (and the Common
Units into which they may be converted). Payment therefor was made by the
issuance of promissory notes (the "Notes") in favor of Varde, and subject to the
terms and conditions of the Assignment Agreements and until such time the Notes
are paid in full, the Management has no voting, disposition or other rights with
respect to the securities held by it other than the right to receive
distributions and other payments thereon (which must be applied to the repayment
of principal and interest on the Notes).
The Restructuring and Override Agreement further provides
that, subject to the receipt of required consents, the Preferred Units will be
exchanged for new preferred units (the "New Preferreds"), which would give Varde
the right to receive a total of up to 52% of the Issuer's Common Units, in which
the Management would continue to hold a one-third economic interest. Under
certain circumstances, Varde may acquire the right to receive an additional 8%
of the Issuer's Common Units upon the conversion of its New Preferreds, in which
Management would not hold any interest.
In addition, Varde has entered into the Amended and Restated
Registration Rights Agreement and the Registration Rights Agreement, each dated
as of December 31, 1998, with the Issuer (copies of which are attached hereto as
Exhibits 6 and 7), giving Varde, among other things, the right, on the terms and
conditions set forth therein, to require the Issuer to register
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CUSIP NO. 741537302 13D Page 8 of 9 Pages
for sale to the public the Common Units acquired by Varde upon conversion or
exchange of the Preferred Units and the New Preferreds.
Other than as set forth in this Statement, there are no
contracts, arrangements, understandings or relationships (legal or otherwise)
between Varde and any person with respect to any securities of the Issuer,
including, but not limited to, the transfer or voting of any of the securities,
finder's fees, joint ventures, loan or option arrangements, puts or calls,
guarantees of profits, division of profits or loss, or the giving or withholding
of proxies.
Item 7. MATERIAL TO BE FILED AS EXHIBITS.
1. Information with respect to executive officers and
directors of Varde.
2. Restructuring and Override Agreement, dated as of
December 31, 1997, and among Varde, the Issuer, the
managing general partner of the Issuer and special
general partner of the Issuer.
3. Certificate of Designations relating to the Series B
Preferred Units of the Issuer.
4. Certificate of Designations relating to the Series C
Preferred Units of the Issuer.
5. Form of Assignment Agreement, by and between Varde
and certain designated members of the Issuer's
management.
6. Amended and Restated Registration Rights Agreement,
dated as of December 31, 1997, by and between Varde
and the Issuer.
7. Restated Registration Rights Agreement, dated as of
December 31, 1997, by and between Varde and the
Issuer.
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of its knowledge and
belief, the undersigned certifies that the information set forth in this
Statement is true, complete and correct.
Dated: February 11, 1998
VARDE PARTNERS, INC.
By: /s/ George G. Hicks
------------------------------------
Name: George G. Hicks
Title: Vice President
<PAGE>
THIS DOCUMENT IS A COPY OF THE EXHIBITS TO SCHEDULE 13D FILED IN PAPER FORMAT ON
FEBRUARY 9, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
EXHIBIT INDEX
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EXHIBIT PAGE
- ------- ----
1. Information with respect to executive officers and directors of
Varde.
2. Restructuring and Override Agreement, dated as of December 31, 1997,
by and among Varde, the Issuer, the managing general partner of the
Issuer and the special general partner of the Issuer.
3. Certificates of Designations relating to the Series B Preferred Units
of the Issuer.
4. Certificates of Designations relating to the Series C Preferred Units
of the Issuer.
5. Form of Assignment Agreement, by and between Varde and certain
designated members of the Issuer's management.
6. Amended and Restated Registration Rights Agreement, dated as of
December 31, 1997, by and between Varde and the Issuer.
7. Restated Registration Rights Agreement, dated as of December 31,
1997, by and between Varde and the Issuer.
<PAGE>
EXHIBIT 1
---------
INFORMATION WITH RESPECT TO EXECUTIVE OFFICERS
AND DIRECTORS OF EACH REPORTING PERSON
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VARDE
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The following information sets forth the name, business
address and present principal occupation of each of the directors and executive
officers of Varde. Except as indicated below, the business address of each
director and executive officer of Varde is 3600 West 80th Street, Minneapolis,
MN 55431. Each of the directors and executive officers of Varde is a citizen of
the United States. Each executive officer and director of Varde is a full-time
employee of Varde.
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Business Address and Present
NAME PRINCIPAL OCCUPATION
---- --------------------
George G. Hicks Vice President, Secretary; Director
Greg S. McMillan Vice President, Treasurer; Director
Marcia L. Page Vice President, Assistant Secretary,
Assistant Treasurer; Director
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During the last five years, none of the directors and
executive officers of Varde have been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors). During the last five
years, none of the directors and executive officers of Varde have been a party
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Exhibit 2
RESTRUCTURING AND OVERRIDE AGREEMENT
Restructuring and Override Agreement, dated as of December 30,
1997 (the "Agreement"), by and among Varde Partners, Inc., a Delaware
corporation ("Varde"), Pride Companies, L.P., a Delaware limited partnership
("Pride"), Pride Refining, Inc., a Texas corporation ("MGP"), as the managing
general partner of Pride and Pride SGP, Inc., a Texas corporation ("SGP"), as
the special general partner of Pride. Capitalized terms used herein but not
otherwise defined herein shall have the meaning set forth in the Credit
Agreement (as hereinafter defined).
W I T N E S S E T H :
WHEREAS, pursuant to a certain Fifth Restated and Amended
Credit Agreement, dated as of August 13, 1996 (as amended by the First through
Sixth Amendments thereto, the "Original Credit Agreement"), by and among Pride,
NationsBank of Texas, N.A. ("NationsBank"), Bank One, Texas, N.A. ("Bank One")
and the guarantors described therein, Pride has, among other things, outstanding
Term Loans and Revolving Loans (as defined therein) owing to NationsBank and
Bank One in the amounts set forth on Schedule I;
WHEREAS, pursuant to a certain Note Agreement, dated as of
August 13, 1996 (as amended by three subsequent amending Agreements, the
"Original Note Agreement"), Pride has issued the Series A Notes, the Series B
Notes and the Series C Notes (as defined therein, and collectively, the
"Convertible Notes") to NationsBank and Bank One in the amounts set forth on
Schedule I;
WHEREAS, but for the transactions described in this Agreement,
Pride's obligations under the Term Loans, the Revolving Loans and the
Convertible Notes would have either (i) become due and payable by the terms
thereof or (ii) by virtue of defaults, been accelerated by NationsBank or Bank
One;
WHEREAS, Pride, MGP, SGP and Varde desire to enter into this
Agreement and to consummate the transactions contemplated hereby in order to
maximize the value of Pride for its benefit and for the benefit of its creditors
and owners;
WHEREAS, in view of the circumstances described above, Varde
and NationsBank have entered into an Assignment Agreement, dated November 24,
1997, and Varde and Bank One have entered into a second Assignment Agreement,
also dated November 24, 1997 (together, the "Assignment Agreements"), pursuant
to which NationsBank and Bank One agreed to sell, and Varde agreed to buy,
subject to the terms and conditions thereof, all of NationsBank's and Bank One's
right, title and interest in, to, under and relating to the Term Loans, the
Convertible Notes and the Revolving Loans (the "Original Debt");
<PAGE>
2
WHEREAS, Pride, MGP, SGP and Varde have agreed to enter into
this Agreement and to consummate the transactions contemplated hereby, upon the
terms and subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. Stage 1 Restructuring.
1.1 Stage 1 Transactions. Each of Pride, MGP,
SGP and Varde hereby acknowledges, and agrees and consents to all of the
transactions described in this Section 1.1 (the "Stage 1 Transactions"). Each of
Pride, MGP, SGP and Varde acknowledges and agrees that the respective
obligations of the parties hereto to consummate each Stage 1 Transaction, is
conditioned upon the occurrence of each of the other Stage 1 Transactions and
upon the satisfaction of the Stage 1 Closing Conditions (as hereinafter defined)
which are for its benefit.
(a) Immediately upon Varde's acquisition of the
Original Debt from NationsBank and Bank One, Varde will hold the following:
Principal Amounts
-----------------
Term Loans $ 22,046,000
Series A Notes $ 2,500,000
Series B Notes $ 9,321,851
Series C Notes $ 5,000,000
Revolving Loans $ 6,907,000
(b) The parties hereby agree that immediately
upon Varde's acquisition of the Original Debt, the "Refinancing Trigger Date"
(as defined in the Original Note Agreement) will be deemed to have occurred, and
in accordance with the terms of such Original Note Agreement, the Convertible
Notes shall automatically convert as follows:
Principal Amounts or Stated Values
----------------------------------
Before the Conversion After the Conversion
--------------------- --------------------
Series A Notes $2,500,000 Series A Unsecured Note $2,500,000
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3
Series B Notes $9,321,851 Series B Units $9,321,851
Series C Notes $5,000,000 Series C Units $5,000,000
The terms of the Series B Units and the Series C Units shall be as set forth in
their respective Certificates of Designations, attached hereto as Exhibit A.
(c) Concurrently with Varde's acquisition of the
Original Debt, the Seventh Amendment to the Fifth Restated and Amended Credit
Agreement, dated as of December 30, 1997 and attached hereto as Exhibit B, shall
be executed and delivered by Pride and Varde, increasing the aggregate amount
outstanding under the Revolver Commitment to $14,900,000.
(d) Concurrently with Varde's acquisition of the
Original Debt, the Term Loans and the Revolving Loans shall be restructured as
follows:
Principal Amounts or Stated Values
----------------------------------
Before Restructuring After Restructuring
-------------------- -------------------
Term Loans $ 22,046,000 Series A Term $ 20,000,000
Loans
Revolving Loans $ 14,900,000 Series B-1 Term $ 6,000,000
Loans
Series B-2 Term $ 500,000
Loans
Series B-3 Term $ 3,000,000
Loans
Series C Term $ 4,688,924
Loans
Series D Units $ 2,757,076
The terms of the Series D Units shall be as set forth in its Certificate of
Designations, attached hereto as Exhibit C.
(e) The Sixth Restated and Amended Credit
Agreement, dated as of December 30, 1997 (the "Credit Agreement," and attached
hereto as Exhibit D) by and among Pride, Varde and the guarantors described
therein, together with the ancillary documents set forth therein and required to
be executed concurrently therewith (collectively, the "Loan Documents"), shall
be entered into,
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4
reflecting the new credit and financing arrangements described in Sections
1.1(b), (c) and (d) above.
(f) Varde shall reduce the aggregate annual
interest and dividend cash payment owed to it by Pride with respect to the
Outstanding Securities (as hereinafter defined), other than the Series A Term
Loans, to $1,090,000, and Pride shall pay such amount annually in cash as
interest and distribution payments on the Outstanding Securities other than the
Series A Term Loans. Subject to Section 1.4(f), the amount of interest and
dividends in excess of this amount shall be accrued and paid in kind (as
hereinafter defined) in the following manner: First, the cash payment shall be
applied in the following order: Series B-1 Term Loans, Series B-2 Term Loans,
Series B-3 Term Loans, Series C Term Loans, Series A Unsecured Note, Series B
Units, Series C Units and Series D Units (or the New Preferred Unit A, the New
Preferred Unit B and the New Preferred Unit C, in the event the Stage 3
Transactions (as hereinafter defined) have been effected). Then, subject to
Section 1.4(f), the distribution shall be paid in kind on the remaining
securities as to which the interest or dividend was not paid in full in cash.
As used herein, "paid in kind," when used in
reference to any distribution payable with respect to any of the Outstanding
Securities (as hereinafter defined), means payment of the distribution by
issuance of (i) additional notes in the principal amount equal to the dollar
amount of accrued but unpaid interest or (ii) additional number of Units (as
hereinafter defined) with an aggregate Stated Value (as hereinafter defined)
equal to the dollar amount of accrued and unpaid dividends. 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 Units in
respect of which they are issued.
As used herein, "Unit" or "Units" refers to the
preferred limited partnership units of Pride. As of the Stage 1 Closing, Pride
shall have the Series B Units, the Series C Units, and the Series D Units, each
with a stated value per Unit of $1,000 (the "Stated Value").
1.2 Closing. The closing of the Stage 1
Transactions (the "Stage 1 Closing") shall take place at the office of Ropes &
Gray in New York, New York, at 10:00 A.M., local time, on December 30, 1997 (the
"Stage 1 Closing Date").
1.3 Closing Conditions. The obligations of each
party hereto to consummate the Stage 1 Transactions are subject to the
satisfaction, or waiver, on or before the Stage 1 Closing, of the following
conditions (the "Stage 1 Closing Conditions"):
(a) For the benefit of all parties:
<PAGE>
5
(i) Varde shall have acquired the Term
Loans, the Convertible Notes and the Revolving Loans from NationsBank and Bank
One, pursuant to the Assignment Agreements.
(ii) The Credit Agreement and the Loan
Documents shall have been duly executed and delivered and be in full force and
effect, and no Default or Event of Default (as defined therein) shall have
occurred and be continuing thereunder.
(iii) The Revolving Credit and Term Loan
Agreement, dated as of December 30, 1997 (the "BankBoston Agreement," and
attached hereto as Exhibit E), by and among Pride, BankBoston, N.A.
("BankBoston") and the other parties thereto, pursuant to which BankBoston shall
provide $86,000,000 in total aggregate facilities in the forms of (i) a secured
letter of credit and revolving credit facility and (ii) a secured term loan,
shall have been duly executed and delivered and be in full force and effect, and
no Default or Event of Default (as defined therein) shall have occurred and be
continuing thereunder.
(iv) All permits, approvals, consents and
filings required to be obtained or made by any of the parties with respect to
this Agreement, the Credit Agreement, the Loan Documents or the BankBoston
Agreement, or the transactions contemplated hereby or thereby, shall have been
obtained and be in full force and effect.
(v) No injunction, writ, temporary
restraining order, decree or any order of any nature shall have been issued by
any court or other governmental authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or the transactions
contemplated hereby.
(vi) The Agreement of Pride SGP, dated as
of August 13, 1996, by and between SGP and Pride, shall have been duly amended
and restated as the Pride SGP Equity Conversion Agreement, attached hereto as
Exhibit F, and be in full force and effect.
(b) For the benefit of Varde:
(i) Pride shall have issued and
delivered to Varde the Series A Unsecured Note, attached hereto as Exhibit G,
and no default or event of default shall have occurred and be continuing in
respect of the Series A Unsecured Note.
(ii) Pride shall have delivered to Varde
duly authorized and validly issued Series B Units, Series C Units and Series D
Units in the aggregate Stated Values set forth in Sections 1.1(b) and 1.1(d).
(iii) Varde shall have acquired all of
NationsBank's and Bank One's right, title and interest in to, under and relating
to the two Warrants
<PAGE>
6
to Purchase Common Units, each dated as of December 31, 1996, issued to
NationsBank and Bank One, respectively.
(iv) The Registration Rights and Transfer
Restriction Agreement, dated as of December 31, 1996, by and among Pride,
NationsBank and Bank One, and relating to the Series B Units and the Series C
Units shall have been duly amended and restated as the Amended and Restated
Registration Rights Agreement (the "Amended and Restated Registration Rights
Agreement," and attached hereto as Exhibit H), and be in full force and effect.
(v) A new Registration Rights Agreement,
dated as of December 30, 1997 (the "Registration Rights Agreement," and attached
hereto as Exhibit I), by and between Pride and Varde, and relating to the New
Preferred Unit B and the New Preferred Unit C, shall have been duly executed and
delivered and be in full force and effect.
(vi) The representations and warranties
of Pride, MGP and SGP contained in this Agreement, the Credit Agreement, the
Loan Documents and the BankBoston Agreement, shall be true and correct on and as
of the Stage 1 Closing Date, with the same force and effect as though made on
and as of the Stage 1 Closing Date. Each of Pride, MGP and SGP shall have
performed and complied with all covenants and conditions required by this
Agreement, the Credit Agreement, the Loan Documents and the BankBoston Agreement
to be performed or complied with by such party on or prior to the Stage 1
Closing Date.
(vii) No claims shall be pending or, to
the knowledge of Varde, be threatened to restrain or prohibit, or to obtain
damages or a discovery order in respect of this Agreement, the Credit Agreement,
the Loan Documents or the BankBoston Agreement, or the transactions contemplated
hereby or thereby.
(viii) There shall have been no material
adverse change to the business, condition (financial or otherwise), management,
assets, properties, income or prospects of Pride since September 30, 1997.
(ix) All actions and proceedings
hereunder, and all documents required to be delivered hereunder or in connection
with the consummation of the Stage 1 Transactions and all other related matters,
shall be reasonably acceptable to counsel to Varde, as to their form and
substance.
(x) Opinion of Andrews & Kurth L.L.P.,
counsel to Pride, addressed to Varde, shall have been delivered to Varde in form
and substance satisfactory to Varde.
(c) For the benefit of Pride:
(i) Varde shall have delivered the
Convertible Notes marked "canceled" to Pride.
<PAGE>
7
(ii) The representations and warranties
of Varde contained in this Agreement, the Credit Agreement and the Loan
Documents shall be true and correct on and as of the Stage 1 Closing Date, with
the same force and effect as though made on and as of the Stage 1 Closing Date.
Varde shall have performed and complied with all covenants and conditions
required by this Agreement, the Credit Agreement and the Loan Documents to be
performed or complied with by it on or prior to the Stage 1 Closing Date.
(iii) No claims shall be pending or, to
the knowledge of Pride, MGP or SGP, be threatened to restrain or prohibit, or to
obtain damages or a discovery order in respect of this Agreement, the Credit
Agreement, the Loan Documents or the BankBoston Agreement, or the transactions
contemplated hereby or thereby.
(iv) All actions and proceedings
hereunder, and all documents required to be delivered hereunder or in connection
with the consummation of the Stage 1 Transactions and all other related matters,
shall be reasonably acceptable to counsel to Pride, as to their form and
substance.
(v) Opinion of counsel to Varde,
addressed to Pride, shall have been delivered to Pride in form and substance
satisfactory to Pride.
1.4 Covenants.
(a) Any proceeds (the "DFSC Proceeds") received
by Pride in connection with a certain Proposal for Additional Compensation,
dated October 24, 1994, from Pride to the Defense Fuel Supply Center, shall be
applied as follows: (x) the first $6,000,000 (or, if less, all of such proceeds)
to reduce the Series A Term Loan, (y) the next $5,000,000 to ratably reduce each
of the respective Series B Term Loans or if applicable, redeem the New Preferred
Unit A held by Varde provided, however, that funds applied to the redemption of
New Preferred Unit A as provided herein shall be so applied with respect to the
initial Stated Value of the New Preferred 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 Pride, and (z) the remainder, if any,
shall be paid (i) two-thirds to Pride and (ii) one-third to Varde in immediately
available funds, no later than two Business Days after Pride's receipt thereof.
To the extent, if any, required by clause (ii) of Section 4.3.5 of the
BankBoston Agreement, any amount paid to Varde under clause (z)(ii) of this
Section 1.4(a) shall be applied as set forth in such section.
(b) Each of Pride and MGP agree to use its best
efforts to have the Board of Directors of MGP approve, as soon as practicable
after the date hereof, the election to the Board of Directors of the Managing
General Partner of the Company of one additional director (the "Series B and C
Director") of the Managing General Partner (out of a total Board of Directors
consisting of nine directors) who is a principal of Varde or who is designated
by Varde and acceptable to the Managing General Partner if: no holder of Series
B Units, Series C Units or Series D Units (or
<PAGE>
8
any Affiliate of such a holder) holds, directly or indirectly, any debt of the
Company (other than the Series A Term Loans, the Series B Term Loans, the Series
C Term Loans and the Series A Unsecured Note), and (i) the Company shall have
failed to pay in full in cash the amounts required to be paid per annum under
Section 1.1(f) of this Agreement for six quarterly distribution periods (whether
or not consecutive), or (ii) the Company shall have failed to redeem in full for
cash all outstanding Series B Units, Series C Units or Series D 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, Series C Units or Series D
Units. If such approval is obtained, appropriate amendments shall be made to the
certificates of designations and appropriate voting agreements with the
stockholders shall be executed and delivered.
(c) At any time on or prior to the third
anniversary of the Stage 1 Closing Date, Pride or certain members of Pride's
management designated in writing by Pride (the "Designated Management") shall
have the right (the "Call Option"), upon not less than thirty Business Days
written notice (the "Call Notice") to Varde, to require Varde to sell all, but
not less than all, of its interest in all of the securities acquired in
connection with the Stage 1 Closing (including all of the securities into which
the initially acquired securities have been converted pursuant to the Stage 3
Transactions (as hereinafter defined)) and all securities issued as payments in
kind with respect to such initially acquired securities (collectively, the
"Outstanding Securities"). The closing of this sale and purchase (the "Option
Closing") shall take place thirty Business Days (as hereinafter defined) after
receipt of the Call Notice by Varde, and any exercise by Pride or the Designated
Management of the Call Option shall become irrevocable once exercised. The
exercise price (the "Exercise Price") for the Call Option shall be, as of any
date, set at an amount such that the Exercise Price will produce the sum of (i)
all amounts outstanding under the Series B-2 Term Loans (including all accrued
interest thereon and other amounts payable with respect thereto) plus (ii) a 40%
IRR (as hereinafter defined) to Varde, subject to a minimum Exercise Price of
$7,500,000 plus the cost to Varde of acquiring the Outstanding Securities then
subject to the Call Option. The Exercise Price shall be paid by Pride to Varde
at the Option Closing by wire transfer in immediately available funds. In
exchange, Varde shall deliver the securities with respect to which the Call
Option has been exercised to Pride or Designated Management, without any
representations or warranties other than its ownership thereof free and clear of
any lien or other encumbrance, which securities shall be taken subject to Pride
Management's (as hereinafter defined) interest therein as set forth in the
Management Agreements (as hereinafter defined). Notwithstanding the foregoing,
Pride or the Designated Management may exercise the Call Option only with
respect to the Outstanding Securities other than the Series B-2 Term Loans, in
which event the Exercise Price shall exclude clause (i) of the definition
thereof and the Series B-2 Term Loans shall remain outstanding after such
exercise.
<PAGE>
9
As used herein, "Business Day" means any day other
than a Saturday, Sunday or other day on which commercial banks in the City of
New York are authorized or required by law or executive order to close.
As used herein, "IRR" means a compounded internal
rate of return derived by taking into account (i) the $29,000,000, representing
the amount invested in Pride by Varde in respect of the Outstanding Securities
other than the Series B-2 Term Loans, (ii) the amount of any interest or
dividend payments, or other distributions on the Outstanding Securities, as the
case may be, received by Varde on such Outstanding Securities (as of the dates
received), (iii) the amount of any proceeds received by Varde upon the
cancellation or redemption prior to any date of determination of its IRR of all
or any portion of such Outstanding Securities (as of the dates received) and
(iv) without duplication, the amount of any DFSC Proceeds received by Varde in
accordance with clause (z)(ii) of Section 1.4(a) hereof. The determination of
Varde's IRR shall be made by Varde in accordance with the provisions hereof and
shall be conclusive and binding on Pride in the absence of manifest error.
As used herein, "Pride Management" means those
certain members of the management of Pride, designated by Pride, who are parties
to the Management Agreements (as hereinafter defined).
As used herein, "Management Agreements" means the
Assignment Agreements by and between Varde and each member of Pride Management,
a form of which is attached hereto as Exhibit J.
(d) Varde agrees, upon the execution and
delivery to Varde of each of the Notes, the Security Agreements and the
Employment Agreements (each as defined in the Management Agreements, forms of
which are attached hereto as Exhibit K), and a legal opinion from Andrews &
Kurth L.L.P. in form and substance satisfactory to Varde, to execute and deliver
the Management Agreements.
(e) Pride agrees not to modify, rescind or amend
any Employment Agreement without the prior written consent of Varde.
(f) Pride agrees to cooperate with Varde to
ensure that the holder of the Outstanding Securities is entitled to preferential
distributions which will not be taxable to such holder if such preferential
distributions are not paid in cash and that such preferential distributions will
not be characterized as "guaranteed payments" for purposes of the Internal
Revenue Code of 1986, as amended. Pride may accomplish the intent of this
Section 1.4(f) by amending the Outstanding Securities or exchanging the
Outstanding Securities for new securities that have identical terms and
conditions to those for which they are exchanged other than changes necessary to
accomplish the intent of this section. In connection with such cooperation,
Pride will take into account the benefit to the holder of the Outstanding
Securities contemplated by this section and any adverse impact on Pride and its
partners and will use its reasonable efforts to give effect to the intent of
this Section 1.4(f) unless the tax
<PAGE>
10
benefits to the holder of the Outstanding Securities realizable on a current
cash basis are not greater than the tax detriment, if any, to Pride and its
partners on a current cash basis. Pride agrees that the inability to take a
deduction for guaranteed payments shall not be considered a tax detriment. Varde
acknowledges that certain actions that may be taken in connection with herewith
may require the approval of Pride's Unitholders (as hereinafter defined).
2. Stage 2 Restructuring.
2.1 Stage 2 Transactions. Each of MGP, Pride,
SGP and Varde hereby acknowledges, agrees and consents to the transaction
described in this Section 2.1 (the "Stage 2 Transactions"). Each of Pride, MGP,
SGP and Varde acknowledges and agrees that the respective obligations of the
parties hereto to consummate each Stage 2 Transaction, is conditioned upon the
satisfaction of the Stage 2 Closing Conditions (as hereinafter defined) which
are for its benefit:
(a) Pride shall repay in full, all of the
outstanding amounts under the Series A Term Loans, beginning with all accrued
interest thereon and any other amounts payable with respect thereto.
2.2 Closing. The closing of the Stage 2
Transactions (the "Stage 2 Closing") shall take place simultaneously with the
satisfaction of the Stage 2 Closing Conditions under Section 2.3(b)(i) below.
2.3 Closing Conditions. The obligations of each
party hereto to consummate the Stage 2 Transactions are subject to the
satisfaction, or waiver, on or before the Stage 2 Closing, of the following
conditions (the "Stage 2 Closing Conditions"):
(a) For the benefit of all parties:
(i) The Stage 1 Transactions shall have
been consummated.
(ii) A third-party lender (including, but
not limited to, BankBoston) acceptable to Pride and Varde shall have provided
sufficient financing to enable Pride to repay the full outstanding balance under
the Series A Term Loans, including all accrued interest thereon and any other
amounts payable with respect thereto (collectively, the "Series A Term Loan
Repayment Amount").
(iii) All permits, approvals, consents and
filings required to be obtained or made by any of the parties with respect to
the Stage 2 Transactions shall be obtained and be in full force and effect.
(b) For the benefit of Varde:
<PAGE>
11
(i) Varde shall have received by wire
transfer, in immediately available funds, the Series A Term Loan Repayment
Amount.
(ii) All actions and proceedings
hereunder, and all documents required to be delivered hereunder or otherwise in
connection with the consummation of the Stage 2 Transactions and all other
related matters, shall be reasonably acceptable to counsel to Varde as to their
form and substance.
(c) For the benefit of Pride:
(i) Pride shall have received the Series
A Term Note marked canceled or the Series A Term Loans shall have been assigned
to the new third party lender.
(ii) All actions and proceedings
hereunder, and all documents required to be delivered hereunder or in connection
with the consummation of the Stage 2 Transactions and all other related matters,
shall be reasonably acceptable to counsel to Pride as to their form and
substance.
2.4 Covenants. Pride and MGP hereby jointly and
severally covenant and agree with Varde, subject to no condition other than the
consummation of the Stage 1 Transactions, that:
(a) The supply contract, by and between Pride
and Texaco Trading and Transportation, Inc., a Delaware corporation (the "Texaco
Supply Contract") shall be in full force and effect as of the date hereof, and
each of Pride, MGP and SGP shall use reasonable efforts to achieve all
operational prerequisites for receiving product under the Texaco Supply Contract
as promptly as practicable, but no later than March 31, 1998.
(b) Each of Pride and MGP shall use reasonable
efforts to cease operations of Pride's refinery located in Jones County, Texas
and provide a written confirmation of the same to Varde by June 30, 1998.
(c) Each of Pride and MGP shall use its
reasonable best efforts to satisfy all of the conditions set forth in Article 5
of the BankBoston Agreement which must be satisfied in order to effect the Stage
2 Transaction.
3. Stage 3 Restructuring.
3.1 Stage 3 Transactions. Each of Pride, MGP,
SGP and Varde hereby acknowledges, and agrees and consents to all of the
transactions described in this Section 3.1 (the "Stage 3 Transactions"). Each of
Pride, MGP, SGP and Varde acknowledges and agrees that the respective
obligations of the parties hereto to consummate each Stage 3 Transaction, is
conditioned upon the occurrence of each of the other Stage 3 Transactions and
upon the satisfaction of the Stage 3 Closing Conditions (as hereinafter defined)
which are for its benefit.
<PAGE>
12
(a) Varde agrees to exchange the Outstanding
Securities for the following:
Principal Amounts or Stated Values
<TABLE>
<CAPTION>
Before the Exchange After the Exchange
<S> <C> <C> <C>
Series B Term Loans $9,500,000.00 New Preferred Unit A $9,500,000.00
Series C Term Loans $4,688,924.00 New Preferred Unit B $2,500,000.00
Series A Unsecured $2,500,000.00 New Preferred Unit C $2,500,000.00
Note
Series B Units $9,321,851.00
Series C Units $5,000,000.00
Series D Units $2,757,076.00
</TABLE>
(b) The terms of the New Preferred Unit A and
the New Preferred Unit C (together with the New Preferred Unit B, collectively,
the "New Preferred Units") shall be substantially the same as the terms of the
New Preferred Unit B, the Form of Certificate of Designations of which is
attached hereto as Exhibit L, with the following exceptions:
(i) The New Preferred Unit B shall rank
junior to the New Preferred Unit A, and the New Preferred Unit C shall rank
junior to the New Preferred Unit A and the New Preferred Unit B, as to
distributions or upon liquidation, dissolution or winding up.
(ii) Each series of New Preferred Units
shall vote as a separate class.
(iii) The dividend rates per annum on the
New Preferred Units shall be as follows:
Percentage of
Stated Value
------------
New Preferred Unit A 12%
New Preferred Unit B 5%
New Preferred Unit C 5%
Except as provided in Section 1.1(f) above, all distributions shall be paid
solely in cash.
(iv) The New Preferred Units shall be
convertible into the Common (as hereinafter defined) at such a conversion price
determined on the
<PAGE>
13
basis of the total number of Common outstanding as of the Stage 3 Closing Date,
calculated on a fully diluted basis. If all of the outstanding New Preferred
Units are converted into the Common on the Stage 3 Closing Date, they shall
result in the following percentages of the total number of Common outstanding
(on a fully diluted basis):
Percentage of
Common
------
New Preferred Unit A None
New Preferred Unit B 10%
New Preferred Unit C 42%
As used herein, the "Common" refers to the common
limited partnership units of Pride.
(c) In the event the Stage 2 Transactions have
not occurred, but the Stage 3 Transactions do take place, the dividend rates and
the conversion features of the New Preferred Units shall be as follows:
Dividend Conversion
-------- ----------
New Preferred Unit A 12% None
New Preferred Unit B 5% 10%
New Preferred Unit C 5% 50%
The interest rates on the outstanding Series A Term Loans shall be as set forth
in the Credit Agreement.
3.2 Closing. The closing of the Stage 3
Transactions (the "Stage 3 Closing") shall take place as soon as practicable,
subject to the satisfaction of the Stage 3 Closing Conditions, but in any event
no later than such date (the "Stage 3 Closing Date") that is no later than ten
Business Days after the Unitholder approval has been obtained pursuant to
Section 3.4(a) below.
As used herein, "Unitholder" refers to the holders of Pride's
Series B Units, Series C Units and the Common.
3.3 Closing Conditions. The obligations of each
party hereto to consummate the Stage 3 Transactions are subject to the
satisfaction, or waiver, on or before the Stage 3 Closing, of the following
conditions (the "Stage 3 Closing Conditions"):
(a) For the benefit of all parties:
(i) The Stage 1 Transactions shall have
been consummated.
<PAGE>
14
(ii) Pride shall have obtained the
approval of its Unitholders for the exchange of the Outstanding Securities for
the New Preferred Units.
(iii) Pride shall have obtained the
approval of the New York Stock Exchange and any other required regulatory
authority for the exchange of the Outstanding Securities for the New Preferred
Units.
(iv) The Second Amended and Restated
Agreement of Limited Partnership of Pride Companies, L.P. shall be amended in
connection with the issuance of the New Preferred Units with such amended terms
and conditions satisfactory to Pride and Varde.
(b) For the benefit of Varde:
(i) The Stage 3 Closing shall have
occurred on or before October 1, 1999.
(ii) Pride shall have delivered to Varde
duly authorized and validly issued New Preferred Unit A, New Preferred Unit B
and New Preferred Unit C in the aggregate Stated Values set forth in Section
3.1(a). The terms of the New Preferred Units shall be as set forth in this
Agreement and in their respective Certificates of Designations, a form of which
is attached hereto as Exhibit L.
(iii) The representations and warranties
of Pride, MGP and SGP contained in this Agreement (including, without
limitation, each of the representations and warranties contained in Section 4.1
of this Agreement) shall be true and correct on and as of the Stage 3 Closing
Date, with the same force and effect as though made on and as of the Stage 3
Closing Date. Each of Pride, MGP and SGP shall have performed and complied with
all covenants and conditions required by this Agreement to be performed or
complied with by such party on or prior to the Stage 3 Closing Date.
(iv) There shall have been no material
adverse change to the business, condition (financial or otherwise), management,
assets, properties, income or prospects of Pride since September 30, 1997.
(v) The Credit Agreement, the Loan
Documents and the BankBoston Agreement continue to be in full force and effect,
and no default or event of default shall have occurred and be continuing
thereunder (including, without limitation, under Sections 8.1(h) and 8.1(i) of
the Credit Agreement and Section 8.1.10 of the BankBoston Agreement).
(vi) Pride shall not be a party to any
agreement involving a merger, consolidation or sale of any substantial portion
of the assets of Pride or have announced a recapitalization. For the purposes of
this
<PAGE>
15
Section 3.3(b)(vi), any line of business of Pride shall be deemed to constitute
a substantial portion of the assets of Pride.
(vii) Opinion of Andrews & Kurth L.L.P.
counsel to Pride, addressed to Varde, shall have been delivered to Varde in form
and substance satisfactory to Varde.
(c) For the benefit of Pride:
(i) Varde shall have delivered to Pride
the Series B Term Loans, the Series C Term Loans, the Series A Unsecured Note
and the Series B Units and the Series C Units marked "canceled."
(ii) The representations and warranties
of Varde contained in this Agreement shall be true and correct on and as of the
Stage 3 Closing Date, with the same force and effect as though made on and as of
the Stage 3 Closing Date. Varde shall have performed and complied with all
covenants and conditions required by this Agreement to be performed or complied
with by Varde on or prior to the Closing Date.
3.4 Covenants.
(a) Pride agrees to use its best efforts to
solicit the consents of its Unitholders in order to effect the Stage 3
Transactions. Pride agrees, prior to October 1, 1999, to cause a meeting or
solicitation of the Unitholders to be duly called or made, for the purpose of
voting on or soliciting the approval of the Stage 3 Transactions. The general
partners of Pride shall recommend the approval and adoption of the Stage 3
Transactions submitted to the Unitholders. In connection with the Unitholder
Meeting, Pride: (i) shall promptly prepare and file with the Securities and
Exchange Commission ("SEC"), in accordance with the Securities Exchange Act of
1934 (the "Exchange Act"), a consent solicitation (the "Consent Solicitation"),
which, when filed, shall contain all of the information required to be set forth
therein by the applicable provisions of the Exchange Act; (ii) shall use all
reasonable efforts to have the Consent Solicitation and/or any amendment or
supplement thereto cleared by the SEC, and shall promptly as practicable
thereafter mail such Consent Solicitation to its Unitholders; (iii) shall use
all reasonable efforts to obtain the necessary approvals by its Unitholders of
the Stage 3 Transactions; and (iv) shall otherwise comply with all legal
requirements applicable to such a meeting of Unitholders.
(b) Varde agrees to provide Pride with such
information relating to Varde which is required to be disclosed for the purpose
of obtaining the consents of Pride's Unitholders.
(c) Pride hereby agrees to comply with each of
the Additional Covenants set forth on Schedule II attached hereto.
<PAGE>
16
4. Representations and Warranties.
4.1 Pride, MGP and SGP hereby jointly and
severally represent and warrant to Varde as of the Stage 1 Closing Date, as
follows:
(a) Each of Pride, MGP and SGP is a limited
partnership or a corporation, respectively, duly organized, validly existing and
in good standing under the laws of the jurisdiction of its formation, and has
all requisite power and authority to execute and deliver this Agreement and all
other agreements, instruments and documents (collectively, the "Related
Documents") executed and delivered by it in connection herewith, and to
consummate the transactions contemplated hereby and by the Related Documents,
and has obtained all consents and approvals and made all registrations required
to be made or obtained by it in connection herewith and therewith.
(b) The execution, delivery and performance of
this Agreement and the Related Documents executed and delivered by Pride, MGP or
SGP in connection herewith do not violate (i) any law, rule, regulation, order,
writ, judgment, injunction, decree, or determination presently in effect and
having applicability to such party, (ii) any contract, indenture, mortgage, loan
agreement, note, lease or other instrument by which Pride, MGP or SGP may be
bound or to which any of the assets of such party is subject, or (iii) any
provision of Pride's, MGP's or SGP's organizational documents, subject, in the
case of the Stage 3 Transactions, to the approval of Pride's Unitholders.
(c) Each of this Agreement and the Related
Documents to which Pride, MGP or SGP is a party constitutes the legal, valid and
binding obligation of Pride, MGP and SGP, enforceable against Pride, MGP and SGP
in accordance with its terms.
(d) There are no, and after giving effect to the
transactions contemplated hereby there will not be, any actions, suits,
proceedings, claims or disputes pending, or to the best knowledge of Pride, MGP
or SGP, threatened, at law, in equity, in arbitration or before any governmental
authority against Pride, MGP or SGP with respect to this Agreement, the Related
Documents, or any of the transactions contemplated hereby or thereby.
(e) No information disclosed to Varde by or on
behalf of Pride, MGP or SGP in connection with (i) the ability of Pride, MGP or
SGP to perform its respective obligations as set forth in this Agreement, or
(ii) any other matter relating to the transactions contemplated hereby or by the
Related Documents, contains any untrue statement of material fact or omits to
state a material fact necessary in order to make such information taken as a
whole, in light of the circumstances under which it was disclosed, not
misleading.
(f) There are 4,950,000 Common Units issued and
outstanding and 7,938,252 Common Units outstanding on a fully diluted basis.
<PAGE>
17
(g) Each of the Series B Units, Series C Units
and Series D Units will be duly authorized and validly issued, upon issuance
pursuant to this Agreement, with all rights and privileges pertaining thereto
set forth in their respective Certificate of Designations. Upon issuance, each
of the New Preferred Units issued pursuant to the Stage 3 Transactions shall be
duly authorized and validly issued.
(h) The representations and warranties contained
in the Credit Agreement, the BankBoston Agreement and this Agreement are true
and correct. No default or event of default has occurred and is continuing under
the Credit Agreement or the BankBoston Agreement.
4.2 Varde's Representations. Varde hereby
represents and warrants as of the date hereof as follows:
(a) Varde is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
formation, and has all requisite power and authority to execute and deliver this
Agreement and the Related Documents executed and delivered by it in connection
herewith and to consummate the transactions contemplated hereby and by such
Related Documents, and has obtained all consents and approvals and made all
registrations required to be made by it in connection herewith and therewith.
(b) The execution, delivery and performance of
this Agreement and the Related Documents executed and delivered by Varde in
connection herewith do not violate (i) any law, rule, regulation, order, writ,
judgment, injunction, decree, or determination presently in effect and having
applicability to Varde, (ii) any contract, indenture, mortgage, loan agreement,
note, lease or other instrument by which Varde may be bound or to which any of
the assets of Varde is subject or (iii) any provision of Varde's organizational
documents.
(c) This Agreement constitutes the legal, valid
and binding obligation of Varde, enforceable against Varde in accordance with
its terms.
(d) Varde is acquiring the Outstanding
Securities solely for investment purposes, and not with a view to, or for resale
in connection with, any distribution of the Outstanding Securities in violation
of applicable securities laws. Varde understands that the Outstanding Securities
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws by reason of specific exemptions
under the provisions thereof, the availability of which depend in part upon the
bona fide nature of its investment intent and upon the accuracy of its
representations made in this Section 4. Varde understands that Pride is relying
in part upon the representations and agreements contained in this Section 4 for
the purpose of determining whether this transaction meets the requirements for
such exemptions.
<PAGE>
18
(e) Varde is an "accredited investor" as defined
in Rule 501(a) under the Securities Act.
(f) Varde has such knowledge, skill and
experience in business, financial and investment matters that it is capable of
evaluating the merits and risks of an investment in the Outstanding Securities.
(g) Varde understands that the Outstanding
Securities are "restricted securities" under applicable federal securities laws,
that the Securities Act and the rules promulgated thereunder provide in
substance that it may dispose of the Outstanding Securities only pursuant to an
effective registration statement under the Securities Act or an exemption
therefrom, and that Pride has no obligation or intention to register any of the
Outstanding Securities, or securities issuable upon conversion or exercise
thereof, thereunder (except pursuant to the Amended and Restated Registration
Rights Agreement and the Registration Rights Agreement).
5. Indemnities.
Pride, MGP and SGP hereby jointly and severally agree
to indemnify and hold Varde and its agents, affiliates, and controlling persons,
and each of their officers, partners, directors, and employees (collectively,
the "Indemnitees"), harmless from and against any and all expenses (including,
without limitation, reasonable attorneys' fees and disbursements), costs,
losses, claims, damages or liabilities (collectively, "Losses") which are
incurred by the Indemnitees or any of them, caused or in any way resulting from
or relating to this Agreement, any of the Related Documents or in connection
with any of the transactions contemplated hereby and thereby. Notwithstanding
the foregoing, no Indemnitee shall be indemnified for any Losses resulting from
(i) adverse market conditions or changes or (ii) the willful misconduct or gross
negligence of such Indemnitee.
6. Miscellaneous
6.1 Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided, however, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by Pride, MGP, SGP or any of their subsidiaries, except as provided
in Section 1.4(c) hereof.
6.2 Notices. All notices, demands or other
communications between any of the parties hereto shall be in writing. Notices
delivered personally or by telecopier shall be deemed received on the same
Business Day if delivered personally or by telecopier before 3:00 p.m.
(recipient's local time) on such day, and otherwise on the next Business Day.
Any notice, demand or other communication so addressed to the relevant parties
shall be deemed to have been received (i) if given or made by certified or
registered mail, by hand delivery or by courier service, when actually delivered
to the relevant address (and such location is open for business) and (ii) if
given or made by facsimile, on the date that the communication is received by a
<PAGE>
19
responsible employee of the recipient in legible form (and being agreed that the
burden of proving receipt will be on the sender and will not be met by a
transmission report generated by the sender's facsimile machine).
All notices to Pride shall be given to:
Pride Companies L.P.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and
General Counsel
Tel: 915-674-8000
Fax: 915-676-8792
All notices to MGP shall be given to:
Pride Refining, Inc.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and
General Counsel
Tel: 915-674-8000
Fax: 915-676-8792
All notices to SGP shall be given to:
Pride SGP, Inc.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and
General Counsel
Tel: 915-674-8000
Fax: 915-676-8792
All notices to Varde shall be given to:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George G. Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
<PAGE>
20
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
6.3 Termination. In the event the Stage 1
Closing does not occur on or prior to January 31, 1998, any party may
immediately terminate this Agreement upon written notice to the other parties,
and this Agreement shall become null and void and have no further force or
effect. Notwithstanding anything to the contrary herein, this Section 6.3 and
Sections 1.4(b), 2.4(d), 3.4(d) and 5 shall survive such termination and remain
in full force and effect and any such termination shall not affect any
obligation of any party which is due and remains unfulfilled (including, without
limitation, any amounts due and unpaid under this Agreement or under any Related
Document).
6.4 Final Integration. This Agreement, together
with the exhibits and schedules attached hereto and the Related Documents
executed and delivered in connection herewith, shall serve as the final
integration and expression of all agreements between Pride and any other party
or parties with respect to the subject matter hereof, and any previous
agreement, representation or warranty, whether oral or written, shall have no
further force and effect.
6.5 Publicity. Except as may be required by
applicable law or the rules of any national securities exchange or national
market, none of Pride, MGP or SGP shall issue a publicity release or
announcement or otherwise make any public disclosure concerning this Agreement,
any Related Document or any of the transactions contemplated hereby or thereby,
without prior approval by Varde. If any announcement is required by law to be
made by Pride, MGP or SGP, prior to making such announcement, Pride, MGP or SGP,
as the case may be, will deliver a draft of such announcement to Varde and shall
give Varde an opportunity to comment thereon.
6.6 Governing Law. The laws of the State of New
York (without regard to principles of conflict of laws that would cause the
application of the laws of any other jurisdiction) shall govern the
construction, interpretation and enforceability of this Agreement in any
dispute, case or controversy arising in or under or related to or connected with
this Agreement or the relationship between or among the parties hereto.
6.7 WAIVER OF JURY TRIAL. TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT
<PAGE>
21
(WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN
ANY JUDICIAL PROCEEDING TO WHICH ANY OF THEM ARE PARTIES INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT, DUTY IMPOSED BY LAW
OR OTHERWISE) IN ANYWAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS
AGREEMENT OR ANY RELATED DOCUMENT, OR THE RELATIONSHIP ESTABLISHED HEREUNDER AND
WHETHER ARISING OR ASSERTED BEFORE OR AFTER THE DATE HEREOF OR BEFORE OR AFTER
THE PAYMENT OBSERVANCE AND PERFORMANCE IN FULL OF ANY OBLIGATIONS OF ANY PARTY
UNDER THIS AGREEMENT OR ANY OF THE RELATED DOCUMENTS.
6.8 LIMITATION OF LIABILITY. NO CLAIM MAY BE
MADE BY PRIDE, MGP OR SGP AGAINST VARDE OR ITS AFFILIATES, DIRECTORS, OFFICERS,
EMPLOYEES, OR ATTORNEYS FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN
RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (WHETHER THE CLAIM THEREFOR IS BASED
ON CONTRACT, TORT OR DUTY IMPOSED BY LAW) IN CONNECTION WITH, ARISING OUT OF OR
IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED AND RELATIONSHIPS
ESTABLISHED BY THIS AGREEMENT OR ANY OF THE RELATED DOCUMENTS, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH. EACH OF PRIDE, MGP AND SGP
HEREBY WAIVE, RELEASE AND AGREE NOT TO SUE UPON SUCH CLAIM FOR ANY SUCH DAMAGES,
WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS
FAVOR.
6.9 Survival of Representations. All
representations, warranties, covenants, disclaimers, acknowledgments and
agreements made by the parties hereto shall be considered to have been relied
upon by the parties hereto, and shall be true and correct as of the date hereof
and as of the Stage 1 Closing Date and the Stage 3 Closing Date, and shall
survive the execution, performance and delivery of this Agreement and all other
documents contemplated hereby for a period of three years from the Stage 1
Closing Date.
6.10 Further Assurances. Each of the parties
hereto agrees to execute and deliver, or cause to be executed and delivered, all
such instruments and to take all such action as the other party may reasonably
request in order to effectuate the intent and purposes of and to carry out the
terms of this Agreement and the transactions contemplated hereby.
6.11 Amendments. No amendment of any provision of
this Agreement shall be effective unless it is in writing and signed by Pride,
MGP, SGP and Varde. No waiver of any provision of this Agreement nor consent to
any departure by the parties therefrom, shall be effective unless it is in
writing and signed by each of the other parties, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
<PAGE>
22
6.12 Headings. The headings of the Sections of
this Agreement are for information purposes only and do not constitute a part of
this Agreement.
6.13 Expenses. Pride shall pay all of the actual
out-of-pocket expenses (including, without limitation, reasonable attorneys'
fees and disbursements) of Varde up to $250,000 arising out of, relating to or
incidental to this Agreement and the transactions contemplated hereby, including
the discussions, evaluations, negotiations and documentations of this Agreement
and the transactions contemplated hereby plus all such expenses incurred in
connection with Section 1.1 of the Management Agreements.
6.14 Counterparts. This Agreement may be executed
in counterparts, each of which when so executed shall be original but all such
counterparts shall together constitute but one and the same instrument.
<PAGE>
23
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute this Agreement on the date first above written.
VARDE PARTNERS, INC.
By: /s/ George G. Hicks
-----------------------
Name: George G. Hicks
Title: Vice President
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc., Its Managing General
Partner
By:/s/ Dave Caddell
-------------------
Name: Dave Caddell
Title: Vice President
PRIDE REFINING, INC.
By:/s/ Dave Caddell
-------------------
Name: Dave Caddell
Title: Vice President
PRIDE SGP, INC.
By:/s/ Dave Caddell
-------------------
Name: Dave Caddell
Title: Vice President
<PAGE>
24
Schedule I
Original Debt
Borrower: Pride Companies, L.P.
Lenders: NationsBank of Texas, N.A.
Bank One, Texas, N.A.
Amount Owed as of
Type of Loan December 30, 1997
- ------------ -----------------
Term Loans $22,046,000
Series A Notes $ 2,500,000
Series B Notes $ 9,321,851
Series C Notes $ 5,000,000
Revolving Loans* $ 6,907,000
Total $45,774,851
* Amount outstanding as of December 30, 1997
<PAGE>
Schedule II
Additional Covenants
1. Financial Statements and Reports. Each of Pride
and its Subsidiaries shall maintain a system of accounting in which correct
entries shall be made of all transactions in relation to their business and
affairs in accordance with generally accepted accounting practice. The fiscal
year of Pride and its Subsidiaries shall end on March 31, June 30, September 30
and December 31 in each year.
(a) Annual Reports. Pride shall furnish to
Varde as soon as available, and in any event within 90 days after the end of
each fiscal year (or, if such 90th day is not a Business Day, the next
succeeding Business Day), the audited Consolidated balance sheet of Pride and
its Subsidiaries as at the end of such fiscal year, the Consolidated statements
of income and Consolidated statements of changes in partners' equity and of cash
flows of Pride and its Subsidiaries for such fiscal year (all in reasonable
detail) and comparative figures for the immediately preceding fiscal year, all
accompanied by:
(i) Reports of Ernst & Young LLP (or, if they cease to be
auditors of Pride and its Subsidiaries, other independent certified
public accountants of recognized national standing reasonably
satisfactory to Varde), containing no material qualification, to
the effect that they have audited the foregoing Consolidated
financial statements in accordance with generally accepted auditing
standards and that such Consolidated financial statements present
fairly, in all material respects, the financial position of Pride
and its Subsidiaries covered thereby at the dates thereof and the
results of their operations for the periods covered thereby in
conformity with GAAP.
(ii) Computations by Pride comparing the financial
statements referred to above with the most recent budget for such
fiscal year furnished to Varde in accordance with Section 6.1(d) of
the Credit Agreement.
(iii) Calculations, as of the end of such fiscal year, of
(i) the Accumulated Benefit Obligations for each Plan (other than
Multiemployer Plans) and (ii) the fair market value of the assets
of such Plan allocable to such benefits.
(iv) In the event of a change in GAAP after December 31,
1997, computations by Pride, signed by a Financial Officer,
reconciling the financial statements referred to above with the
financial condition of Pride and its Subsidiaries as at the end of
and for the year covered by such financial statements.
(v) In reasonable detail, management's discussion and
analysis of the results of operations and the financial condition
of Pride and its
<PAGE>
Subsidiaries as at the end of and for the year covered by such
financial statements.
(b) Quarterly Reports. Pride shall furnish to
Varde as soon as available and, in any event, within 45 days after the end of
each of the first three fiscal quarters of Pride (or, if such 45th day is not a
Business Day, the next succeeding Business Day), the internally prepared
Consolidated balance sheet of Pride and its Subsidiaries as of the end of such
fiscal quarter, the Consolidated statements of income, of changes in partners'
equity and of cash flows of Pride and its Subsidiaries for such fiscal quarter
and for the portion of the fiscal year then ended (all in reasonable detail) and
comparative figures for the same period in the preceding fiscal year, all
accompanied by:
(i) A certificate of Pride signed by a Financial Officer
to the effect that such financial statements have been prepared in
accordance with GAAP and present fairly, in all material respects,
the financial position of Pride and its Subsidiaries covered
thereby at the dates thereof and the results of their operations
for the periods covered thereby, subject only to normal year-end
audit adjustments and the addition of footnotes.
(ii) Computations by the Borrower comparing the financial
statements referred to above with the most recent budget for the
period covered thereby furnished to Varde in accordance with
Section 6.1(d) of the Credit Agreement.
(iii) In reasonable detail, management's discussion and
analysis of the results of operations and financial condition of
Pride and its Subsidiaries as at the end of and for the fiscal
period covered by the financial statements referred to above.
(c) Monthly Reports. Pride shall furnish to
Varde as soon as available and, in any event, within 30 days after
the end of each Month (or, if such 30th day is not a Business Day,
the next succeeding Business Day, the internally prepared
Consolidated balance sheet of Pride and its Subsidiaries as at the
end of such Month and the Consolidated statements of income of
Pride and its Subsidiaries for such month (all in reasonable
detail), all accompanied by a certificate of Pride signed by a
Financial Officer to the effect that such financial statements were
prepared in accordance with GAAP and present fairly, in all
material respects, the financial position of the Persons covered
thereby at the date thereof and the results of the of their
operations for the periods covered thereby, subject only to normal
year-end audit adjournments and the addition of footnotes.
(d) Other Reports. Pride shall promptly furnish
to the Varde:
(i) As soon as prepared and in any event at
least 30 days prior to the beginning of each fiscal year, an annual budget and
operating
<PAGE>
projections for such fiscal year of Pride and its Subsidiaries,
prepared in a manner consistent with the manner in which the
financial projections described in Section 5.6 of the Credit
Agreement were prepared.
(ii) Any material updates such budget and
projections.
(iii) Any management letters furnished to Pride or
any of its Subsidiaries by the Pride's auditors.
(iv) All budgets, projections, statements of
operations and other reports furnished generally to the
shareholders and Pride.
(v) Such registration statements, proxy statements
and reports, including Forms S-1, S-2, S-3, S-4, 10-K, 10-Q and
8-K, as may be filed by the Pride or any of its Subsidiaries with
the Securities and Exchange Commission and all press releases
issued by Pride or any of the guarantors under the Credit Agreement
(the "Guarantor").
(vi) Any 90-day letter or 30-day letter from the
federal Internal Revenue Service (or the equivalent notice received
from state or other taxing authorities) asserting tax deficiencies
against Pride or any of its Subsidiaries.
(vii) The financial statements of MGP and SGP for
each fiscal year, such financial statements to include the balance
sheet, income statement and cash flow statement for such period,
and be delivered as so as available and in any event within 90 days
after the end of the each fiscal year.
(viii) Within 120 days after the end of Pride's
fiscal year, an annual projections model, satisfactory in both form
and context to Varde, which model shall cover a minimum of three
projected years.
(ix) As soon as available, copies of the minutes
of all meetings of the boards of directors of each of MGP or SGP
and all meetings of holders of the equity securities of the
Guarantors.
(e) Other Information. Such other information
concerning the business, properties or financial condition of Pride as Varde
shall reasonably request.
2. Other Notices. Pride shall promptly notify Varde
of (i) any material adverse change in the financial condition of Pride or any of
the Guarantors, or their businesses, (ii) any default under any material
agreement, contract, or other instrument to which it is a party or by which any
of its properties are bound, or any acceleration of the maturity of any
Indebtedness owing by Pride or any of the Guarantors, (iii) any material adverse
claim against any affecting Pride or any
<PAGE>
Subsidiary or any of its properties, and (iv) the commencement of, and any
material determination in, any material litigation with any third party or any
proceeding before any Tribunal affecting Pride or any of the Guarantors.
Exhibit 3
CERTIFICATE OF DESIGNATIONS
of
SERIES B CUMULATIVE CONVERTIBLE PREFERRED UNITS
of
PRIDE COMPANIES, L.P.
---------------------
Pursuant to the Second Amended and Restated Agreement
of Limited Partnership
effective as of December 30, 1997
---------------------
Pride Refining, Inc., a Texas corporation, as Managing General
Partner of Pride Companies, L.P. (the "Company"), certifies that pursuant to
authority contained in the Second Amended and Restated Agreement of Limited
Partnership effective as of December 30, 1997, 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"), which shall consist of a maximum of 15,850
Units, with a Stated Value per Unit of $1,000.00 (the "Stated Value").
Section 2. Definitions. In addition to the definitions set
forth elsewhere herein, the following terms shall have the meanings indicated:
"$2,000,000 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 $2,000,000.
"$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.
<PAGE>
2
"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).
"BankBoston Credit Agreement" means that certain Revolving
Credit and Term Loan Agreement, dated as of December 30, 1997, by and among the
Company (as borrower), BankBoston, N.A. (as a lender and as agent), the
guarantors parties thereto and the lenders from time to time parties thereto, as
such agreement may be amended from time to time.
"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 the Partnership
Agreement.
"Credit Agreement" means the Sixth Restated and Amended Credit
Agreement dated as of December 30, 1997, 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), and Varde (as lender), as such agreement may be amended from time
to time.
"Indebtedness" means all obligations, contingent or otherwise,
which in accordance with GAAP are required to be classified upon the balance
sheet of the Borrower (or other specified Person) as liabilities, but in any
event including (without duplication);
(i) borrowed money;
(ii) indebtedness evidenced by notes, debentures
or similar instruments;
(iii) Capitalized Lease Obligations;
(iv) the deferred purchase price of assets, services
or securities, including related noncompetition, consulting and stock
repurchase obligations (other than ordinary trade accounts payable
within six months after the incurrence thereof in the ordinary course
of business);
(v) mandatory redemption or dividend rights on
capital stock (or other equity);
<PAGE>
3
(vi) reimbursement obligations, whether
contingent or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and Interest Rate
Protection Agreements (without duplication of other Indebtedness
supported or guaranteed thereby);
(vii) unfunded pension liabilities;
(viii) obligations that are immediately and
directly due and payable out of the proceeds of or production from
property;
(ix) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified Person),
whether or not the liability secured thereby shall have been assumed;
and
(x) all Guarantees in respect of Indebtedness of
others.
The term "Capitalized Lease Obligations" means the amount of
liability reflecting the aggregate discounted amount of future payments under
all Capitalized Leases calculated in accordance with GAAP, including Statement
Nos. 13 and 98 of the Financial Accounting Standards Board. The term
"Capitalized Lease" means any lease which is required to be capitalized on the
balance sheet of the lessee in accordance with GAAP, including Statement Nos. 13
and 98 of the Financial Accounting Standards Board. The term "Interest Rate
Protection Agreement" means any interest rate swap, interest rate cap, interest
rate hedge or other contractual arrangement that converts variable interest
rates into fixed rates, fixed interest rates into variable rates or other
similar arrangements. The term "Lien" means any lien, mortgage, security
interest, tax lien, pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure the repayment
of Indebtedness, whether arising by agreement or under any statute or law, or
otherwise. The term "Guarantee" of any Person means any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person in any manner, whether
directly or indirectly, including without limitation agreements: (i) to purchase
such Indebtedness or any property constituting security therefor, (ii) to
advance or supply funds (A) for the purchase or payment of such Indebtedness, or
(B) to maintain net worth or working capital or other balance sheet conditions,
or otherwise to advance or make available funds for the purchase or payment of
such Indebtedness, (iii) to purchase property, securities or service primarily
for the purpose of assuring the holder of such Indebtedness of the ability of
the primary obligor to make payment of the Indebtedness, or (iv) otherwise to
assure the holder of the Indebtedness of the primary obligor against loss in
respect thereof; except that "Guarantee" shall not include the endorsement by
the Company in the ordinary course of business of negotiable instruments or
documents for deposit or collection.
<PAGE>
4
"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.
"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, as amended, providing, among other things, for the
issuance by the Company of the Series A Unsecured Note.
"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 December 31, 1996, 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, and by Amendment No. 3 to Pipeline Lease Agreement, effective as
of December 30, 1997.
<PAGE>
5
"Pride SGP Equity Conversion Agreement" means the amended and
restated Agreement of Pride SGP, dated as of August 13, 1996, by and between the
Special General Partner and the Company, together with the Subordination
Agreement attached thereto.
"Restructuring Agreement" means that certain Restructuring and
Override Agreement, dated as of December 30, 1997, by and among the Company, the
Managing General Partner, the Special General Partner and Varde.
"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 Term Loan" means the term loan in the aggregate
principal amount of $20,000,000 owed by the Company to Varde pursuant to the
Credit Agreement.
"Series A Unsecured Note" means the Convertible Unsecured
Series A Promissory Notes of the Company in the aggregate initial principal
amount of $2,500,000, issued by the Company to Varde pursuant to the Note
Purchase Agreement.
"Series C Units" means the Series C Cumulative Convertible
Preferred Units of the Company issued in accordance with the Partnership
Agreement and the Certificate of Designations dated as of December 30, 1997,
relating to such series.
Series C Units are Parity Securities.
"Series D" Units means the Series D Cumulative Preferred Units
of the Company issued in accordance with the Partnership Agreement and the
Certificate of Designations dated as of December 30, 1997, relating to such
series. Series D Units are Junior Securities.
"Series E Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as contemplated by Section
2.1 of the Pride SGP Equity Conversion Agreement, upon the conversion of the
$2,000,000 Loan. Series E Units are Junior Securities.
"Series F Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as contemplated by Section
2.1 of the Pride SGP Equity Conversion Agreement, upon the conversion of the
$450,000 Loan. Series F Units are Junior Securities.
"SGP Guarantee" means the guarantee by the Special General
Partner of, among other things, (i) the distribution rights and liquidation
preferences of the
<PAGE>
6
Series B Units, the Series C Units and the Series D Units and (ii) the
obligations of the Company to Varde under the Series A Unsecured Note.
"Special General Partner" means Pride SGP, Inc., a Texas
corporation, or any successor in its capacity as special general partner of the
Company.
"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.
"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.
"Units" means any or all or each, as the context may require,
of the Series B Units, the Series C Units, the Series D Units, the Series E
Units and the Series F Units.
"Varde" means Varde Partners, Inc., a Delaware corporation,
and its successors and assigns.
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;
<PAGE>
7
(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 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 Date in
the three-year period referred to in subsection (b)(i) shall be payable only in
cash to the extent that payments to Varde pursuant to Section 1.1(f) of the
Restructuring Agreement in any year are less than $1,090,000.00. 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.
<PAGE>
8
(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) Except as otherwise provided in Section
1.1(f) of the Restructuring Agreement, 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 unless Varde has received the full
amount in cash to which it is entitled under Section 1.1(f) of the
Restructuring Agreement 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
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
<PAGE>
9
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) pay any principal
or interest on, or 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
Indebtedness, except for the following:
(i) So long as the Credit Agreement is
in effect, the Indebtedness permitted and set forth in Section 7.1 of
the Credit Agreement; and
<PAGE>
10
(ii) If the Credit Agreement is no longer
in effect, the Indebtedness set forth in Section 6.6 of the BankBoston
Credit Agreement (whether or not the BankBoston Credit Agreement shall
then be in effect).
(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, 1998: (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) except as otherwise provided in the Restructuring Agreement, Litigation
Settlements or Equity Offerings, shall be applied (or converted into cash and
then applied, if applicable) by the Company (i) first, to the payment of all
amounts outstanding and due under the Credit Agreement and the BankBoston Credit
Agreement; (ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the outstanding
Series B Units in accordance with Section 6 hereof; provided, 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.
(h) Except as otherwise provided in the
Restructuring Agreement, all consideration received by the Company or any
Subsidiary in connection with the resolution (by judgment or otherwise) or
settlement of any
<PAGE>
11
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 payment of all amounts outstanding and due under the
Credit Agreement and the BankBoston Credit Agreement; (ii) next, to the payment
of all amounts outstanding and due under the Series A Unsecured Note; (iii)
then, to the redemption of the outstanding Series B Units in accordance with
Section 6 hereof; provided, 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.
(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
(i) first, to the payment of all amounts outstanding and due under the Credit
Agreement and the BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note; (iii) then, to
the redemption of the outstanding Series B Units in accordance with Section 6
hereof; provided, 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. 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 in the manner provided in clauses (i), (ii) and (iii) of this Section
4(i).
(j) [intentionally omitted]
(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
<PAGE>
12
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.
(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 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
<PAGE>
13
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 proceed 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 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 Amended
and Restated Registration Rights Agreement referred to in Section 12 hereof, the
Pride SGP Equity Conversion Agreement, and the Warrants to Purchase Common
Units, issued by the Company to each holder of Series B Units or Series C Units.
(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
<PAGE>
14
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 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. "Retirement Date" means the date on which the
Series A Term Loan, the Series B Term Loans, the Series C Term Loan and the
Series A Unsecured Note (each as defined in the Credit Agreement) are repaid in
full.
(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) 180 days after the Maturity Date, as
defined in the Credit Agreement;
(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 Indebtedness 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
<PAGE>
15
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
(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.
<PAGE>
16
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.
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
<PAGE>
17
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 canceled 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
<PAGE>
18
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 canceled 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 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 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 Series D Units, the Series E Units,
the Series F 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 of Series B Units
and Series C Units representing two-thirds or more of the aggregate Stated Value
of the then outstanding Series B Units 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 Units 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
Units 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
<PAGE>
19
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 of the Series B
Units and Series C Units representing 51% or more of the aggregate Stated Value
of the then outstanding Series B Units 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 Units or Series C Units (other
than Series B Units 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 Indebtedness and payment of distributions to holders of Parity
Securities or Junior Securities) that benefit or protect the rights of holders
of the Series B Units 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) [intentionally omitted]
(d) [intentionally omitted]
(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. The number of Common Units deliverable
upon conversion of one Series B Unit shall be determined by dividing the Stated
Value of
<PAGE>
20
the Series B Unit by the Conversion Price (as defined below) then in effect. The
"Conversion Period" shall commence on 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 full in accordance with Section 6 hereof.
(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 $6.30 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
$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 B Units and the Series C
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 $1,000.00 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
<PAGE>
21
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.
<PAGE>
22
(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.
(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
<PAGE>
23
(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 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 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 (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
<PAGE>
24
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 canceled 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 para graph (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
<PAGE>
25
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 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
<PAGE>
26
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 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
<PAGE>
27
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 adjust
ments 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,
<PAGE>
28
(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:
(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;
(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).
<PAGE>
29
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
<PAGE>
30
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.
(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 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:
<PAGE>
31
(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.
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
<PAGE>
32
(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 the consummation of the Stage 1
Closing, as defined in the Restructuring 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 Varde, which is the initial holder of Series B
Units, and shall not be applicable with respect to proposed transfers
of Rights by Varde to any of its 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 Varde desires to transfer all or any
part of its Rights, other than to an Affiliate, Varde 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
<PAGE>
33
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 Varde 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 Varde, Varde
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 Varde, Varde 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
Varde 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 Amended and Restated
<PAGE>
34
Registration Rights Agreement dated as of December 30, 1997, by and between the
Company and Varde.
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, Varde's address for
notice is:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
Section 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.
<PAGE>
35
IN WITNESS WHEREOF, this Certificate has been executed by the
Managing General Partner, on behalf of the Company, by its Managing General
Partner as of the 30th day of December, 1997.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By: /s/ Dave Caddell
------------------------------
Name: Dave Caddell
Title: Vice President
Exhibit 4
CERTIFICATE OF DESIGNATIONS
of
SERIES C CUMULATIVE CONVERTIBLE PREFERRED UNITS
of
PRIDE COMPANIES, L.P.
Pursuant to the Second Amended and Restated Agreement
of Limited Partnership
effective as of December 30, 1997
---------------------
Pride Refining, Inc., a Texas corporation, as Managing General
Partner of Pride Companies, L.P. (the "Company"), certifies that pursuant to
authority contained in the Second Amended and Restated Agreement of Limited
Partnership effective as of December 30, 1997, 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 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"), which shall consist of a maximum of 15,000
Units, with a Stated Value per Unit of $1,000.00 (the "Stated Value").
Section 2. Definitions. In addition to the definitions set
forth elsewhere herein, the following terms shall have the meanings indicated:
"$2,000,000 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 $2,000,000.
"$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.
<PAGE>
2
"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).
"BankBoston Credit Agreement" means that certain Revolving
Credit and Term Loan Agreement, dated as of December 30, 1997, by and among the
Company (as borrower), BankBoston, N.A. (as a lender and as agent), the
guarantors parties thereto and the lenders from time to time parties thereto, as
such agreement may be amended from time to time.
"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 the Partnership
Agreement.
"Credit Agreement" means the Sixth Restated and Amended Credit
Agreement dated as of December 30, 1997, 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), and Varde (as lender), as such agreement may be amended from time
to time.
"Indebtedness" means all obligations, contingent or otherwise,
which in accordance with GAAP are required to be classified upon the balance
sheet of the Borrower (or other specified Person) as liabilities, but in any
event including (without duplication);
(i) borrowed money;
(ii) indebtedness evidenced by notes, debentures
or similar instruments;
(iii) Capitalized Lease Obligations;
(iv) the deferred purchase price of assets,
services or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade accounts
payable within six months after the incurrence thereof in the ordinary
course of business);
(v) mandatory redemption or dividend rights on
capital stock (or other equity);
<PAGE>
3
(vi) reimbursement obligations, whether
contingent or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and Interest Rate
Protection Agreements (without duplication of other Indebtedness
supported or guaranteed thereby);
(vii) unfunded pension liabilities;
(viii) obligations that are immediately and
directly due and payable out of the proceeds of or production from
property;
(ix) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified Person),
whether or not the liability secured thereby shall have been assumed;
and
(x) all Guarantees in respect of Indebtedness of
others.
The term "Capitalized Lease Obligations" means the amount of
liability reflecting the aggregate discounted amount of future payments under
all Capitalized Leases calculated in accordance with GAAP, including Statement
Nos. 13 and 98 of the Financial Accounting Standards Board. The term
"Capitalized Lease" means any lease which is required to be capitalized on the
balance sheet of the lessee in accordance with GAAP, including Statement Nos. 13
and 98 of the Financial Accounting Standards Board. The term "Interest Rate
Protection Agreement" means any interest rate swap, interest rate cap, interest
rate hedge or other contractual arrangement that converts variable interest
rates into fixed rates, fixed interest rates into variable rates or other
similar arrangements. The term "Lien" means any lien, mortgage, security
interest, tax lien, pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure the repayment
of Indebtedness, whether arising by agreement or under any statute or law, or
otherwise. The term "Guarantee" of any Person means any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness of any other Person in any manner, whether
directly or indirectly, including without limitation agreements: (i) to purchase
such Indebtedness or any property constituting security therefor, (ii) to
advance or supply funds (A) for the purchase or payment of such Indebtedness, or
(B) to maintain net worth or working capital or other balance sheet conditions,
or otherwise to advance or make available funds for the purchase or payment of
such Indebtedness, (iii) to purchase property, securities or service primarily
for the purpose of assuring the holder of such Indebtedness of the ability of
the primary obligor to make payment of the Indebtedness, or (iv) otherwise to
assure the holder of the Indebtedness of the primary obligor against loss in
respect thereof; except that "Guarantee" shall not include the endorsement by
the Company in the ordinary course of business of negotiable instruments or
documents for deposit or collection.
<PAGE>
4
"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.
"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, as amended, providing, among other things, for the
issuance by the Company of the Series A Unsecured Note.
"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 December 31, 1996, 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.
"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, and by Amendment No. 3 to Pipeline Lease Agreement, effective as
of December 30, 1997.
<PAGE>
5
"Pride SGP Equity Conversion Agreement" means the amended and
restated Agreement of Pride SGP, dated as of August 13, 1996, by and between the
Special General Partner and the Company, together with the Subordination
Agreement attached thereto.
"Restructuring Agreement" means that certain Restructuring and
Override Agreement, dated as of December 30, 1997, by and among the Company, the
Managing General Partner, the Special General Partner and Varde.
"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 Term Loan" means the term loan in the aggregate
principal amount of $20,000,000 owed by the Company to Varde pursuant to the
Credit Agreement.
"Series A Unsecured Note" means the Convertible Unsecured
Series A Promissory Notes of the Company in the aggregate initial principal
amount of $2,500,000, issued by the Company to Varde pursuant to the Note
Purchase Agreement.
"Series B Units" means the Series B Cumulative Convertible
Preferred Units of the Company issued in accordance with the Partnership
Agreement and the Certificate of Designations dated as of December 30, 1997,
relating to such series. Series B Units are Parity Securities.
"Series D" Units means the Series D Cumulative Preferred Units
of the Company issued in accordance with the Partnership Agreement and the
Certificate of Designations dated as of December 30, 1997, relating to such
series. Series D Units are Junior Securities.
"Series E Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as contemplated by Section
2.1 of the Pride SGP Equity Conversion Agreement, upon the conversion of the
$2,000,000 Loan. Series E Units are Junior Securities.
"Series F Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as contemplated by Section
2.1 of the Pride SGP Equity Conversion Agreement, upon the conversion of the
$450,000 Loan. Series F Units are Junior Securities.
"SGP Guarantee" means the guarantee by the Special General
Partner of, among other things, (i) the distribution rights and liquidation
preferences of the
<PAGE>
6
Series B Units, the Series C Units and the Series D Units and (ii) the
obligations of the Company to Varde under the Series A Unsecured Note.
"Special General Partner" means Pride SGP, Inc., a Texas
corporation, or any successor in its capacity as special general partner of the
Company.
"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.
"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.
"Units" means all or any or each, as the context may require,
of the Series B Units, the Series C Units, the Series D Units, the Series E
Units and the Series F Units.
"Varde" means Varde Partners, Inc., a Delaware corporation,
and its successors and assigns.
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.
(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;
<PAGE>
7
(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 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
subsec tion (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 Date in
the three-year period referred to in subsection (b)(i) shall be payable only in
cash to the extent that payments to Varde pursuant to Section 1.1(f) of the
Restructuring Agreement in any year are less than $1,090,000.00. 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.
<PAGE>
8
(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) Except as otherwise provided in Section
1.1(f) of the Restructuring Agreement, so long as any Series C 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 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 unless Varde has received the full
amount in cash to which it is entitled under Section 1.1(f) of the
Restructuring Agreement 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
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
<PAGE>
9
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 C 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) pay any principal
or interest on, or 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 C Units in any manner so as to affect adversely any
of the preferences, rights or powers of the Series C 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
Indebtedness, except for the following:
(i) So long as the Credit Agreement is in
effect, the Indebtedness permitted and set forth in Section 7.1 of the
Credit Agreement;
<PAGE>
10
(ii) If the Credit Agreement is no longer in
effect, the Indebtedness set forth in Section 6.6 of the BankBoston
Credit Agreement (whether or not the BankBoston Credit Agreement shall
then be in effect).
<PAGE>
11
(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, 1998: (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) except as otherwise provided in the Restructuring Agreement, Litigation
Settlements or Equity Offerings, shall be applied (or converted into cash and
then applied, if applicable) by the Company (i) first, to the payment of all
amounts outstanding and due under the Credit Agreement and the BankBoston Credit
Agreement; (ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the outstanding
Series C Units in accordance with Section 6 hereof; provided, that funds applied
to the redemption of Series C 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.
(h) Except as otherwise provided in the
Restructuring Agreement, 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 payment of all amounts outstanding
and due under the Credit Agreement and the BankBoston Credit Agreement; (ii)
next, to the payment of all
<PAGE>
12
amounts outstanding and due under the Series A Unsecured Note; (iii) then, to
the redemption of the outstanding Series C Units in accordance with Section 6
hereof; provided, that funds applied to the redemption of Series C 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.
(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
(i) first, to the payment of all amounts outstanding and due under the Credit
Agreement and the BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note; (iii) then, to
the redemption of the outstanding Series C Units in accordance with Section 6
hereof; provided, that funds applied to the redemption of Series C 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. 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 in the manner provided in clauses (i), (ii) and (iii) of this Section
4(i).
(j) [intentionally omitted]
(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 C 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
<PAGE>
13
prepared in accordance with generally accepted accounting principles
("GAAP"), consistently maintained and applied, subject to year-end
audit adjustments.
(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.
(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 C Units representing 51% or
more of the aggregate Stated Value of the outstanding Series C 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
<PAGE>
14
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 proceed 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 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 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 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 Amended
and Restated Registration Rights Agreement referred to in Section 12 hereof, the
Pride SGP Equity Conversion Agreement, and the Warrants to Purchase Common
Units, issued by the Company to each holder of Series B Units or Series C Units.
(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
<PAGE>
15
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, redeem for cash at any time
after the 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. "Redemption Date" means the date fixed by the Managing
General Partner for redemption. "Retirement Date" means the date on which the
Series A Term Loan, the Series B Term Loans, the Series C Term Loan and the
Series A Unsecured Note (each as defined in the Credit Agreement) are repaid in
full.
(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) 180 days after the Maturity Date, as
defined in the Credit Agreement;
(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 Indebtedness 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;
<PAGE>
16
(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.
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.
<PAGE>
17
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 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 C 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 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.
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.
<PAGE>
18
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 canceled 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 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
<PAGE>
19
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 canceled 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 C Units in
accordance with Section 3 hereof.
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 Series D Units, the Series E Units,
the Series F 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 of Series B Units
and Series C Units representing two-thirds or more of the aggregate Stated Value
of the then outstanding Series B Units 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 Units 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
Units 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
<PAGE>
20
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 of the Series B
Units and Series C Units representing 51% or more of the aggregate Stated Value
of the then outstanding Series B Units 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 Units or Series C Units (other
than Series B Units 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 Indebtedness and payment of distributions to holders of Parity
Securities or Junior Securities) that benefit or protect the rights of holders
of the Series B Units 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) [intentionally omitted]
(d) [intentionally omitted]
(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. 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
<PAGE>
21
"Conversion Period" shall commence on March 31, 1998 and shall end on the date
on which all outstanding Series C Units have been redeemed and the aggregate
Redemption Price has been paid full in accordance with Section 6 hereof.
(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 $6.30 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 B Units and the Series C
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 $1,000.00 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
<PAGE>
22
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 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
<PAGE>
23
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:
(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
<PAGE>
24
(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 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
<PAGE>
25
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 canceled
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 para graph (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
<PAGE>
26
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
<PAGE>
27
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.
(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 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
<PAGE>
28
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 adjust
ments 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,
<PAGE>
29
(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;
(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).
<PAGE>
30
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 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
<PAGE>
31
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.
(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:
<PAGE>
32
(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 C 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
<PAGE>
33
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.
(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 the consummation of the Stage 1
Closing, as defined in the Restructuring 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).
(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 C 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 Varde, which is the initial holder of Series C
Units, and shall not be applicable with respect to proposed transfers
of Rights by Varde to any of its 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 Varde desires to transfer all or any
part of its Rights, other than to an Affiliate, Varde shall give
written notice to the Managing General Partner of its intention to
transfer all or a specified part of
<PAGE>
34
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
Varde 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 Varde, Varde
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 Varde, Varde 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
Varde 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 C Units have certain registration rights with respect to
Common Units
<PAGE>
35
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
Amended and Restated Registration Rights Agreement dated as of December 30,
1997, by and between the Company and Varde.
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 the case may be, shall have designated by
notice similarly given. As of the Initial Issuance Date, Varde's address for
notice is:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
Section 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.
<PAGE>
36
IN WITNESS WHEREOF, this Certificate has been executed by the
Managing General Partner, on behalf of the Company, by its Managing General
Partner as of the 30th day of December, 1997.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By: /s/ Dave Caddell
---------------------------------
Name: Dave Caddell
Title: Vice President
Exhibit 5
[FORM OF] ASSIGNMENT AGREEMENT
Assignment Agreement, dated as of December 30, 1997 (the
"Agreement"), by and between Varde Partners, Inc., a Delaware corporation
("Varde"), and ______________ (the "Executive").
W I T N E S S E T H :
Simultaneously with the execution and delivery of this
Agreement, a Restructuring and Override Agreement, dated as of December 30, 1997
(the "Restructuring Agreement"), by and among Varde, Pride Companies, L.P., a
Delaware limited partnership ("Pride"), Pride Refining, Inc., a Texas
corporation, as the managing general partner of Pride and Pride SGP, Inc., a
Texas corporation, as the special general partner of Pride, is being executed
and delivered. Capitalized terms used herein but not otherwise defined herein
shall have the meanings set forth in the Restructuring Agreement (including
terms defined therein by incorporation by reference of terms defined in the
Credit Agreement).
The Executive is an employee of Pride. Simultaneously with the
execution and delivery of this Agreement, the Executive and Pride are executing
and delivering an Employment Agreement, dated as of December 30, 1997, in the
form attached hereto as Exhibit A (the "Employment Agreement").
Varde wishes to provide certain incentives to the Executive,
and the Executive wishes to provide certain benefits to Varde, all to the extent
set forth herein.
I. BASIC AGREEMENT
1.1 Assignment. Effective upon, and subject to the occurrence
of, the Stage 1 Transactions, Varde hereby assigns, subject to the terms and
conditions set forth herein, an undivided interest in the securities and
indebtedness of Pride set forth on Schedule 1 hereto (such securities, including
any securities and indebtedness into which they may be converted or exchanged,
the "Executive Securities"). In consideration for such assignment, the Executive
shall execute and deliver to Varde his duly executed and delivered promissory
note in a principal amount equal to the purchase price for the Executive
Securities set forth on Schedule 1 (the "Purchase Price") and in the form
attached hereto as Exhibit B (the "Note"), and agrees to the terms and
conditions set forth herein.
1.2 Holding and Voting of Executive Securities. The Executive
acknowledges and agrees that the Executive Securities represent an undivided
interest in securities and indebtedness acquired by Varde under the
Restructuring Agreement and the agreements described therein. The Executive
acknowledges receipt of a copy of the Restructuring Agreement and the Credit
Agreement and consents to the terms
<PAGE>
2
thereof. The Executive acknowledges and agrees that, until such time as the Note
is paid in full, he shall have no voting, disposition or other rights with
respect to the Executive Securities other than the right to receive
distributions and other payments thereon, subject to the provisions set forth
herein. Varde shall retain all voting rights in respect of the Executive
Securities, including, without limitation, the right to amend the terms thereof
(so long as any such amendment does not discriminate among securities of the
same class), and shall have no obligations whatsoever with respect to the
Executive Securities other than the payment obligations set forth herein;
provided, however, upon payment in full of the Note in accordance with the terms
and conditions of this Agreement, Varde shall (i) request Pride to deliver to
the Executive certificates or other evidences of his Executive Securities and
(ii) execute such other documents and instruments as may be necessary or
appropriate to evidence the transfer of record title in and to the Executive
Securities to the Executive.
1.3 Note and Security Agreement. Subject to the terms and
conditions hereof, the Note shall constitute a non-recourse obligation of the
Executive payable solely from the distributions and other payments with respect
to the Executive Securities. To secure the Executive's obligations under the
Note and this Agreement, the Executive shall execute and deliver simultaneously
with the execution and delivery of this Agreement a Security Agreement in the
form attached hereto as Exhibit C (the "Security Agreement") pursuant to which
the Executive shall grant to Varde a first priority, perfected security interest
in all of his right, title and interest in the Executive Securities.
1.4 Interest on Note. The Note shall constitute a cash flow
obligation only and interest shall be payable from time to time only from, and
in amounts equal to, all cash distributions on the Executive Securities (other
than distributions that constitute cash payments of principal on the Executive
Securities or cash redemptions of the Stated Value of Executive Securities that
constitute partnership units of Pride) net of the amount of federal income
taxes, if any, payable by the Executive with respect to the applicable cash
distribution (such net amount being referred to as an "Interest Payment"). All
Interest Payments shall be the property of Varde and shall be applied to the
payment of interest on the Note upon receipt by Varde.
Notwithstanding the foregoing provisions of this Section 1.4,
if the amount of interest payable under the Note on any interest payment date in
respect of the immediately preceding interest computation period would, if based
solely upon the provisions of this Section 1.4, exceed the maximum amount
allowed by law, the amount of interest payable on such interest payment date
shall be automatically reduced to the maximum amount allowed by law. If the
amount of interest payable under the Note in respect of any interest computation
period is reduced based upon the Maximum Rate (as hereinafter defined) or the
maximum amount of interest allowed by law and the amount of interest payable
under the Note in respect of any subsequent interest computation period would be
less than the maximum amount allowed by law, then the amount of interest payable
under the Note in respect of such subsequent interest computation period shall
be automatically increased to such
<PAGE>
3
maximum amount allowed by law, until such time as the interest that would have
been payable under the immediately preceding sentence is fully paid.
For purposes hereof, "Maximum Rate" shall mean, on any day,
the highest nonusurious rate of interest (if any) permitted by applicable law on
such day that at any time, or from time to time, may be contracted for, taken,
reserved, charged or received on the indebtedness evidenced by the Note under
the laws which are presently in effect of the United States of America and the
State of Texas applicable to the holder of the Note and such indebtedness or, to
the extent permitted by law, under such applicable laws of the United States of
America and the State of Texas which may hereafter be in effect and which allow
a higher maximum nonusurious interest rate than applicable laws now allow. Varde
hereby notifies Executive that, and discloses to Executive that, for purposes of
Tex. Rev. Civ. Stat. Arm. Art. 5069-1.04, as it may from time to time be
amended, the "applicable rate ceiling" shall be the "indicated rate" ceiling
from time to time in effect as limited by Art. 5069-1.04(b); provided, however,
that to the extent permitted by applicable law, Varde reserves the right to
change the "applicable rate ceiling" from time to time by further notice and
disclosure to Executive; and, provided further, that the "highest nonusurious
rate of interest permitted by applicable law" for purposes of this Agreement and
the Note shall not be limited to the applicable rate ceiling under Art.
5069-1.04 if federal laws or other state laws now or hereafter in effect and
applicable to this Agreement and the Note (and the interest contracted for,
charged and collected hereunder or thereunder) shall permit a higher rate of
interest.
1.5 Principal Payments on Note. Until the Note is paid in
full, all cash payments of principal on the Executive Securities and cash
redemptions of the Stated Value of Executive Securities that constitute
partnership units of Pride shall be retained by Varde and applied to the payment
of the outstanding principal amount of the Note upon receipt by Varde. All
paid-in-kind distributions in respect of the Executive Securities shall
constitute Executive Securities and shall not be applied to the payment of
principal of or interest on the Note. The Note may not be paid or prepaid by the
Executive other than from the sources described in the first sentence of this
Section 1.5 without the prior written consent of Varde; provided, however, that
if the Note is not paid in full on the Maturity Date, either Varde or the
Executive may elect, upon not less than 30 days written notice to the other
party, to extend the Maturity Date for one year (as so extended, the "Extended
Maturity Date"). (In addition, if Varde extends the maturity date of the Series
B-1 Term Loan or the mandatory redemption date of the New Preferred Unit A to a
date later than the Extended Maturity Date, then the Extended Maturity Date
shall be deemed to be such later date.) On the Extended Maturity Date, the
Executive may pay the Note from any sources of funds unless no less than three
months prior to the Extended Maturity Date, Varde, at its option, elects to have
the Note paid by the assignment to Varde of all of the Executive's right, title
and interest in and to the Executive Securities that constitute the Series B-1
Term Loan or the New Preferred Unit A, whichever is outstanding, in satisfaction
of the amount outstanding under the Note. If Varde makes such election, the
Exective shall assign the securities free and clear of any Liens and Varde and
the Executive shall enter into appropriate documentation to
<PAGE>
4
effect the foregoing. Nothwithstanding anything to the contrary herein, if the
Note is paid in full at a time when the Series A Term Loan remains outstanding
and held by Varde (or an affiliate of Varde) or a person (other than an
affiliate of Varde) that acquired the Series A Term Loan from Varde for a price
of less than par plus accrued but unpaid interest (or any transferee of such
person), all payments of cash on the Executive Securities shall be held by Varde
in escrow as collateral security for the payment of principal, interest and
other amounts payable with respect to the Series A Term Loan (the "Series A
Obligations"). If there occurs an Event of Default under the Credit Agreement
when Series A Obligations are outstanding, Varde may apply all such collateral
to the payment of the Series A Obligations until such Series A Obligations are
indefeasibly paid in full. Upon payment in full of the Series A Obligations, the
Executive shall be subrogated (together with certain other employees of Pride)
to Varde's rights with respect to the Series A Obligations to the extent of the
collateral applied hereunder to the payment thereof.
1.6 Other Payments on Varde's Securities. All payments
received by Varde in connection with (i) the Call Option, (ii) the DFSC Proceeds
paid to Varde other than the portion thereof applied to the payment of the
Series B-1 Term Loans or the New Preferred Unit A as provided in Section 1.4(a)
of the Restructuring Agreement or (iii) any sale, transfer, assignment or other
disposition to any person of all or a portion of the Outstanding Securities
shall be the exclusive property of Varde and the Executive shall have no rights
with respect thereto; provided, however, that the Executive's right, title and
interest in and to the Executive Securities (including, without limitation, the
right to receive a transfer of record title to the Executive Securities upon the
satisfaction of the conditions therefor set forth herein) shall continue
notwithstanding any such transaction (although the record owner thereof may be a
person other than Varde following such transaction). The Executive acknowledges
and agrees that if the portion of the DFSC Proceeds distributed to Varde
pursuant to clause (z)(ii) of Section 1.4(a) of the Restructuring Agreement is
applied to the redemption or payment of Outstanding Securities, the Executive
shall have no right to have the Executive Securities participate in such
redemption or payment and all such amounts shall be the exclusive property of
Varde.
1.7 Employment Agreement. To induce Varde to enter into this
Agreement, the Executive is entering into the Employment Agreement and covenants
to perform his duties and obligations thereunder. The Executive agrees that
Varde is intended to, and shall, be a third party beneficiary of the rights of
the Company thereunder. The Executive shall not agree to any amendment,
supplement, termination, modification or waiver of the Employment Agreement
without the prior written consent of Varde.
1.8 Consequences of Termination of Employment.
(a) Varde Repurchase Rights. If the Executive's
employment with the Company terminates (i) as a result of the Executive's
voluntary resignation or (ii) as a result of the Executive intentionally failing
to be ready and willing to perform his obligations under the Employment
Agreement (provided that
<PAGE>
5
death or disability shall not constitute a failure to be ready and willing to
perform) (any of such events of termination being referred to as an "Employment
Termination Event"), then Varde may, at its option (but shall have no obligation
to), repurchase (x) two-thirds (2/3) of each class of the Executive Securities
if the Employment Termination Event occurs within eighteen (18) months of the
date hereof or (y) one-third (1/3) of each class of Executive Securities if the
Employment Termination Event occurs after eighteen (18) but within thirty-six
(36) months of the date hereof, for a repurchase price (the "Repurchase Price")
of two-thirds (2/3) or one-third (1/3), respectively, of the Purchase Price.
Varde, if it exercises its option, shall pay the Repurchase Price by cancelling
a principal amount of the Note equal to the Repurchase Price and paying the
balance, if any, in cash. The closing of any repurchase under this Section 1.8
shall occur at the offices of the Company ten Business Days after delivery of
written notice of exercise by Varde. At the closing, the Executive shall deliver
to Varde any certificates or other evidences of the Executive Securities free
and clear of any Lien and Varde shall acknowledge the reduction in the principal
amount of the Note and deliver a certified check in the amount of any cash
payment.
Varde's repurchase rights under this Section 1.8(a) shall
terminate upon (i) termination of the Executive's employment with the Company
for a reason other than an Employment Termination Event; (ii) constructive
termination by Pride of the Executive's employment that remains uncured 30 days
after notice to Pride and Varde, including, without limitation, for this
purpose, a material reduction in the annual salary of the Executive; (iii) a
material breach by Pride of the Employment Agreement that remains uncured 30
days after notice to Pride and Varde; (iv) death or incapacity of the Executive;
(v) a merger or consolidation in which Pride is a constituent party, or sale of
all or substantially all of the assets of Pride or a recapitalization of Pride,
if, in any such transaction, Varde receives cash for the Outstanding Securities;
(vi) any sale, transfer, assignment or other disposition by Varde to any person
(other than its affiliates) of a majority or more of the Outstanding Securities
(not including the Series A Term Loan); or (vii) the fifth anniversary of the
date hereof if an Employment Termination Event has not occurred prior to such
anniversary (any such event in clauses (i) through (vii) being referred to as a
"Repurchase Termination Event").
(b) Recourse/Non-Recourse Provisions of Note.
Notwithstanding anything to the contrary contained herein or in the Note, upon
the occurrence of (i) an Employment Termination Event, the Note shall
automatically, and without any further action by any party, become a full
recourse obligation of the Executive and the Executive shall have full personal
liability for the full payment thereof and (ii) a Repurchase Termination Event,
the Note shall automatically, and without any further action by any party,
irrevocably be a non-recourse obligation of the Executive subject only to the
payment obligations set forth herein, in the Note and in the Security Agreement.
1.9 Conversion to Common Units. If Unitholder approval
is obtained for the exchange of the Outstanding Securities into the New
Preferred Units
<PAGE>
6
as contemplated by the Restructuring Agreement, the Executive shall have the
right (without the prior approval of Varde) to convert his right, title and
interest in the New Preferred Unit B and the New Preferred Unit C into Common
Units at any time after the second anniversary of the Stage 3 Closing, if at the
time of such conversion no event of default or material default shall have
occurred and be continuing under any of the Outstanding Securities.
Notwithstanding any provision herein to the contrary, if the Series A Term Loan
remains outstanding at the time of the Unitholder approval contemplated by the
Restructuring Agreement, the Executive shall have no interest whatsoever in any
conversion rights of the New Preferred Unit C to the extent such New Preferred
Unit C is convertible into more than 42% of the Common Units.
1.10 Priority of Payments. Any payments of principal or
redemptions of Preferred Units in respect of the Executive Securities shall be
applied in the following order: the Series B-1 Term Loans, the Series C Term
Loans, the Series A Unsecured Note, the Series B Units, the Series C Units and
the Series D Units (or the New Preferred Unit A, New Preferred Unit B and the
New Preferred Unit C, assuming Unitholder approval has been obtained for the
Stage 3 Transactions), in each case together with accrued but unpaid interest or
dividends on the principal amount or Stated Value paid.
1.11 Structure. Varde will cooperate with the Executive in
restructuring the interest of the Executive in the Executive Securities in order
to maximize the tax efficiency of the Executive's interest, but Varde shall not
be required to effect any restructuring that has adverse tax or other
consequences to Varde.
II. MISCELLANEOUS
2.1 Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns; provided, however, neither this
Agreement nor any of the rights, interests or obligations hereunder or under the
Executive Securities, the Note or the Security Agreement may be assigned,
pledged, transferred or otherwise disposed of or encumbered by the Executive.
2.2 Notices. All notices, demands or other communications
between the parties hereto shall be in writing. Notices delivered personally or
by telecopier shall be deemed received on the same Business Day if delivered
personally or by telecopier before 3:00 p.m. (recipient's local time) on such
day, and otherwise on the next Business Day. Any notice, demand or other
communication so addressed to the relevant party shall be deemed to have been
received (i) if given or made by certified or registered mail, by hand delivery
or by courier service, when actually delivered to the relevant address (and such
location is open for business) and (ii) if given or made by facsimile, on the
date that the communication is received by the Executive or a responsible
employee of Varde, as the case may be, in legible form
<PAGE>
7
(and being agreed that the burden of proving receipt will be on the sender and
will not be met by a transmission report generated by the sender's facsimile
machine).
All notices to Varde shall be given to:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George G. Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider, Esq.
Tel: (212) 373-3000
Fax: (212) 757-3990
All notices to the Executive shall be given to him at
the address set forth on Schedule 1
2.3 Final Integration. This Agreement, together with the
exhibits and schedules attached hereto, the Note and Security Agreement shall
serve as the final integration and expression of all agreements between Varde
and the Executive with respect to the subject matter hereof, and any previous
agreement, representation or warranty, whether oral or written, shall have no
further force and effect.
2.4 Governing Law. The laws of the State of New York (without
regard to principles of conflict of laws that would cause the application of the
laws of any other jurisdiction) shall govern the construction, interpretation
and enforceability of this Agreement in any dispute, case or controversy arising
in or under or related to or connected with this Agreement or the relationship
between the parties hereto.
2.5 WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH EITHER OF THEM IS A
PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT, DUTY IMPOSED BY LAW OR OTHERWISE) IN ANYWAY ARISING OUT OF, RELATED
TO, OR CONNECTED WITH THIS AGREEMENT, THE EXECUTIVE SECURITIES, THE NOTE OR THE
SECURITY AGREEMENT, OR THE RELATIONSHIP
<PAGE>
8
ESTABLISHED HEREUNDER AND WHETHER ARISING OR ASSERTED BEFORE OR AFTER THE DATE
HEREOF OR BEFORE OR AFTER THE PAYMENT, OBSERVANCE AND PERFORMANCE IN FULL OF ANY
OBLIGATIONS OF ANY PARTY UNDER THIS AGREEMENT, THE NOTE OR THE SECURITY
AGREEMENT.
2.6 Amendments. No amendment of any provision of this
Agreement shall be effective unless it is in writing and signed by Varde and the
Executive. No waiver of any provision of this Agreement nor consent to any
departure by a party therefrom, shall be effective unless it is in writing and
signed by the other party, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
2.7 Headings. The headings of the Sections of this Agreement
are for information purposes only and do not constitute a part of this
Agreement.
2.8 Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall be an original but all such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
VARDE PARTNERS, INC.
By:
---------------------------------
Name:
Title:
---------------------------------
[Name of Executive]
<PAGE>
9
Schedule I to the
Assignment Agreement
Executive Securities
- --------------------
Series B-1 Term Loan $__________
Series C Term Loan $__________
Series A Unsecured Note $__________
Series B Units $__________
Series C Units $__________
Series D Units $__________
Upon Stage 3 Closing
--------------------
New Series A Preferred $__________
New Series B Preferred $__________
New Series C Preferred*/ $__________
Purchase Price - $______________
Address for notices:
- --------
*/ Subject to the last sentence of Section 1.9 of the Assignment
Agreement.
Exhibit 6
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of December 30,
1997 (this "Agreement") by and between PRIDE COMPANIES, L.P., a Delaware limited
partnership (the "Company") and VARDE PARTNERS, INC.
("Varde").
WITNESSETH:
WHEREAS, Varde has the right to acquire common limited
partnership units of the Company ("Common Units") under certain circumstances
pursuant to the conversion of the Series B Units and the Series C Units, as such
terms are defined in that certain Restructuring and Override Agreement dated
December 30, 1997 (the "Restructuring Agreement"), by and among the Company,
Pride Refining, Inc., Pride SGP, Inc. and Varde, and upon the exercise of those
certain Warrants to Purchase Common Units, each dated as of December 31, 1996,
issued by the Company to each of NationsBank of Texas, N.A. ("NationsBank") and
Bank One, Texas, N.A. ("Bank One") , and assigned to Varde (collectively, the
"Convertible Securities");
WHEREAS, the ability of Varde to freely trade the Common Units
received upon exercise or conversion of the Convertible Securities may be
limited by applicable United States federal securities laws;
WHEREAS, in order to improve the transferability of the Common
Units to be received by Varde, the Company is willing to provide certain
registration rights with respect to Common Units that may be acquired by Varde,
on the terms and subject to the conditions herein; and
WHEREAS, Varde is willing to agree to certain restrictions on
the transfer of Common Units that may be acquired by Varde, on the terms and
subject to the conditions herein; and
NOW, THEREFORE, in consideration of the premises and the
mutual terms, covenants and conditions herein contained, and intending to be
legally bound hereby, the parties hereby amend and restate the existing
Registration Rights and Transfer Restrictive Agreement, dated as of December 31,
1996, by and among the company, NationsBank and Bank One, and hereby agree as
follows:
<PAGE>
2
ARTICLE I
REGISTRATION RIGHTS
The Company and Varde covenant and agree as follows:
1.1 Definitions. For purposes of this Agreement:
The terms "register," "registered" and "registration" refer to
a registration of securities effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means any Person owning or having the right to
acquire Registrable Securities, whether or not such acquisition has actually
been effected and disregarding any legal restrictions upon the exercise of such
right.
"Managing General Partner" means the corporation or other
entity designated to serve as managing general partner of the Company pursuant
to the Third Amended and Restated Agreement of Limited Partnership of the
Company, effective as of [ ], as such agreement may be amended from time to
time.
"Person" means an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, or a government
or agency or political subdivision thereof.
"Reasonable Efforts" means a Person's best efforts in
accordance with reasonable commercial practice and without the incurrence of
unreasonable expense.
"Registrable Securities" means, at any time, Common Units held
by a Holder or that any Holder has the present right to receive, that were
issued or are issuable (i) upon exercise or conversion of the Convertible
Securities, (ii) upon the exercise or conversion of any other warrants or rights
to purchase Common Units, or any securities or other instruments convertible
into Common Units, that shall have been issued or granted to a Holder by the
Company, (iii) directly to a Holder by the Company, regardless of the reason for
or nature of the issuance, or (iv) as a distribution with respect to, or in
exchange for or in replacement of, Registrable Securities held by it.
<PAGE>
3
"Restricted Securities" means the Registrable Securities upon
original issuance thereof, subject to the provisions of Section 1.2 hereof.
"Securities Act" means the Securities Act of 1933, as amended.
1.2 Securities Subject to this Agreement. The securities
entitled to the benefits of this Agreement are the Registrable Securities but
with respect to any particular Registrable Security, only so long as such
security continues to be a Restricted Security. A Registrable Security ceases to
be a Restricted Security when (a) it has been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering it, (b) it has been publicly sold pursuant to Rule 144 (or any similar
rule then in effect), or (c) all restrictions on transfer thereof (including the
restrictions imposed under Article II hereof and the volume and other
limitations of Rule 144) other than those provided under Rule 144(k) have
terminated and such Registrable Securities are freely tradeable by the Holder
without restriction or limitation (except as contemplated by Rule 144(k)) under
the Securities Act.
1.3 Demand Registration.
(a) If the Company shall receive, at any time
after the date of this Agreement, a written request from one or more Holders
holding, or having the present right to acquire, at the time of the request at
least 51% of the Registrable Securities, that the Company file a registration
statement under the Securities Act covering the registration of all or part of
the Registrable Securities, then the Company shall (i) if such request is
received from fewer than all Holders, give prompt written notice of such
requested registration to all other Holders, so that such other Holders shall
have the opportunity to join in such request, and (ii) subject to the
limitations of Sections 1.3(c) and (e), 1.5 and 1.7 hereof, within 30 days of
the receipt by the Company of such written request, file a registration
statement on any appropriate form under the Securities Act. The Company agrees
to use its Reasonable Efforts to cause such registration statement to be
declared effective as promptly as practicable and to keep it effective for such
period of time as may be necessary to permit the consummation of the offering of
the Registrable Securities covered thereby.
(b) The Registrable Securities registered
pursuant to this Section 1.3 may, at the option of the Holders holding at least
51% of the Registrable Securities being registered, be offered and sold in firm
commitment underwritten offerings. The underwriter or underwriters conducting
such offerings shall be selected by the Holder or Holders holding at least 51%
of the Registrable Securities being registered; provided, that the managing
underwriters in connection with each such offering shall be nationally
recognized as underwriters of securities.
<PAGE>
4
(c) The Company is obligated to effect two
registrations pursuant to this Section 1.3 (in addition to any registrations in
which the Holders may participate pursuant to the other provisions of this
Agreement), one of which may be, at the option of the Holders holding at least
51% of the Registrable Securities being registered, a shelf registration which
shall be required to be effective for a period of one year. A registration shall
not be deemed to have been effected unless it has become effective and remained
effective until the Registrable Securities registered under such registration
statement have been sold.
(d) Other than the Registrable Securities, no
securities (including without limitation any securities with respect to which
any Person has any rights under the agreement referred to in the last sentence
of Section 1.11 hereof) shall be included among the securities covered by a
registration effected pursuant to this Section 1.3 unless (i) the Holder or
Holders holding 51% of the Registrable Securities to be covered thereby shall
have consented in writing to the inclusion of such other securities or (ii) the
managing underwriters of the offering shall have advised such Holder or Holders
in writing that the inclusion of such other securities would not adversely
affect such offering or the subsequent trading market or market price for the
Common Units.
(e) Notwithstanding the foregoing, the Company
shall not be required to register any Registrable Securities pursuant to this
Section 1.3: (i) during a reasonable period of time, not to exceed 120 days,
following the initial distribution of securities by the Company pursuant to a
registered underwritten public offering if such offering was commenced prior to
the time the Company receives the request contemplated by Section 1.3(a), or
(ii) during a reasonable period of time, not to exceed 60 days, with respect to
which the Board of Directors of the Managing General Partner has determined that
a registration of Registrable Securities pursuant to this Section 1.3 would
adversely affect the Company because of a material non-public acquisition or
similar material transaction that is pending at the time the Company receives
the request contemplated by Section 1.3(a).
1.4 Company Registration. If at any time, the Company proposes
to register any Common Units for sale (a "Company Registration") under the
Securities Act (other than registration of Common Units solely for issuance or
sale (a) pursuant to Section 1.3 hereof or (b) in connection with (i) employee
compensation or benefit programs, (ii) an exchange offer or an offering of
securities solely to the existing holders of Common Units, (iii) an acquisition,
merger, exchange offer or other business combination, including any transaction
within the scope of Rule 145 promulgated pursuant to the Securities Act, using a
registration statement on Form S- 4 or any successor form), or (iv) a dividend
reinvestment plan, the Company will give prompt written notice (which, in any
event, shall be given no less than 20 days prior to the filing of a registration
statement with respect to such Company Registration) to each Holder of its
intention so to do and, upon the written request of a Holder or Holders sent
within 15 days after the effective date of any such notice, the Company
<PAGE>
5
will, subject to the provisions of Sections 1.5 and 1.7 hereof, use its
Reasonable Efforts to cause all Registrable Securities as to which the Holder or
Holders shall have so requested registration to be registered under the
Securities Act, all to the extent necessary to permit the sale in such offering
of the Registrable Securities so registered on behalf of the Holder or Holders
in the same manner as the Company proposes to offer its Common Units; provided,
however, that such Registrable Securities shall be included in a Company
Registration only as follows:
(1) Any over-allotment option exercised by the
underwriters in connection with a Company Registration shall be exercised only
with respect to Registrable Securities, to the extent that the Holders have
requested that Registrable Securities be included in the Company Registration;
and
(2) If the number of Common Units that can be
included in any Company Registration without materially and adversely affecting
the offering, as determined by the managing underwriters for the offering,
exceeds the number of Common Units proposed to be offered by the Company in such
offering, the Holders shall have the right to include Registrable Securities in
such offering pursuant to this Section 1.4 to the full extent of such excess,
prior to the inclusion in the offering of any Common Units held by any other
Person (including without limitation any Common Units with respect to which any
Person has any rights under the agreement referred to in the last sentence of
Section 1.11 hereof).
In the event that the Holders request the inclusion in any
Company Registration of more Registrable Securities than can be included therein
in accordance with this Section 1.4, the respective number of Registrable
Securities offered for sale by the Holders in the offering shall be determined
on a pro rata basis, in proportion to the number of Registrable Securities that
each requesting Holder then owns or has the present right to acquire.
Subject to the foregoing, the Company shall use its Reasonable
Efforts to cause the managing underwriters in connection with any Company
Registration to permit the Registrable Securities requested by the Holders to be
included in such Company Registration to be included to the full extent
requested by the Holders and on the same terms and conditions as the Common
Units of the Company included therein.
No registration of Registrable Securities under this Section
1.4 shall relieve the Company of its obligations to effect the registration of
Registrable Securities upon the request of the Holders in accordance with
Section 1.3.
1.5 Obligations of the Company. If and whenever the Company is
required by the provisions of this Agreement to effect the registration of any
Registrable Securities, the Company shall as expeditiously as reasonably
possible:
<PAGE>
6
(a) Prepare and file with the Commission a
registration statement on an appropriate form under the Securities Act and use
its Reasonable Efforts to cause such registration statement to become effective;
provided, that before filing a registration statement or prospectus or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of any registration statement, as soon as practicable,
the Company will make available to the Holders and the underwriters copies of
all such documents proposed to be filed, which documents will be subject to the
review of the Holders and the underwriters, and the Company will not file any
registration statement or amendment thereto, or any prospectus or any supplement
thereto (including such documents incorporated by reference) to which the
Holders or the underwriters shall reasonably object in the light of the
requirements of the Securities Act or any other applicable laws or regulations.
(b) Prepare and file with the Commission such
amendments and post-effective amendments to a registration statement as may be
necessary to keep such registration statement effective until completion of the
offering; cause the related prospectus to be filed pursuant to Rule 424(b) under
the Securities Act; cause such prospectus to be supplemented by any required
prospectus supplement and, as so supplemented, to be filed pursuant to Rule
424(b) under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with the
intended methods of disposition set forth in such registration statement or
supplement to such prospectus.
(c) Notify the Holders and the managing
underwriters promptly, and (if requested by any such Person) confirm such advice
in writing, (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (ii) of any
written request by the Commission for amendments or supplements to a
registration statement or related prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceeding
for that purpose, (iv) if at any time the representations and warranties of the
Company contemplated by Section 1.5(l) cease to be true and correct, (v) of the
receipt by the Company of any notification with respect to the suspension of
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation of any proceeding for such purpose, (vi) of the happening of
any event which requires the making of any changes in a registration statement
or related prospectus so that such documents will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading and (vii) of the Company's reasonable determination that a
post-effective amendment to a registration statement would be appropriate or
that there exist circumstances not yet disclosed to the public which make
further sales under such registration statement inadvisable pending such
disclosures and post-effective amendment.
<PAGE>
7
(d) Use its Reasonable Efforts to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction, at the earliest possible
moment.
(e) If requested by the managing underwriters or
the Holders, immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Holders agree should be included therein relating to such sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters
and the purchase price being paid therefor by such underwriters and with respect
to any other terms of the offering of the Registrable Securities to be sold in
such offering; make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and supplement or make amendments to any registration statement
necessary in order that such registration statement not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading if requested by the Holders or any underwriter of such Registrable
Securities.
(f) Furnish to the Holders and each managing
underwriter, without charge, at least one copy of the registration statement,
any post-effective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference).
(g) Deliver without charge to the Holders and
the underwriters as many copies of the prospectus or prospectuses (including
each preliminary prospectus) and any amendment or supplement thereto as such
Persons may reasonably request; and the Company consents to the use of such
prospectuses and any amendments or supplements thereto by the Holders and the
underwriters in connection with the offer and sale of the Registrable Securities
covered by such prospectuses, amendments or supplements.
(h) Prior to any public offering of Registrable
Securities, register or qualify or cooperate with the Holders, the underwriters,
and respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions as the Holders or an underwriter reasonably requests
in writing; keep each such registration or qualification effective during the
period such registration statement is required to be kept effective and do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the applicable
registration statement; provided, however, that the Company will not be required
in connection therewith or as a condition thereto to
<PAGE>
8
qualify generally to do business or subject itself to general service of process
in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and the managing
underwriters to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any restrictive
legends; and enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters may request at least two
business days prior to any sale of Registrable Securities to the underwriters.
(j) Use its Reasonable Efforts to cause the
Registrable Securities covered by the applicable registration statement to be
registered with or approved by such other governmental agencies or authorities,
if any, as may be necessary to consummate the disposition of such Registrable
Securities.
(k) Upon the occurrence of any event
contemplated by Section 1.5(c) (ii) - (vii) above, prepare a supplement or
post-effective amendment to the applicable registration statement or related
prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchaser of the
Registrable Securities being sold thereunder, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
(l) Enter into such agreements and take all such
actions as shall be necessary to expedite or facilitate the disposition of such
Registrable Securities, and in such connection: (i) make such representations
and warranties to the Holders and underwriters with respect to the registration
statement, prospectus and documents incorporated by reference, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when requested; (ii) obtain
opinions of counsel to the Company and updates thereof with respect to the
registration statement and the prospectus in the form, scope and substance which
are customarily delivered in underwritten offerings; (iii) enter into an
underwriting agreement in form, scope and substance as is customary in
underwritten offerings and obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters and the Holders addressed
to the Holders and the underwriters covering the matters customarily covered in
opinions delivered in underwritten offerings and such other matters as may be
reasonably requested by the Holders and such underwriters; (iv) obtain "cold
comfort" letters and updates thereof from the Company's independent certified
public accountants addressed to the Holders and the underwriters, such letters
to be in customary form and covering matters of the type customarily covered in
"cold comfort" letters by accountants in connection with underwritten offerings;
(v) if requested by the underwriters, cause the appropriate officers and other
personnel of the Company or
<PAGE>
9
the Managing General Partner to participate in a "road show" or other marketing
efforts to the extent customary for an underwritten offering by the Company
(whether or not the Company is including any securities in the offering); (vi)
the underwriting agreement shall set forth in full the indemnification and
contribution provisions and procedures customarily included in underwriting
agreements in underwritten offerings; and (vii) the Company shall deliver such
documents and certificates as may be requested by the Holders and the managing
underwriters to evidence compliance with the representations and warranties
contemplated by clause (i) of this sentence and with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company. The above shall be done at each closing under such underwriting or
other agreement or as and to the extent required thereunder.
(m) Make available for inspection by a
representative of the Holders, the underwriters and any attorney or accountant
(the "Inspectors") retained by the Holders or such underwriters, all financial
and other records, pertinent corporate documents and properties of the Company,
and cause the officers, directors and employees of the Managing General Partner
and the Company to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
registration; provided, however, that (A) in connection with any such
inspection, any such Inspectors shall cooperate to the extent reasonably
practicable to minimize any disruption to the operation by the Company of its
business and (B) any records, information or documents that are designated by
the Company in writing as confidential shall be kept confidential by such
Inspectors, unless (1) such records, information or documents are in the public
domain or otherwise publicly available or (2) disclosure of such records,
information or documents is required by a court or administrative order or by
applicable law.
(n) Otherwise use its Reasonable Efforts to
comply with all applicable rules and regulations of the Commission and make
generally available to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than the times
required by such section and the rules of the Commission adopted thereunder.
(o) Use Reasonable Efforts to cause all
Registrable Securities covered by such registration statement (i) to be listed
on a national securities exchange on which similar securities issued by the
Company are then listed, if the listing of such Registrable Securities is then
permitted under the rules of such exchange or (ii) if the Company is not
required pursuant to clause (i) above to have such securities listed, to arrange
for at least two market makers to register with the National Association of
Securities Dealers as such with respect to such Registrable Securities.
As used in this Section 1.5, the term "Holders" shall be
deemed to refer to the Holder or Holders participating in the offering, and the
use of the plural
<PAGE>
10
shall not be deemed to require any action to be taken by all Holders when action
by fewer than all Holders is intended or appropriate.
1.6 Expenses of Registration. In connection with any
registration effected in accordance with this Agreement, each Holder shall be
responsible for (a) all underwriting discounts and commissions deducted from the
purchase price for such Holder's Registrable Securities included in such
registration pursuant to the underwriting agreement. All other expenses incurred
in connection with any registration effected in accordance with this Agreement
(including without limitation the fees and expenses of the Company's counsel,
the fees and expenses of one law firm engaged by the Holders to represent them
in connection with the registration, filing and qualification fees, and
printers' and accounting fees), shall be borne and paid by the Company.
1.7 Obligations of the Holders.
(a) A Holder may not participate in any
underwritten registration under Section 1.4 hereunder unless it (i) agrees to
sell its Registrable Securities on the basis provided in any reasonable
underwriting arrangements approved by the Company and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably and customarily required under the
terms of such underwriting arrangements.
(b) In connection with any registration of
Registrable Securities, the Company may require each Holder to furnish to the
Company such information regarding itself and the distribution of such
Registrable Securities as the Company may from time to time reasonably request
in writing.
(c) Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 1.5(c)(ii)- (vii) hereof, the Holder will forthwith discontinue
disposition of Registrable Securities covered by such registration statement or
prospectus until the Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 1.5(c)(i) hereof, or until it is
advised in writing by the Company that the use of the applicable prospectus may
be resumed, and has received copies of any additional or supple mental filings
which are incorporated by reference in such prospectus, and, if so directed by
the Company, the Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in the Holder's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice. If the Company shall give any such notice, the time
period mentioned in Section 1.3(a) shall be extended by the number of days
during the time period from and including the date of the giving of such notice
pursuant to Section 1.5(c) hereof to and including the date when the Holder
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 1.5(c) hereof.
<PAGE>
11
1.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company
will indemnify and hold harmless the Holders, the officers and directors of the
Holders, each underwriter of Registrable Securities and each other Person, if
any, who controls the Holders or such underwriter within the meaning of Section
15 of the Securities Act, against any losses, claims, damages, liabilities or
expenses, joint or several ("Losses"), to which any such Person may become
subject under the Securities Act or otherwise, insofar as such Losses (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act pursuant hereto, or any post-effective amendment
thereof, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, if used prior to the
effective date of the registration statement and not corrected in the final
prospectus, or contained in the final prospectus (as amended or supplemented, if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto), or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
and will reimburse any such Person for any legal or other expenses reasonably
incurred by such Person in connection with investigating or defending any such
Loss; provided, however, that the indemnity agreement contained in this Section
1.8(a) shall not apply to amounts paid in settlement of any such Loss if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld); and provided further, that the Company shall not
be liable in any such case to the extent that any such Loss arises out of or is
based upon any such untrue statement or omission or alleged untrue statement or
omission which has been made in said registration statement, preliminary
prospectus, prospectus or amendment or supplement or omitted therefrom in
reliance upon and in conformity with information furnished in writing to the
Company by the Holders or such underwriter specifically for use in the
preparation thereof. Notwithstanding the foregoing, with respect to a
registration and offering under Section 1.3, the Company shall not be liable in
any such case to the extent that any such Loss relates to Registrable Securities
of a Holder and (x) to the extent that any such Loss arises out of, or is based
upon, an untrue statement or alleged untrue statement or omission or alleged
omission made in any preliminary prospectus if (A) such Holder failed to send or
deliver or cause to be sent or delivered a copy of the prospectus included in
the relevant registration statement at the time it became effective (the
"Prospectus") with or prior to the delivery of written confirmation of the sale
of Registrable Securities of such Holder to the person asserting such Loss or
who purchased such Registrable Security of such Holder which are the subject
thereof if, in either case, such delivery is required by the Securities Act and
(B) the
<PAGE>
12
Prospectus would have corrected such untrue statement or omission or alleged
untrue statement or alleged omission or (y) to the extent that any such Loss
arises out of, or is based upon, an untrue statement or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact in
the Prospectus, if (A) such untrue statement or alleged untrue statement or
omission or alleged omission is corrected in any amendment or supplement to the
Prospectus and (B) having previously been furnished by or on behalf of the
Company with copies of the Prospectus as so amended or supplemented, such Holder
thereafter failed to deliver or cause to be delivered such Prospectus as so
amended or supplemented prior to or concurrently with the sale of Registrable
Securities of such Holder if such delivery is required by the Securities Act.
(b) To the extent permitted by law, each Holder,
severally and not jointly, will indemnify and hold harmless the Company and the
Managing General Partner and each of its directors, each of its officers who has
signed the registration statement, each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, each underwriter and
each Person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against any Losses to which the Company or any such Person may
become subject under the Securities Act or otherwise, and will reimburse the
Company or any such Person for any legal or other expenses reasonably incurred
by the Company or such Person in connection with investigating or defending any
such Loss, but only insofar as such Losses (or actions in respect thereof) arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission of a material fact referred to in clause (x) or (y) of
Section 1.8(a) hereof, in each case to the extent (and only to the extent) that
such untrue statement or omission or alleged untrue statement or omission was
made in reliance upon and in conformity with information furnished in writing by
such Holder specifically for inclusion in such registration statement or
prospectus; provided, however, that the indemnity agreement of each Holder
contained in this Section 1.8(b) shall not apply to amounts paid in settlement
of any such Loss if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; and provided further,
that in no event shall the liability of any Holder exceed the net proceeds from
the sale of Registrable Securities by such Holder pursuant to such registration
statement or prospectus.
(c) Promptly after receipt by an indemnified
party under this Section 1.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this Section
1.8, notify the indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
<PAGE>
13
indemnified party by the counsel retained by the indemnifying party would be
inappropriate in the opinion of counsel for the indemnified party due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure so to notify
an indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.8, but the omission so to notify the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Section 1.8.
(d) If the indemnification provided for in this
Section 1.8 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 1.8(c) hereof, any
legal or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 1.8(d) were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
1.9 Reports Under Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 under the Securities Act and
any other rule or regulation of the Commission that may at any time permit the
Holders to sell securities of the Company to the public without registration,
the Company agrees to:
(a) file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the
<PAGE>
14
Exchange Act, and the rules and regulations adopted by the Commission
thereunder; and
(b) furnish to the Holders forthwith upon
request (i) a written statement by the Company as to whether it has complied
with the reporting requirements of Rule 144, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
filed by the Company pursuant to the Exchange Act and (iii) such other
information as may be reasonably requested by the Holders for purposes of
availing themselves of any rule or regulation of the Commission which permits
the sale of any securities without registration.
1.10 Assignment of Registration Rights.
(a) Subject to Section 1.10(b), the Registrable
Securities and rights of any Holder under this Agreement with respect to any
Registrable Securities owned by such Holder may be assigned to any person who
acquires all or a portion of a Holder's Securities from a Holder, except that
any person who acquires such Securities (i) pursuant to a public offering
registered under the Securities Act, or (ii) pursuant to a transfer made in
accordance with Rule 144 under the Securities Act (or any similar successor
provision) may not be assigned rights hereunder with respect to such Securities.
Any assignment of registration rights pursuant to this Section 1.10(a) shall be
effective upon receipt by the Company of written notice from such assigning
Holder (A) stating the name and address of any assignee, (B) describing the
manner in which the assignee acquired Securities from such Holder, and (C)
identifying the Registrable Securities with respect to which the rights under
this Agreement are being assigned.
(b) The rights of an assignee under Section
1.10(a) shall be the same rights granted to the assigning Holder under this
Agreement, except that in no event shall the Company's obligations hereunder be
increased due to any such assignment. In connection with any such assignment,
the term "Holder" as used herein shall, where appropriate to assign the rights
and obligations of the assigning Holder hereunder to such assignee, be deemed to
refer to the assignee.
1.11 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of all Holders, enter into any agreement with any holder or
prospective holder of any securities of the Company which grants registration
rights under the Securities Act on terms and conditions more favorable than or
equivalent to the rights granted to the Holders in this Agreement, or that might
adversely affect the Holders' rights hereunder. The Company is not a party to
any currently existing agreement with respect to its securities granting any
registration rights to any Person, other than that certain agreement dated March
29, 1990 (as amended) between the Company and Pride SGP, Inc.
<PAGE>
15
1.12 Hold-Back Agreements.
(a) If a registration statement is filed
pursuant to Section 1.3 or 1.4 hereof, each Holder agrees not to effect any
public sale or distribution of Common Units, including a sale pursuant to Rule
144 under the Securities Act (except as part of such underwritten registration)
without the approval of the Managing General Partner during the 14-day period
prior to, and during the 90-day period beginning on, the closing date of the
underwritten offering made pursuant to such registration statement, to the
extent timely notified in writing by the Company.
(b) The Company agrees (i) not to effect any
public sale or distribution of any Common Units or similar securities during the
14-day period prior to, and during the 90-day period beginning on, the effective
date of a registration statement filed pursuant to Section 1.3 or 1.4 hereof
(except as part of such underwritten registration or in connection with (A)
employee compensation or benefit programs, (B) an exchange offer or an offering
of securities solely to the existing holders of Common Units, or (C) an
acquisition, merger or other business combination using a registration statement
on Form S-4 or any successor form), and (ii) to cause each holder of its
privately placed securities purchased from the Company to agree not to effect
any public sale or distribution of any such securities during such period,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such underwritten registration, if permitted).
ARTICLE II
UNIT TRANSFER RESTRICTIONS
2.1 Initial Restriction Period. Varde agrees that during the
period beginning on the date of this Agreement and ending on the earlier to
occur of nine months from the date on which the Series B Units or Series C Units
are first issued or [September 30, 1998] (the "Initial Restriction Period"), it
will not sell any Common Units without the approval of the Managing General
Partner, except that such approval shall not be required if:
(a) the Common Units are sold in a private
transaction;
(b) the Common Units are sold pursuant to an
effective registration statement under the Securities Act; or
(c) the average of the closing sales prices of
the Common Units on the principal stock exchange or stock market on which the
Common Units are traded for the ten most recent trading days preceding the
Varde's sale of Common Units exceeds the lower of (i) the price that is 25%
above the average of such closing sales prices of the Common Units for the 20
trading days ending 90 calendar days after completion of the Stage 1
Transactions (as defined in Section 1.1 of the
<PAGE>
16
Restructuring Agreement) or (ii) the price that is necessary such that the
Company's market capitalization exceeds $[85.0 million]. For purposes of the
preceding sentence, "market capitalization" means the sum of all outstanding
funded debt of the Company, the amount of all debt converted or convertible into
the Series B Units or Series C Units and the aggregate market value (based on
the most recent reported closing sales price) of all outstanding Common Units.
Sales that may be made without the approval of the Managing
General Partner, as contemplated by clauses (a), (b) and (c) above, are referred
to herein as "Permitted Sales."
2.2 Second Restriction Period. Varde agrees that, during the
180-day period beginning on the date immediately following the last day of the
Initial Restriction Period, it will not sell any Common Units without the
approval of the Managing General Partner, except that such approval shall not be
required for (a) any Permitted Sales or (b) sales made as part of a block trade
involving no less than 2% of the outstanding Common Units.
2.3 Termination of Restrictions. There are no restrictions
under this Agreement on sales of Common Units by Varde following the end of the
180-day period referred to in Section 2.2, other than those restrictions imposed
under the Securities Act.
ARTICLE III
MISCELLANEOUS
3.1 Successors and Assigns; No Third Party Benefit. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto,
their respective successors and assigns and subsequent Holders any rights or
remedies under or by reason of this Agreement, except as expressly provided in
this Agreement.
3.2 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the substantive laws of the State of
New York, without giving effect to the principles of conflicts of law thereof.
3.3 Notices. All notices, demands or other communications
between any of the parties hereto shall be in writing. Notices delivered
personally or by telecopier shall be deemed received on the same Business Day if
delivered personally or by telecopier before 3:00 p.m. (recipient's local time)
on such day, and otherwise on the next Business Day. Any notice, demand or other
communication so addressed to the relevant parties shall be deemed to have been
received (i) if given or made by certified or registered mail, by hand delivery
or by courier service, when
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17
actually delivered to the relevant address (and such location is open for
business) and (ii) if given or made by facsimile, on the date that the
communication is received by a responsible employee of the recipient in legible
form (and being agreed that the burden of proving receipt will be on the sender
and will not be met by a transmission report generated by the sender's facsimile
machine).
All notices to Pride shall be given to:
Pride Companies, L.P.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and General
Counsel
Tel: (915) 674-8000
Fax: (915) 676-8792
All notices to Pride shall be given to:
Pride Refining, Inc.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and General
Counsel
Tel: (915) 674-8000
Fax: (915) 676-8792
All notices to Pride shall be given to:
Pride SGP, Inc.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and General
Counsel
Tel: (915) 674-8000
Fax: (915) 676-8792
All notices to Varde shall be given to:
<PAGE>
18
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George G. Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
3.4 Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to the
Registrable Securities which would adversely affect the ability of the Holders
to include such Registrable Securities in a registration undertaken pursuant to
this Agreement or otherwise sell such Registrable Securities.
3.5 Amendments and Waivers. The provisions of this Agreement
may not be amended or modified in any respect unless the Company has obtained
the written consent of the Holders of at least 51% of the Registrable Securities
that are then outstanding or that a Holder then has a present right to receive.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter that relates solely to the rights of
Holders whose securities are being sold pursuant to a registration statement
covering such Holders' Registrable Securities and that does not directly or
indirectly affect the rights of other Holders may be given by the Holders of at
least 51% of the Registrable Securities being sold by such Holders.
3.6 Severability. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
thereof to any Person or circumstance shall be held invalid or unenforceable,
the remaining portion of such provision, as it applies to other Persons or
circumstances and the remaining provisions of this Agreement, shall not be
affected or impaired thereby.
3.7 Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreements and understandings of the parties
hereto in respect of the
<PAGE>
19
subject matter herein contained. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
3.8 Securities Held by the Company or its Affiliates. With
respect to any action, consent or approval required or permitted to be taken or
given by Holders of a specified percentage of Registrable Securities,
Registrable Securities held by the Company or its affiliates (other than Varde
or any subsequent Holder that may be deemed to be an affiliate solely by reason
of its holdings of Registrable Securities) shall not be deemed outstanding for
purposes of determining whether such action, consent or approval was taken or
given by the Holders of such specified percentage.
3.9 Termination. This Agreement shall terminate (except for
the provisions of Sections 1.6, 1.8 and 3.3) upon the issuance of the New
Preferred Unit B and New Preferred Unit C (as defined in the Restructuring
Agreement) and no Holder shall thereafter be entitled to any registration rights
hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first above written.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.
its Managing General Partner
By: /s/ Dave Caddell
----------------------------------
Name: Dave Caddell
Title: Vice President
VARDE PARTNERS, INC.
By: /s/ George G. Hicks
----------------------------------
Name: George G. Hicks
Title: Vice President
Exhibit 7
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT dated as of December 30,
1997 (this "Agreement") by and between PRIDE COMPANIES, L.P., a Delaware limited
partnership (the "Company") and VARDE PARTNERS, INC.
("Varde").
WITNESSETH:
WHEREAS, Varde has the right to acquire common limited
partnership units of the Company ("Common Units") under certain circumstances
pursuant to the conversion of the New Preferred Unit B and the New Preferred
Unit C, as such terms are defined in that certain Restructuring and Override
Agreement dated December 30, 1997 (the "Restructuring Agreement"), by and among
the Company, Pride Refining, Inc., Pride SGP, Inc. and Varde, and upon the
exercise of those certain Warrants to Purchase Common Units, each dated as of
December 31, 1996, issued by the Company to each of NationsBank of Texas, N.A.
and Bank One, Texas, N.A., and assigned to Varde (collectively, the "Convertible
Securities");
WHEREAS, the ability of Varde to freely trade the Common Units
received upon exercise or conversion of the Convertible Securities may be
limited by applicable United States federal securities laws;
WHEREAS, in order to improve the transferability of the Common
Units to be received by Varde, the Company is willing to provide certain
registration rights with respect to Common Units that may be acquired by Varde,
on the terms and subject to the conditions herein;
WHEREAS, Varde is willing to agree to certain restrictions on
the transfer of Common Units that may be acquired by Varde, on the terms and
subject to the conditions herein; and
NOW, THEREFORE, in consideration of the premises and the
mutual terms, covenants and conditions herein contained, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
REGISTRATION RIGHTS
The Company and Varde covenant and agree as follows:
1.1 Definitions. For purposes of this Agreement:
<PAGE>
2
The terms "register," "registered" and "registration" refer to
a registration of securities effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" means any Person owning or having the right to
acquire Registrable Securities, whether or not such acquisition has actually
been effected and disregarding any legal restrictions upon the exercise of such
right.
"Managing General Partner" means the corporation or other
entity designated to serve as managing general partner of the Company pursuant
to the Third Amended and Restated Agreement of Limited Partnership of the
Company, effective as of [ ], as such agreement may be amended from time to
time.
"Person" means an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, or a government
or agency or political subdivision thereof.
"Reasonable Efforts" means a Person's best efforts in
accordance with reasonable commercial practice and without the incurrence of
unreasonable expense.
"Registrable Securities" means, at any time, Common Units held
by a Holder or that any Holder has the present right to receive, that were
issued or are issuable (i) upon exercise or conversion of the Convertible
Securities, (ii) upon the exercise or conversion of any other warrants or rights
to purchase Common Units, or any securities or other instruments convertible
into Common Units, that shall have been issued or granted to a Holder by the
Company, (iii) directly to a Holder by the Company, regardless of the reason for
or nature of the issuance, or (iv) as a distribution with respect to, or in
exchange for or in replacement of, Registrable Securities held by it.
"Restricted Securities" means the Registrable Securities upon
original issuance thereof, subject to the provisions of Section 1.2 hereof.
"Securities Act" means the Securities Act of 1933, as amended.
1.2 Securities Subject to this Agreement. The securities
entitled to the benefits of this Agreement are the Registrable Securities but
with respect to any particular Registrable Security, only so long as such
security continues to be a Restricted Security. A Registrable Security ceases to
be a Restricted Security when
<PAGE>
3
(a) it has been effectively registered under the Securities Act and disposed of
in accordance with the registration statement covering it, (b) it has been
publicly sold pursuant to Rule 144 (or any similar rule then in effect), or (c)
all restrictions on transfer thereof (including the restrictions imposed under
Article II hereof and the volume and other limitations of Rule 144) other than
those provided under Rule 144(k) have terminated and such Registrable Securities
are freely tradeable by the Holder without restriction or limitation (except as
contemplated by Rule 144(k)) under the Securities Act.
1.3 Demand Registration.
(a) If the Company shall receive, at any time
after the date of this Agreement, a written request from one or more Holders
holding, or having the present right to acquire, at the time of the request at
least 51% of the Registrable Securities, that the Company file a registration
statement under the Securities Act covering the registration of all or part of
the Registrable Securities, then the Company shall (i) if such request is
received from fewer than all Holders, give prompt written notice of such
requested registration to all other Holders, so that such other Holders shall
have the opportunity to join in such request, and (ii) subject to the
limitations of Sections 1.3(c) and (e), 1.5 and 1.7 hereof, within 30 days of
the receipt by the Company of such written request, file a registration
statement on any appropriate form under the Securities Act. The Company agrees
to use its Reasonable Efforts to cause such registration statement to be
declared effective as promptly as practicable and to keep it effective for such
period of time as may be necessary to permit the consummation of the offering of
the Registrable Securities covered thereby.
(b) The Registrable Securities registered
pursuant to this Section 1.3 may, at the option of the Holders holding at least
51% of the Registrable Securities being registered, be offered and sold in firm
commitment underwritten offerings. The underwriter or underwriters conducting
such offerings shall be selected by the Holder or Holders holding at least 51%
of the Registrable Securities being registered; provided, that the managing
underwriters in connection with each such offering shall be nationally
recognized as underwriters of securities.
(c) The Company is obligated to effect two
registrations pursuant to this Section 1.3 (in addition to any registrations in
which the Holders may participate pursuant to the other provisions of this
Agreement), one of which may be, at the option of the Holders holding at least
51% of the Registrable Securities being registered, a shelf registration which
shall be required to be effective for a period of one year. A registration shall
not be deemed to have been effected unless it has become effective and remained
effective until the Registrable Securities registered under such registration
statement have been sold.
<PAGE>
4
(d) Other than the Registrable Securities, no
securities (including without limitation any securities with respect to which
any Person has any rights under the agreement referred to in the last sentence
of Section 1.11 hereof) shall be included among the securities covered by a
registration effected pursuant to this Section 1.3 unless (i) the Holder or
Holders holding 51% of the Registrable Securities to be covered thereby shall
have consented in writing to the inclusion of such other securities or (ii) the
managing underwriters of the offering shall have advised such Holder or Holders
in writing that the inclusion of such other securities would not adversely
affect such offering or the subsequent trading market or market price for the
Common Units.
(e) Notwithstanding the foregoing, the Company
shall not be required to register any Registrable Securities pursuant to this
Section 1.3: (i) during a reasonable period of time, not to exceed 120 days,
following the initial distribution of securities by the Company pursuant to a
registered underwritten public offering if such offering was commenced prior to
the time the Company receives the request contemplated by Section 1.3(a), or
(ii) during a reasonable period of time, not to exceed 60 days, with respect to
which the Board of Directors of the Managing General Partner has determined that
a registration of Registrable Securities pursuant to this Section 1.3 would
adversely affect the Company because of a material non-public acquisition or
similar material transaction that is pending at the time the Company receives
the request contemplated by Section 1.3(a).
1.4 Company Registration. If at any time, the Company proposes
to register any Common Units for sale (a "Company Registration") under the
Securities Act (other than registration of Common Units solely for issuance or
sale (a) pursuant to Section 1.3 hereof or (b) in connection with (i) employee
compensation or benefit programs, (ii) an exchange offer or an offering of
securities solely to the existing holders of Common Units, (iii) an acquisition,
merger, exchange offer or other business combination, including any transaction
within the scope of Rule 145 promulgated pursuant to the Securities Act, using a
registration statement on Form S- 4 or any successor form), or (iv) a dividend
reinvestment plan, the Company will give prompt written notice (which, in any
event, shall be given no less than 20 days prior to the filing of a registration
statement with respect to such Company Registration) to each Holder of its
intention so to do and, upon the written request of a Holder or Holders sent
within 15 days after the effective date of any such notice, the Company will,
subject to the provisions of Sections 1.5 and 1.7 hereof, use its Reasonable
Efforts to cause all Registrable Securities as to which the Holder or Holders
shall have so requested registration to be registered under the Securities Act,
all to the extent necessary to permit the sale in such offering of the
Registrable Securities so registered on behalf of the Holder or Holders in the
same manner as the Company proposes to offer its Common Units; provided,
however, that such Registrable Securities shall be included in a Company
Registration only as follows:
<PAGE>
5
(1) Any over-allotment option exercised by the
underwriters in connection with a Company Registration shall be exercised only
with respect to Registrable Securities, to the extent that the Holders have
requested that Registrable Securities be included in the Company Registration;
and
(2) If the number of Common Units that can be
included in any Company Registration without materially and adversely affecting
the offering, as determined by the managing underwriters for the offering,
exceeds the number of Common Units proposed to be offered by the Company in such
offering, the Holders shall have the right to include Registrable Securities in
such offering pursuant to this Section 1.4 to the full extent of such excess,
prior to the inclusion in the offering of any Common Units held by any other
Person (including without limitation any Common Units with respect to which any
Person has any rights under the agreement referred to in the last sentence of
Section 1.11 hereof).
In the event that the Holders request the inclusion in any
Company Registration of more Registrable Securities than can be included therein
in accordance with this Section 1.4, the respective number of Registrable
Securities offered for sale by the Holders in the offering shall be determined
on a pro rata basis, in proportion to the number of Registrable Securities that
each requesting Holder then owns or has the present right to acquire.
Subject to the foregoing, the Company shall use its Reasonable
Efforts to cause the managing underwriters in connection with any Company
Registration to permit the Registrable Securities requested by the Holders to be
included in such Company Registration to be included to the full extent
requested by the Holders and on the same terms and conditions as the Common
Units of the Company included therein.
No registration of Registrable Securities under this Section
1.4 shall relieve the Company of its obligations to effect the registration of
Registrable Securities upon the request of the Holders in accordance with
Section 1.3.
1.5 Obligations of the Company. If and whenever the Company is
required by the provisions of this Agreement to effect the registration of any
Registrable Securities, the Company shall as expeditiously as reasonably
possible:
(a) Prepare and file with the Commission a
registration statement on an appropriate form under the Securities Act and use
its Reasonable Efforts to cause such registration statement to become effective;
provided, that before filing a registration statement or prospectus or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of any registration statement, as soon as practicable,
the Company will make available to the Holders and the underwriters copies of
all such documents proposed to be filed, which documents will be subject to the
review of the Holders and the underwriters,
<PAGE>
6
and the Company will not file any registration statement or amendment thereto,
or any prospectus or any supplement thereto (including such documents
incorporated by reference) to which the Holders or the underwriters shall
reasonably object in the light of the requirements of the Securities Act or any
other applicable laws or regulations.
(b) Prepare and file with the Commission such
amendments and post-effective amendments to a registration statement as may be
necessary to keep such registration statement effective until completion of the
offering; cause the related prospectus to be filed pursuant to Rule 424(b) under
the Securities Act; cause such prospectus to be supplemented by any required
prospectus supplement and, as so supplemented, to be filed pursuant to Rule
424(b) under the Securities Act; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during the applicable period in accordance with the
intended methods of disposition set forth in such registration statement or
supplement to such prospectus.
(c) Notify the Holders and the managing
underwriters promptly, and (if requested by any such Person) confirm such advice
in writing, (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to a registration statement or any
post-effective amendment, when the same has become effective, (ii) of any
written request by the Commission for amendments or supplements to a
registration statement or related prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any proceeding
for that purpose, (iv) if at any time the representations and warranties of the
Company contemplated by Section 1.5(l) cease to be true and correct, (v) of the
receipt by the Company of any notification with respect to the suspension of
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation of any proceeding for such purpose, (vi) of the happening of
any event which requires the making of any changes in a registration statement
or related prospectus so that such documents will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading and (vii) of the Company's reasonable determination that a
post-effective amendment to a registration statement would be appropriate or
that there exist circumstances not yet disclosed to the public which make
further sales under such registration statement inadvisable pending such
disclosures and post-effective amendment.
(d) Use its Reasonable Efforts to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction, at the earliest possible
moment.
(e) If requested by the managing underwriters or
the Holders, immediately incorporate in a prospectus supplement or
post-effective
<PAGE>
7
amendment such information as the managing underwriters and the Holders agree
should be included therein relating to such sale and distribution of Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters and the
purchase price being paid therefor by such underwriters and with respect to any
other terms of the offering of the Registrable Securities to be sold in such
offering; make all required filings of such prospectus supplement or
post-effective amendment as soon as practicable after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and supplement or make amendments to any registration statement
necessary in order that such registration statement not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading if requested by the Holders or any underwriter of such Registrable
Securities.
(f) Furnish to the Holders and each managing
underwriter, without charge, at least one copy of the registration statement,
any post-effective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference).
(g) Deliver without charge to the Holders and
the underwriters as many copies of the prospectus or prospectuses (including
each preliminary prospectus) and any amendment or supplement thereto as such
Persons may reasonably request; and the Company consents to the use of such
prospectuses and any amendments or supplements thereto by the Holders and the
underwriters in connection with the offer and sale of the Registrable Securities
covered by such prospectuses, amendments or supplements.
(h) Prior to any public offering of Registrable
Securities, register or qualify or cooperate with the Holders, the underwriters,
and respective counsel in connection with the registration or qualification of
such Registrable Securities for offer and sale under the securities or Blue Sky
laws of such jurisdictions as the Holders or an underwriter reasonably requests
in writing; keep each such registration or qualification effective during the
period such registration statement is required to be kept effective and do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the applicable
registration statement; provided, however, that the Company will not be required
in connection therewith or as a condition thereto to qualify generally to do
business or subject itself to general service of process in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and the managing
underwriters to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any restrictive
legends; and enable such Registrable Securities to be in such denominations and
registered in
<PAGE>
8
such names as the managing underwriters may request at least two business days
prior to any sale of Registrable Securities to the underwriters.
(j) Use its Reasonable Efforts to cause the
Registrable Securities covered by the applicable registration statement to be
registered with or approved by such other governmental agencies or authorities,
if any, as may be necessary to consummate the disposition of such Registrable
Securities.
(k) Upon the occurrence of any event
contemplated by Section 1.5(c) (ii) - (vii) above, prepare a supplement or
post-effective amendment to the applicable registration statement or related
prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchaser of the
Registrable Securities being sold thereunder, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
(l) Enter into such agreements and take all such
actions as shall be necessary to expedite or facilitate the disposition of such
Registrable Securities, and in such connection: (i) make such representations
and warranties to the Holders and underwriters with respect to the registration
statement, prospectus and documents incorporated by reference, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when requested; (ii) obtain
opinions of counsel to the Company and updates thereof with respect to the
registration statement and the prospectus in the form, scope and substance which
are customarily delivered in underwritten offerings; (iii) enter into an
underwriting agreement in form, scope and substance as is customary in
underwritten offerings and obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters and the Holders addressed
to the Holders and the underwriters covering the matters customarily covered in
opinions delivered in underwritten offerings and such other matters as may be
reasonably requested by the Holders and such underwriters; (iv) obtain "cold
comfort" letters and updates thereof from the Company's independent certified
public accountants addressed to the Holders and the underwriters, such letters
to be in customary form and covering matters of the type customarily covered in
"cold comfort" letters by accountants in connection with underwritten offerings;
(v) if requested by the underwriters, cause the appropriate officers and other
personnel of the Company or the Managing General Partner to participate in a
"road show" or other marketing efforts to the extent customary for an
underwritten offering by the Company (whether or not the Company is including
any securities in the offering); (vi) the underwriting agreement shall set forth
in full the indemnification and contribution provisions and procedures
customarily included in underwriting agreements in underwritten offerings; and
(vii) the Company shall deliver such documents and certificates as may be
requested by the Holders and the managing underwriters to evidence compliance
with
<PAGE>
9
the representations and warranties contemplated by clause (i) of this sentence
and with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company. The above shall be done at each
closing under such underwriting or other agreement or as and to the extent
required thereunder.
(m) Make available for inspection by a
representative of the Holders, the underwriters and any attorney or accountant
(the "Inspectors") retained by the Holders or such underwriters, all financial
and other records, pertinent corporate documents and properties of the Company,
and cause the officers, directors and employees of the Managing General Partner
and the Company to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
registration; provided, however, that (A) in connection with any such
inspection, any such Inspectors shall cooperate to the extent reasonably
practicable to minimize any disruption to the operation by the Company of its
business and (B) any records, information or documents that are designated by
the Company in writing as confidential shall be kept confidential by such
Inspectors, unless (1) such records, information or documents are in the public
domain or otherwise publicly available or (2) disclosure of such records,
information or documents is required by a court or administrative order or by
applicable law.
(n) Otherwise use its Reasonable Efforts to
comply with all applicable rules and regulations of the Commission and make
generally available to its security holders earning statements satisfying the
provisions of Section 11(a) of the Securities Act, no later than the times
required by such section and the rules of the Commission adopted thereunder.
(o) Use Reasonable Efforts to cause all
Registrable Securities covered by such registration statement (i) to be listed
on a national securities exchange on which similar securities issued by the
Company are then listed, if the listing of such Registrable Securities is then
permitted under the rules of such exchange or (ii) if the Company is not
required pursuant to clause (i) above to have such securities listed, to arrange
for at least two market makers to register with the National Association of
Securities Dealers as such with respect to such Registrable Securities.
As used in this Section 1.5, the term "Holders" shall be
deemed to refer to the Holder or Holders participating in the offering, and the
use of the plural shall not be deemed to require any action to be taken by all
Holders when action by fewer than all Holders is intended or appropriate.
1.6 Expenses of Registration. In connection with any
registration effected in accordance with this Agreement, each Holder shall be
responsible for (a) all underwriting discounts and commissions deducted from the
purchase price for such Holder's Registrable Securities included in such
registration pursuant to the underwriting agreement. All other expenses incurred
in connection with any
<PAGE>
10
registration effected in accordance with this Agreement (including without
limitation the fees and expenses of the Company's counsel, the fees and expenses
of one law firm engaged by the Holders to represent them in connection with the
registration, filing and qualification fees, and printers' and accounting fees),
shall be borne and paid by the Company.
1.7 Obligations of the Holders.
(a) A Holder may not participate in any
underwritten registration under Section 1.4 hereunder unless it (i) agrees to
sell its Registrable Securities on the basis provided in any reasonable
underwriting arrangements approved by the Company and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably and customarily required under the
terms of such underwriting arrangements.
(b) In connection with any registration of
Registrable Securities, the Company may require each Holder to furnish to the
Company such information regarding itself and the distribution of such
Registrable Securities as the Company may from time to time reasonably request
in writing.
(c) Each Holder agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 1.5(c)(ii)- (vii) hereof, the Holder will forthwith discontinue
disposition of Registrable Securities covered by such registration statement or
prospectus until the Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 1.5(c)(i) hereof, or until it is
advised in writing by the Company that the use of the applicable prospectus may
be resumed, and has received copies of any additional or supple mental filings
which are incorporated by reference in such prospectus, and, if so directed by
the Company, the Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in the Holder's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice. If the Company shall give any such notice, the time
period mentioned in Section 1.3(a) shall be extended by the number of days
during the time period from and including the date of the giving of such notice
pursuant to Section 1.5(c) hereof to and including the date when the Holder
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 1.5(c) hereof.
1.8 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company
will indemnify and hold harmless the Holders, the officers and directors of the
Holders, each underwriter of Registrable Securities and each other Person, if
any, who controls the Holders or such underwriter within the meaning of Section
15 of the Securities Act, against any losses, claims, damages, liabilities or
expenses, joint or several
<PAGE>
11
("Losses"), to which any such Person may become subject under the Securities Act
or otherwise, insofar as such Losses (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such
Registrable Securities were registered under the Securities Act pursuant hereto,
or any post-effective amendment thereof, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus, if
used prior to the effective date of the registration statement and not corrected
in the final prospectus, or contained in the final prospectus (as amended or
supplemented, if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and will reimburse any such Person for any legal or other
expenses reasonably incurred by such Person in connection with investigating or
defending any such Loss; provided, however, that the indemnity agreement
contained in this Section 1.8(a) shall not apply to amounts paid in settlement
of any such Loss if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld); and provided
further, that the Company shall not be liable in any such case to the extent
that any such Loss arises out of or is based upon any such untrue statement or
omission or alleged untrue statement or omission which has been made in said
registration statement, preliminary prospectus, prospectus or amendment or
supplement or omitted therefrom in reliance upon and in conformity with
information furnished in writing to the Company by the Holders or such
underwriter specifically for use in the preparation thereof. Notwithstanding the
foregoing, with respect to a registration and offering under Section 1.3, the
Company shall not be liable in any such case to the extent that any such Loss
relates to Registrable Securities of a Holder and (x) to the extent that any
such Loss arises out of, or is based upon, an untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus if
(A) such Holder failed to send or deliver or cause to be sent or delivered a
copy of the prospectus included in the relevant registration statement at the
time it became effective (the "Prospectus") with or prior to the delivery of
written confirmation of the sale of Registrable Securities of such Holder to the
person asserting such Loss or who purchased such Registrable Security of such
Holder which are the subject thereof if, in either case, such delivery is
required by the Securities Act and (B) the Prospectus would have corrected such
untrue statement or omission or alleged untrue statement or alleged omission or
(y) to the extent that any such Loss arises out of, or is based upon, an untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact in the Prospectus, if (A) such untrue
statement or alleged untrue statement or omission or alleged omission is
corrected in any amendment or supplement to the Prospectus and (B) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such Holder thereafter failed to
deliver or
<PAGE>
12
cause to be delivered such Prospectus as so amended or supplemented prior to or
concurrently with the sale of Registrable Securities of such Holder if such
delivery is required by the Securities Act.
(b) To the extent permitted by law, each Holder,
severally and not jointly, will indemnify and hold harmless the Company and the
Managing General Partner and each of its directors, each of its officers who has
signed the registration statement, each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act, each underwriter and
each Person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against any Losses to which the Company or any such Person may
become subject under the Securities Act or otherwise, and will reimburse the
Company or any such Person for any legal or other expenses reasonably incurred
by the Company or such Person in connection with investigating or defending any
such Loss, but only insofar as such Losses (or actions in respect thereof) arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission of a material fact referred to in clause (x) or (y) of
Section 1.8(a) hereof, in each case to the extent (and only to the extent) that
such untrue statement or omission or alleged untrue statement or omission was
made in reliance upon and in conformity with information furnished in writing by
such Holder specifically for inclusion in such registration statement or
prospectus; provided, however, that the indemnity agreement of each Holder
contained in this Section 1.8(b) shall not apply to amounts paid in settlement
of any such Loss if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; and provided further,
that in no event shall the liability of any Holder exceed the net proceeds from
the sale of Registrable Securities by such Holder pursuant to such registration
statement or prospectus.
(c) Promptly after receipt by an indemnified
party under this Section 1.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this Section
1.8, notify the indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate in the opinion of counsel for the indemnified party due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure so to notify
an indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.8, but the omission so to
<PAGE>
13
notify the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 1.8.
(d) If the indemnification provided for in this
Section 1.8 from the indemnifying party is unavailable to an indemnified party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 1.8(c) hereof, any
legal or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 1.8(d) were determined by pro
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
1.9 Reports Under Exchange Act. With a view to making
available to the Holders the benefits of Rule 144 under the Securities Act and
any other rule or regulation of the Commission that may at any time permit the
Holders to sell securities of the Company to the public without registration,
the Company agrees to:
(a) file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act, and the rules and regulations adopted by the Commission
thereunder; and
(b) furnish to the Holders forthwith upon
request (i) a written statement by the Company as to whether it has complied
with the reporting requirements of Rule 144, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
filed by the Company pursuant to
<PAGE>
14
the Exchange Act and (iii) such other information as may be reasonably requested
by the Holders for purposes of availing themselves of any rule or regulation of
the Commission which permits the sale of any securities without registration.
1.10 Assignment of Registration Rights.
(a) Subject to Section 1.10(b), the Registrable
Securities and rights of any Holder under this Agreement with respect to any
Registrable Securities owned by such Holder may be assigned to any person who
acquires all or a portion of a Holder's Securities from a Holder, except that
any person who acquires such Securities (i) pursuant to a public offering
registered under the Securities Act, or (ii) pursuant to a transfer made in
accordance with Rule 144 under the Securities Act (or any similar successor
provision) may not be assigned rights hereunder with respect to such Securities.
Any assignment of registration rights pursuant to this Section 1.10(a) shall be
effective upon receipt by the Company of written notice from such assigning
Holder (A) stating the name and address of any assignee, (B) describing the
manner in which the assignee acquired Securities from such Holder, and (C)
identifying the Registrable Securities with respect to which the rights under
this Agreement are being assigned.
(b) The rights of an assignee under Section
1.10(a) shall be the same rights granted to the assigning Holder under this
Agreement, except that in no event shall the Company's obligations hereunder be
increased due to any such assignment. In connection with any such assignment,
the term "Holder" as used herein shall, where appropriate to assign the rights
and obligations of the assigning Holder hereunder to such assignee, be deemed to
refer to the assignee.
1.11 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of all Holders, enter into any agreement with any holder or
prospective holder of any securities of the Company which grants registration
rights under the Securities Act on terms and conditions more favorable than or
equivalent to the rights granted to the Holders in this Agreement, or that might
adversely affect the Holders' rights hereunder. The Company is not a party to
any currently existing agreement with respect to its securities granting any
registration rights to any Person, other than that certain agreement dated March
29, 1990 (as amended) between the Company and Pride SGP, Inc.
1.12 Hold-Back Agreements.
(a) If a registration statement is filed
pursuant to Section 1.3 or 1.4 hereof, each Holder agrees not to effect any
public sale or distribution of Common Units, including a sale pursuant to Rule
144 under the Securities Act (except as part of such underwritten registration)
without the approval of the Managing General Partner during the 14-day period
prior to, and during the 90-day period
<PAGE>
15
beginning on, the closing date of the underwritten offering made pursuant to
such registration statement, to the extent timely notified in writing by the
Company.
(b) The Company agrees (i) not to effect any
public sale or distribution of any Common Units or similar securities during the
14-day period prior to, and during the 90-day period beginning on, the effective
date of a registration statement filed pursuant to Section 1.3 or 1.4 hereof
(except as part of such underwritten registration or in connection with (A)
employee compensation or benefit programs, (B) an exchange offer or an offering
of securities solely to the existing holders of Common Units, or (C) an
acquisition, merger or other business combination using a registration statement
on Form S-4 or any successor form), and (ii) to cause each holder of its
privately placed securities purchased from the Company to agree not to effect
any public sale or distribution of any such securities during such period,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of such underwritten registration, if permitted).
ARTICLE II
UNIT TRANSFER RESTRICTIONS
2.1 Initial Restriction Period. Varde agrees that during the
period beginning on the date of this Agreement and ending on the earlier to
occur of nine months from the date on which the New Preferred Unit B and New
Preferred Unit C are first issued or [September 30, 1998] (the "Initial
Restriction Period"), it will not sell any Common Units without the approval of
the Managing General Partner, except that such approval shall not be required
if:
(a) the Common Units are sold in a private
transaction;
(b) the Common Units are sold pursuant to an
effective registration statement under the Securities Act; or
(c) the average of the closing sales prices of
the Common Units on the principal stock exchange or stock market on which the
Common Units are traded for the ten most recent trading days preceding the
Varde's sale of Common Units exceeds the lower of (i) the price that is 25%
above the average of such closing sales prices of the Common Units for the 20
trading days ending 90 calendar days after completion of the Stage 1
Transactions (as defined in Section 1.1 of the Restructuring Agreement) or (ii)
the price that is necessary such that the Company's market capitalization
exceeds $[85.0 million]. For purposes of the preceding sentence, "market
capitalization" means the sum of all outstanding funded debt of the Company, the
amount of all debt converted or convertible into the New Preferred Unit B and
New Preferred Unit C and the aggregate market value (based on the most recent
reported closing sales price) of all outstanding Common Units.
<PAGE>
16
Sales that may be made without the approval of the Managing
General Partner, as contemplated by clauses (a), (b) and (c) above, are referred
to herein as "Permitted Sales."
2.2 Second Restriction Period. Varde agrees that, during the
180-day period beginning on the date immediately following the last day of the
Initial Restriction Period, it will not sell any Common Units without the
approval of the Managing General Partner, except that such approval shall not be
required for (a) any Permitted Sales or (b) sales made as part of a block trade
involving no less than 2% of the outstanding Common Units.
2.3 Termination of Restrictions. There are no restrictions
under this Agreement on sales of Common Units by Varde following the end of the
180-day period referred to in Section 2.2, other than those restrictions imposed
under the Securities Act.
ARTICLE III
MISCELLANEOUS
3.1 Successors and Assigns; No Third Party Benefit. This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto,
their respective successors and assigns and subsequent Holders any rights or
remedies under or by reason of this Agreement, except as expressly provided in
this Agreement.
3.2 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the substantive laws of the State of
New York, without giving effect to the principles of conflicts of law thereof.
3.3 Notices. All notices, demands or other communications
between any of the parties hereto shall be in writing. Notices delivered
personally or by telecopier shall be deemed received on the same Business Day if
delivered personally or by telecopier before 3:00 p.m. (recipient's local time)
on such day, and otherwise on the next Business Day. Any notice, demand or other
communication so addressed to the relevant parties shall be deemed to have been
received (i) if given or made by certified or registered mail, by hand delivery
or by courier service, when actually delivered to the relevant address (and such
location is open for business) and (ii) if given or made by facsimile, on the
date that the communication is received by a responsible employee of the
recipient in legible form (and being agreed that the burden of proving receipt
will be on the sender and will not be met by a transmission report generated by
the sender's facsimile machine).
<PAGE>
17
All notices to Pride shall be given to:
Pride Companies, L.P.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and
General Counsel
Tel: (915) 674-8000
Fax: (915) 676-8792
All notices to MGP shall be given to:
Pride Refining, Inc.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and
General Counsel
Tel: (915) 674-8000
Fax: (915) 676-8792
All notices to SGP shall be given to:
Pride SGP, Inc.
1209 North Fourth
Abilene, Texas 79601
Attention: Chief Executive Officer and
General Counsel
Tel: (915) 674-8000
Fax: (915) 676-8792
All notices to Varde shall be given to:
<PAGE>
18
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George G. Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
3.4 Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to the
Registrable Securities which would adversely affect the ability of the Holders
to include such Registrable Securities in a registration undertaken pursuant to
this Agreement or otherwise sell such Registrable Securities.
3.5 Amendments and Waivers. The provisions of this Agreement
may not be amended or modified in any respect unless the Company has obtained
the written consent of the Holders of at least 51% of the Registrable Securities
that are then outstanding or that a Holder then has a present right to receive.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter that relates solely to the rights of
Holders whose securities are being sold pursuant to a registration statement
covering such Holders' Registrable Securities and that does not directly or
indirectly affect the rights of other Holders may be given by the Holders of at
least 51% of the Registrable Securities being sold by such Holders.
3.6 Severability. If any provision or any portion of any
provision of this Agreement or the application of such provision or any portion
thereof to any Person or circumstance shall be held invalid or unenforceable,
the remaining portion of such provision, as it applies to other Persons or
circumstances and the remaining provisions of this Agreement, shall not be
affected or impaired thereby.
3.7 Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreements and understandings of the parties
hereto in respect of the
<PAGE>
19
subject matter herein contained. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
3.8 Securities Held by the Company or its Affiliates. With
respect to any action, consent or approval required or permitted to be taken or
given by Holders of a specified percentage of Registrable Securities,
Registrable Securities held by the Company or its affiliates (other than Varde
or any subsequent Holder that may be deemed to be an affiliate solely by reason
of its holdings of Registrable Securities) shall not be deemed outstanding for
purposes of determining whether such action, consent or approval was taken or
given by the Holders of such specified percentage.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first above written.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.
its Managing General Partner
By: /s/ Dave Caddell
----------------------------------
Name: Dave Caddell
Title: Vice President
VARDE PARTNERS, INC.
By: /s/ George G. Hicks
----------------------------------
Name: George G.Hicks
Title: Vice President
