SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission file number 1-10473
PRIDE COMPANIES, L.P.
(Name of registrant)
Delaware 75-2313597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1209 North Fourth Street, Abilene, Texas 79601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(915) 674-8000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate the number of units outstanding of each of the
issuer's classes of units, as of the latest practicable date.
Class Outstanding at August 1, 1998
- - ------------ -----------------------------
Common Units 4,950,000<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -
June 30, 1998 (unaudited) and December 31, 1997
Statements of Operations (unaudited) -
for the three months ended June 30, 1998 and
for the three months ended June 30, 1997
Statements of Operations (unaudited) -
for the six months ended June 30, 1998 and
for the six months ended June 30, 1997
Statements of Cash Flows (unaudited) -
for the six months ended June 30, 1998 and
for the six months ended June 30, 1997
Notes to Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults in Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Reports on Form 8-K
Signatures
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRIDE COMPANIES, L.P.
BALANCE SHEETS
(Amounts in thousands, except unit amounts)
<CAPTION>
June 30,
1998 December 31,
(unaudited) 1997
___________ ____________
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 934 $ 5,008
Accounts receivable, less allowance
for doubtful accounts 11,509 14,543
Inventories 9,984 13,036
Prepaid expenses 1,757 2,096
----------- -----------
Total current assets 24,184 34,683
Property, plant and equipment 68,361 67,253
Accumulated depreciation 21,214 19,665
----------- -----------
Property, plant and equipment - net 47,147 47,588
Assets no longer used in the business 7,401 7,353
Deferred financing cost 4,637 5,254
Other assets 398 403
----------- -----------
$ 83,767 $ 95,281
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Current liabilities:
Accounts payable $ 19,629 $ 26,670
Accrued payroll and related benefits 1,257 1,870
Accrued taxes 2,765 3,323
Other accrued liabilities 1,680 2,811
Current portion of long-term debt 2,765 2,084
----------- -----------
Total current liabilities 28,096 36,758
Long-term debt, excluding current portion 41,987 41,087
Deferred income taxes 2,345 2,405
Other long-term liabilities 11,325 10,935
Redeemable preferred equity 20,063 19,529
Partners' capital:
Common units (5,275,000 units
authorized, 4,950,000 units
outstanding) (19,180) (14,656)
General partners' interest (869) (777)
----------- -----------
$ 83,767 $ 95,281
=========== ===========
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Three Months Ended June 30,
1998 1997
-------------- -----------
<S> <C> <C>
Revenues $ 102,986 $ 127,624
Cost of sales and operating expenses,
before depreciation 101,104 122,891
Marketing, general and administrative
expenses, before depreciation 2,088 2,460
Depreciation 863 1,716
------------ -----------
Operating income (loss) (1,069) 557
Other income (expense):
Interest income 16 7
Interest expense (including interest
paid in kind of $332 and $0,
respectively) (1,271) (1,351)
Credit and loan fees (including
amortization of $331 and $0,
respectively, and credit and
loan fees paid in kind of
$150 and $0, respectively) (912) (299)
Other - net 27 477
------------ -----------
Loss before income taxes (3,209) (609)
Income tax expense (benefit) 8 (7)
------------ -----------
Net loss $ (3,217) $ (602)
============ ===========
Basic and diluted net loss
per Common Unit $ (.72) $ (.12)
============ ===========
Numerator:
Net loss $ (3,217) $ (602)
Preferred dividends accrued
and paid in kind (438) -
------------ -----------
Subtotal (3,655) (602)
2% general partner interest (73) (12)
------------ -----------
Numerator for basic and diluted
net loss per Common Unit $ (3,582) $ (590)
============ ===========
Denominator:
Denominator for basic and diluted
net loss per Common Unit 4,950 4,950
============ ===========
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Six Months Ended June 30,
1998 1997
------------ -----------
<S> <C> <C>
Revenues $ 209,205 $ 270,079
Cost of sales and operating expenses,
before depreciation 203,003 262,262
Marketing, general and administrative
expenses, before depreciation 4,274 4,851
Depreciation 1,713 3,434
------------ -----------
Operating income (loss) 215 (468)
Other income (expense):
Interest income 57 16
Interest expense (including interest
paid in kind of $644 and $0,
respectively) (2,496) (2,685)
Credit and loan fees (including
amortization of $660 and $0,
respectively, and credit and
loan fees paid in kind of
$150 and $0, respectively) (1,584) (888)
Other - net 60 456
------------ -----------
Loss before income taxes (3,748) (3,569)
Income tax expense (benefit) 2 (54)
------------ -----------
Net loss $ (3,750) $ (3,515)
============ ===========
Basic and diluted net loss
per Common Unit $ (.91) $ (.70)
============ ===========
Numerator:
Net loss $ (3,750) $ (3,515)
Preferred dividends accrued
and paid in kind (866) -
------------ -----------
Subtotal (4,616) (3,515)
2% general partner interest (92) (70)
------------ -----------
Numerator for basic and diluted
net loss per Common Unit $ (4,524) $ (3,445)
============ ===========
Denominator:
Denominator for basic and diluted
net loss per Common Unit 4,950 4,950
============ ===========
See accompanying notes.
/TABLE
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<CAPTION>
Six Months Ended June 30,
1998 1997
____________ ___________
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,750) $ (3,515)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Noncash charges (credits) to earnings:
Depreciation 1,712 3,434
Amortization of loan costs 660 -
(Gain) loss on sale of
property, plant and equipment (37) (259)
Deferred tax benefit (60) (110)
Paid in kind interest and
credit and loan fees 794 -
Retirement of property, plant
and equipment - 122
Net effect of changes in:
Accounts receivable 3,034 5,562
Inventories 3,052 1,689
Prepaid expenses 339 664
Accounts payable and other
long-term liabilities (6,983) (7,399)
Accrued liabilities (2,302) (977)
------------ -----------
Total adjustments 209 2,726
------------ -----------
Net cash provided by (used in)
operating activities (3,541) (789)
Cash flows from investing activities:
Purchases of property, plant and
equipment (1,356) (500)
Proceeds from disposal of property,
plant and equipment 90 343
Other (54) 7
------------ -----------
Net cash provided by (used in)
investing activities (1,320) (150)
Cash flows from financing activities:
Proceeds from debt and credit
facilities 35,447 75,436
Payments on debt and credit
facilities (34,660) (74,691)
------------ -----------
Net cash provided by (used in)
financing activities 787 745
Net increase (decrease) in cash and
cash equivalents (4,074) (194)
Cash and cash equivalents at the
beginning of the period 5,008 472
------------ -----------
Cash and cash equivalents at the
end of the period $ 934 $ 278
============ ===========
See accompanying notes.
/TABLE
<PAGE>
PRIDE COMPANIES, L.P.
NOTES TO FINANCIAL STATEMENTS
1. Organization
Pride Companies, L.P. (the "Partnership") was formed as a
limited partnership under the laws of the State of Delaware in
January 1990. The Partnership owns and operates (i) a crude oil
gathering business that gathers, transports, resells and redelivers
crude oil in the Texas and New Mexico markets (the "Crude Gathering
System") and (ii) a products marketing business which includes
certain integrated products pipelines and terminal operations in
Abilene, Texas; San Angelo, Texas; and Aledo, Texas (the "Products
Marketing Business"). The Partnership also owns a modern simplex
petroleum refinery facility (the "Refinery") which was mothballed
on March 22, 1998. In April 1998, the Partnership began purchasing
refined products from Equilon, Inc., a refining and marketing joint
venture between Royal Dutch/Shell Group and Texaco, Inc. (formerly,
Texaco Trading and Transportation, Inc.) (the "Equilon Agreement")
to market through its products pipelines and terminal operations.
Prior to mothballing the Refinery, the Partnership's operations
were considered a single industry segment, the refining of crude
oil and the sale of the resulting petroleum products. The primary
purpose of the Crude Gathering System was to purchase and sell
crude oil in order to provide a supply of the appropriate grade of
crude oil at strategic locations to be used as feedstock for the
Refinery. As a result of the Equilon Agreement and the mothballing
of the Refinery, the Crude Gathering System now markets crude oil
primarily to other refineries and the Partnership now operates two
separate and distinct industry segments, the Crude Gathering System
segment and the Products Marketing Business segment. The Crude
Gathering System consists of pipeline gathering systems and a fleet
of trucks which transport crude oil into third party pipelines and
into the system's primary asset, a common carrier pipeline. The
Products Marketing Business has two products pipelines that
originate at the Refinery and terminate at the Partnership's
marketing terminals. In connection with the mothballing of the
Refinery, the products pipeline that extends from the Refinery to
the Aledo terminal was idled, since Equilon's pipeline is connected
to the Partnership's Aledo terminal.
Pride Refining, Inc., a Texas corporation, owns a 1.9% general
partner interest in and serves as the managing general partner of
the Partnership (the "Managing General Partner"). The Partnership
succeeded in January 1990 to the businesses of Pride SGP, Inc.
("Special General Partner" or "Pride SGP") which owns a 0.1%
general partner interest in and serves as the special general
partner of the Partnership. The Managing General Partner and the
Special General Partner (collectively the "General Partners")
collectively own a 2% general partner interest. In addition to its
general partner interest, the Special General Partner owns a 4.9%
interest in the Partnership through ownership of common limited
partner units (the "Common Units"). Public ownership, represented
by the remaining Common Units, is 93.1%.
2. Accounting Policies
The financial statements of the Partnership include all of its
majority-owned subsidiaries including limited partnership interests
where the Partnership has significant control through related
parties. All intercompany transactions have been eliminated and
minority interest has been provided where applicable. The
financial statements included in this quarterly report on Form 10-Q
are unaudited and condensed and do not contain all information
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the
accompanying financial statements contain all material adjustments
necessary to present fairly the financial position, results of
operations, and cash flows for such periods. Interim period
results are not necessarily indicative of the results to be
achieved for the full year. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
The financial statements of the Partnership presented in its
Annual Report on Form 10-K for the year ended December 31, 1997
include a summary of significant accounting policies that should be
read in conjunction with this quarterly report on Form 10-Q. The
Partnership has two subsidiaries that are corporations which are
separate taxable entities whose operations are subject to federal
income taxes.
3. Earnings Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
Earnings per Share (FAS 128). FAS 128 supersedes APB Opinion No.
15, Earnings Per Share (APB 15) and requires the calculation and
dual presentation of basic and diluted earnings per share,
replacing the measures of primary and fully-diluted earnings per
share as reported under APB 15. FAS 128 is effective for general
statements issued for periods ending after December 15, 1997;
earlier application is not permitted. Basic net income (loss) per
common unit is computed using the weighted average number of common
units outstanding. Diluted net income (loss) per common unit is
computed by adjusting the primary units outstanding and net income
(loss) for the potential effect of the conversion of the
Subordinate Note A, Series B Preferred Units, Series C Preferred
Units and Series E Preferred Units outstanding during the period
and the elimination of the related interest and dividends and the
potential effect of the exercise of officers' and employees' unit
appreciation rights. When the effect of including the conversion
of the convertible preferred equity and the exercise of unit
appreciation rights on basic or diluted net income (loss) per unit
is antidilutive, as is the case for the periods ended June 30, 1998
and June 30, 1997, they are not included in the calculation of
diluted net income (loss) per unit.
4. Related Party Transactions
In accordance with the Second Amended and Restated Agreement
of Limited Partnership of Pride Companies, L.P. ("Partnership
Agreement"), the Managing General Partner conducts, directs and
exercises control over substantially all of the activities of the
Partnership. The Managing General Partner has a 1.9% interest in
the income and cash distributions of the Partnership, subject to
certain adjustments. Certain members of the management of the
Managing General Partner are also members of the management of
Pride SGP, which has a 0.1% general partner interest and a 4.9%
limited partner interest in the Partnership.
The Partnership has no directors or officers; however,
directors and officers of the Managing General Partner are employed
by the Partnership to function in this capacity. Compensation of
these persons and any other expenses incurred on behalf of the
Partnership by the Managing General Partner and Pride SGP are paid
by the Partnership.
Certain conflicts of interest, including potential non-arm's
length transactions, could arise as a result of the relationships
described above. The Board of Directors and management of the
Managing General Partner have a duty to manage the Partnership in
the best interests of the unitholders and consequently must
exercise good faith and integrity in handling the assets and
affairs of the Partnership.
5. Inventories
<TABLE>
<CAPTION>
Inventories are valued at the At At
lower of cost or market and June 30, December 31,
consist of: 1998 1997
(in thousands)
----------------------------- ----------- -----------
<S> <C> <C>
Crude oil $ 5,483 $ 8,388
Refined products and blending
materials 4,080 6,473
----------- -----------
9,563 14,861
LIFO reserve 525 (2,837)
Market valuation (1,002) -
----------- -----------
Petroleum inventories 9,086 12,024
Spare parts and supplies 898 1,012
----------- -----------
$ 9,984 $ 13,036
=========== ===========
</TABLE>
The last-in/first-out (LIFO) inventory cost method is used for
crude oil and refined products and blending materials. The
weighted average inventory cost method is used for spare parts and
supplies.
6. Long-term Debt
On December 31, 1997, Varde Partners, Inc. ("Varde") purchased
and assumed the then existing lenders' rights and obligations under
the Partnership's outstanding bank debt. In conjunction with
Varde's purchase and assumption of the lenders' rights and
obligations under such bank debt, BankBoston, N.A. ("BankBoston")
refinanced the Partnership's letter of credit and revolver
facilities (the "Revolver") on December 31, 1997 for a 5-year term.
Varde and BankBoston each amended their respective credit
agreements effective April 15, 1998. The credit agreement with
Varde was amended to provide a $2.0 million loan for working
capital purposes (the "Varde Revolver") through deferral of
principal amortization on the A Term Loan and additional cash
advances (see below). In addition, both credit agreements were
amended to ease certain financial covenants through December 31,
1998.
The Revolver from BankBoston provides for the issuance of
letters of credit to third parties to support the Partnership's
purchase or exchange of crude oil and petroleum products in an
aggregate amount not to exceed $65.0 million, with a sublimit of
$10.0 million for direct cash borrowings for general working
capital purposes. Amounts available under the Revolver are subject
to a borrowing base calculated as the sum of the Partnership's cash
and cash equivalents, certain receivables, deposits, inventory and
other amounts, reduced by a portion of crude oil royalties payable
and certain other amounts payable. The amount available under the
borrowing base net of outstanding letters of credit and advances
under the Revolver was $1.4 million as of June 30, 1998.
Though no advances had been drawn under the letter of credit
facility as of June 30, 1998, the Partnership did have
approximately $28.3 million in outstanding letters of credit. The
Partnership had no advances under the Revolver for direct cash
borrowings as of June 30, 1998. The fee on outstanding letters of
credit was 2.5% per annum as of June 30, 1998. There is also an
issuance fee of 0.125% per annum on the face amount of each letter
of credit. The fee for the unused portion of the Revolver is 0.5%
per annum. At the Partnership's discretion, cash borrowings under
the Revolver at June 30, 1998 bore interest at either LIBOR plus 3%
or prime plus 1.75%. LIBOR and the prime rate were 5.66% and 8.5%,
respectively, at June 30, 1998. The credit agreement evidencing
the Revolver also requires the Partnership to pay an agency fee of
up to $70,000 per annum depending on the number of participants in
the credit facility and restricts the payment of distributions to
unitholders throughout the term of the credit agreement.
BankBoston also charged a $75,000 amendment fee related to the
amendment that became effective April 15, 1998.
As a result of Varde's assumption of the outstanding bank
debt, additional loans to the Partnership and subsequent interest
being paid in kind, Varde now holds a term loan of $20.2 million
("A Term Loan"), a term loan of $9.9 million ("B Term Loan"), a
term loan of $4.8 million ("C Term Loan") and an unsecured note of
$2.6 million ("Subordinate Note A") as of June 30, 1998. The A
Term Loan bears interest rates of 11% in the first two years, 13%
in the third year, 15% in the fourth year and 17% in the fifth
year. The Partnership has included $1.3 million of the A Term Loan
in the current portion of long-term debt as of June 30, 1998. The
B Term Loan and C Term Loan bear interest rates of 11% in the first
three years, 13% in the fourth year and 15% in the fifth year
except for $3.4 million of the B Term Loan which is subject to
interest rates of 12% through maturity. If the A Term Loan is not
refinanced, the interest rates applicable to the A Term Loan, B
Term Loan and C Term Loan would be 11%, 13%, 15%, 17% and 19% for
the first, second, third, fourth and fifth years, respectively,
during all or any portion of the period after February 1998 that
the A Term Loan is held by Varde, except for $3.4 million of the B
Term Loan which is subject to interest rates of 18% through
maturity. The Subordinate Note A is convertible into 416,000
Common Units and bears interest at prime plus one percent.
The cash interest and dividend payments on the B Term Loan, C
Term Loan, Subordinate Note A and the redeemable preferred equity
held by Varde are limited to $90,833 per month or $1.1 million
annually. To the extent the interest and dividends on the various
Varde securities exceed the cap on cash payments, such excess will
be paid in kind. The A Term Loan is due December 31, 2002. The B
Term Loan, C Term Loan and Subordinate Note A are due December 31,
2002. The Partnership is required to make quarterly principal
payments on the A Term Loan as set forth in the Varde credit
agreement as well as make payments of excess cash flow for the
preceding year. Such principal payments have been deferred for
1998 by agreement of Varde. The Partnership will not have to make
principal payments prior to the scheduled maturity on the B Term
Loan, C Term Loan and Subordinate Note A, except in the case the
Partnership receives proceeds related to the DFSC Claim and certain
other transactions (see Note 9).
Any payments of principal on the securities held by Varde
shall be applied in the following order: A Term Loan (if then
outstanding), B Term Loan, C Term Loan, Subordinate Note A, Series
B Preferred Units, Series C Preferred Units, and Series D Preferred
Units (see Note 7 for information on the preferred units).
The Partnership or its management has a three-year call on
Varde's position for an amount equal to a 40% annual rate of return
to Varde, subject to a minimum payment of $7.5 million over Varde's
cost. The securities held by Varde have certain antidilution
provisions and registration rights. Any litigation proceeds
received by the Partnership related to the DFSC Claim will be used
to retire up to $6.0 million of either the A Term Loan if then
outstanding, and up to $5.0 million of either the B Term Loan or
New Series A Preferred, whichever is then outstanding, with any
excess divided one-third to Varde to be used to retire Varde's most
senior securities and two-thirds to the Partnership.
On December 31, 1997, certain members of management agreed to
invest an aggregate of $2.0 million in the form of a note payable
to Varde and will receive a one-third economic non-directive
interest in $6.0 million of the B Term Loan, C Term Loan,
Subordinate Note A, Series B Preferred Units, Series C Preferred
Units and Series D Preferred Units. The note payable to Varde will
be secured by management's interest in such securities. Any cash
yield on management's share of such securities will be paid to
Varde as interest, net of applicable federal income tax.
Advances under the Varde Revolver bear interest at 11% per
annum, payable monthly. Under the credit agreement, the Varde
Revolver was subject to an administration fee equal to 5.0% of any
incremental advance and any principal deferral on the A Term Loan
and was limited to $100,000. The fee was payable in the form of an
additional Series B Term Loan. Since the Partnership deferred
$750,000 in principal amortization on the A Term Loan and drew an
additional $1,250,000 under the Varde Revolver, the entire $100,000
fee was payable in the second quarter of 1998. Also, the
Partnership paid a commitment fee in the amount of $50,000 in the
form of an additional Series B Term Loan. Cash advances under the
Varde Revolver are due January 1, 1999. Accordingly, the
$1,250,000 outstanding at June 30, 1998 has been included in the
current portion of long-term debt.
Other installment loans include a $6.0 million nonrecourse
note, due 2014, payable monthly with interest at 8% and a balance
of $5.6 million at June 30, 1998. The note is supported by a
minimum throughput agreement. The assets of Pride Borger, Inc., a
wholly-owned subsidiary of the Partnership, are pledged as
collateral. Monthly principal payments are based on the number of
throughput barrels. The Partnership has classified $164,000 as
current at June 30, 1998.
7. Preferred Equity
In conjunction with Varde's assumption of the outstanding bank
debt, Varde received preferred equity securities. As a result of
the assumption and subsequent distributions being paid in kind,
Varde now holds preferred equity securities including $9.6 million
of Series B Cumulative Convertible Preferred Units ("Series B
Preferred Units"), $5.1 million of Series C Cumulative Convertible
Preferred Units ("Series C Preferred Units") and $2.9 million of
Series D Cumulative Preferred Units ("Series D Preferred Units")
which mature December 31, 2002. The Series B Preferred Units and
Series C Preferred Units are convertible into 1,522,000 and 816,000
Common Units, respectively, at June 30, 1998. The preferential
quarterly payments on the Series B Preferred Units and Series C
Preferred Units will be 6% per annum in the first three years after
issuance, 12% per annum in the fourth and fifth years and 15% per
annum thereafter or may be paid in kind at 8% per annum in the
first three years, 12% per annum in the fourth and fifth years and
15% per annum thereafter. The preferential quarterly payments on
the Series D Preferred Units will be 11% per annum in the first
three years after issuance, 13% per annum in the fourth and fifth
years and 15% per annum thereafter or may be paid in kind through
maturity at 13% per annum in the first five years and 15% per annum
thereafter. Distributions are payable on the 5th day of the second
month in each quarter. Accordingly, the Partnership had paid, in
kind, distributions of $534,000 and accrued an additional
distribution of $241,000 at June 30, 1998 on these preferred equity
securities.
On December 31, 1997, Pride SGP agreed to convert (i) a $2.0
million note from the Partnership into Series E Cumulative
Convertible Preferred Units ("Series E Preferred Units") which is
convertible into 317,000 Common Units at June 30, 1998 and (ii) a
$450,000 note from the Partnership into Series F Cumulative
Preferred Units ("Series F Preferred Units"). The Series E
Preferred Units and Series F Preferred Units mature December 31,
2002. The Series E Preferred Units and Series F Preferred Units
will be subordinated to the Series B Preferred Units, Series C
Preferred Units and Series D Preferred Units. The preferential
quarterly payments on the Series E Preferred Units and Series F
Preferred Units will be 6% per annum in the first three years after
issuance, 12% per annum in the fourth and fifth years and 15% per
annum thereafter or may be paid in kind at 8% per annum in the
first three years, 12% per annum in the fourth and fifth years and
15% per annum thereafter until mandatory redemption at December 31,
2002. Distributions are payable on the 5th day of the second month
in each quarter; however, the Partnership may not make any cash
distributions or paid in kind distributions on the Series E
Preferred Units or Series F Preferred Units if the distributions
with respect to the Series B Preferred Units, Series C Preferred
Units or Series D Preferred Units are paid in kind. Accordingly,
at June 30, 1998, the Partnership accrued distributions of $91,000
but had not paid such distributions in cash or in kind.
8. Common Units
At June 30, 1998, 4,950,000 Common Units were outstanding,
representing a 98% limited partner interest in the Partnership.
The general partners are entitled to 2% of all distributions.
Under the terms of the Partnership's credit agreement, the
bank restricted the payment of distributions to unitholders
throughout the term of the credit agreement. Future distributions
will be dependent on, among other things, payment in full of the
bank debt, expiration of all liabilities related to letters of
credit, and the termination of the credit agreement.
9. Contingencies
The Partnership has filed a substantial claim against the
Defense Fuel Supply Center relating to erroneous pricing of fuel
purchased over a period of several years from the Partnership and
its predecessors. The ultimate outcome of this matter cannot
presently be determined.
The Partnership is involved in various claims and routine
litigation incidental to its business for which damages are sought.
Management believes that the outcome of all claims and litigation
is either adequately insured or will not have a material adverse
effect on the Partnership's financial position or results of
operations.
10. Securities Exchange
The Partnership has been notified by the New York Stock
Exchange that the Partnership will be delisted from trading on the
New York Stock Exchange effective August 17, 1998. The
Partnership, however, is in the process of applying for listing on
the NASDAQ OTC bulletin board.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Overview
Pride Companies, L.P. is a Delaware limited partnership which
owns and operates a products marketing business ("Products
Marketing Business") and crude oil gathering business ("Crude
Gathering System"). Prior to the mothballing of the refinery on
March 22, 1998, the Partnership also operated a refining business
("Refinery") and products pipeline business ("Products System").
The following is a discussion of the results of operations of
the Partnership. This discussion should be read in conjunction
with the financial statements included in this report.
Forward Looking Statements
This Form 10-Q contains certain forward looking statements.
Such statements are typically punctuated by words or phrases such
as "anticipate," "estimate," "projects," "should," "may,"
"management believes," and words or phrases of similar import.
Such statements are subject to certain risks, uncertainties or
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated,
estimated or projected. Among the key factors that may have a
direct bearing on the Partnership's results of operations and
financial conditions are: (i) the margins between the prices of
the Partnership's refined petroleum products and the cost of such
products and the availability of such products, (ii) the volume
throughput on and margins from the transportation and resale of
crude oil from the Partnership's Crude Gathering System, (iii) the
impact of current and future laws and governmental regulations
affecting the petroleum industry in general and the Partnership's
operations in particular, (iv) the ability of the Partnership to
sustain cash flow from operations sufficient to realize its
investment in operating assets of the Partnership, (v) fluctuations
in crude oil and refined product prices and their impact on working
capital and the borrowing base under the Partnership's credit
agreements, and (vi) the receipt of certain consents and approvals
to modify the Partnership's capital structure.
General
As a result of mothballing the Refinery at the end of the
first quarter of 1998 and redirecting its business to focus on
crude and product marketing and distribution, the Partnership's
operating results now depend principally on (i) the margins between
the cost at which petroleum products are purchased from Equilon,
Inc. ("Equilon" is a refining and marketing joint venture between
Royal Dutch/Shell Group and Texaco, Inc.) and the revenue realized
by the Partnership on the sale of such products, (ii) the volume
throughput from the products terminals, and (iii) the volume
throughput on and margins from the transportation and resale of
crude oil from its Crude Gathering System. The price the
Partnership is able to realize on the resale of its petroleum
products is influenced by the level of competition in the
Partnership's markets. Due to the change in its core business, a
comparison of the Products Marketing Business to the Refinery and
Products System would not be meaningful and, therefore, will not be
included with this Form 10-Q.
Prior to mothballing the Refinery and entering into the
Equilon agreement ("Equilon Agreement"), the Partnership's
operating results depended principally on (i) the rate of
utilization of the Refinery, (ii) the margins between the prices of
its refined petroleum products and the cost of crude oil, (iii) the
volume throughput on the Products System, and (iv) the volume
throughput on and margins from the transportation and resale of
crude oil from its Crude Gathering System.
Margins from the Crude Gathering System are influenced by the
level of competition and the price of crude oil. When prices are
higher, crude oil can generally be resold at higher margins.
Additionally, transportation charges increase when higher crude oil
prices stimulate increased exploration and development.
Conversely, when crude oil prices decrease, margins on the resale
of crude oil as well as transportation charges tend to decrease.
In evaluating the financial performance of the Partnership,
management believes it is important to look at operating income,
excluding depreciation, in addition to operating income which is
after depreciation. Operating income, excluding depreciation,
measures the Partnership's ability to generate and sustain working
capital and cash flows from operations. However, such measure is
before debt service, so it does not indicate the amount available
for distribution, reinvestment or other discretionary uses. Gross
revenues primarily reflect the level of crude oil prices and are
not necessarily an accurate reflection of the Partnership's
profitability. Also important to the evaluation of the Refinery's
performance were barrels of crude oil refined, gross margin
(revenue less cost of crude) per barrel, and operating expense per
barrel, excluding depreciation.
Second Quarter 1998 Compared to Second Quarter 1997
GENERAL -- Net loss for the second quarter of 1998 was $3.2
million compared to net loss of $602,000 for the second quarter of
1997. The decline was a result of (i) weaker results for the
Products Marketing Business as compared to the Refinery and
Products System (see below), (ii) a reserve of $1.0 million for the
market valuation of inventory in the second quarter of 1998, (iii)
higher credit and loan fees of $613,000 and (iv) a decrease in
"Other - net" of $450,000 in the second quarter of 1998 compared to
the second quarter of 1997. Credit and loan fees increased
principally as a result of the amortization of the deferred loan
costs. "Other - net" for the second quarter of 1997 included
income related to the sale of the Refinery's product trucks.
Operating loss was $1.1 million for the second quarter of 1998
compared to operating income of $557,000 for the second quarter of
1997. As previously mentioned, the decrease in operating income
was due to the weaker results for the Products Marketing Business
as compared to the Refinery and Products System and a reserve of
$1.0 million for the market valuation of inventory in the second
quarter of 1998. Operating loss, before depreciation, for the
second quarter of 1998 was $206,000 compared to operating income,
before depreciation, of $2.3 million for the second quarter of
1997.
The following table details the operating income (loss);
depreciation; and the operating income (loss), before depreciation
(in thousands), for the second quarter of 1998 and 1997.
<TABLE>
<CAPTION>
Operating
Income
Operating (Loss)
Income Before
(Loss) Depreciation Depreciation
--------- ------------ ------------
<S> <C> <C> <C>
Second Quarter 1998
Products Marketing Business $ (344) $ 346 $ 2
Crude Gathering System (725) 517 (208)
------- ------- --------
Total $(1,069) $ 863 $ (206)
======= ======= ========
Second Quarter 1997
Refinery and Products System $ 463 $ 1,237 $ 1,700
Crude Gathering System 94 479 573
------- ------- --------
Total $ 557 $ 1,716 $ 2,273
======= ======= ========
</TABLE>
PRODUCTS MARKETING BUSINESS -- Operating loss for the Products
Marketing Business was $344,000 for the second quarter of 1998.
Depreciation expense for the Products Marketing Business was
$346,000 for the second quarter of 1998. Operating income, before
depreciation, for the Products Marketing Business was $2,000 for
the second quarter of 1998. The weak results were due to product
outages and higher operating expense during the transition from the
Refinery and Products System to the Products Marketing Business
during the second quarter of 1998. See "-Financial Condition -
Financial Resources and Liquidity." During the second quarter of
1998, the Partnership marketed 12,824 barrels per day ("BPD") of
refined products. The net margin per barrel for this period was
negative $0.29.
REFINERY AND PRODUCTS SYSTEM -- Operating income of the
Refinery and Products System was $463,000 for the second quarter of
1997. Depreciation expense for the Refinery and Products System
was $1.2 million for the second quarter of 1997. Operating income,
before depreciation, for the Refinery and Products System was $1.7
million for the second quarter of 1997.
Operating income of the Refinery was $163,000 for the second
quarter of 1997. Depreciation expense for the Refinery was $1.0
million for the second quarter of 1997. Operating income, before
depreciation, for the Refinery was $1.2 million for the second
quarter of 1997.
Refinery gross margin per barrel was $1.85 for the second
quarter of 1997. Refinery throughput averaged 32,054 BPD for the
second quarter of 1997. Operating expenses per barrel, before
depreciation, were $0.98 for the second quarter of 1997.
Operating income for the Products System was $300,000 for the
second quarter of 1997. Depreciation expense for the Products
System was $217,000 for the second quarter of 1997. Operating
income, before depreciation, for the Products System was $517,000
for the second quarter of 1997. Total transportation volumes were
13,094 BPD for the second quarter of 1997.
CRUDE GATHERING SYSTEM -- Operating loss for the Crude
Gathering System was $725,000 for the second quarter of 1998
compared to operating income of $94,000 for the same period in 1997
due to a reserve of $1.0 million for the market valuation of
inventory in the second quarter of 1998. Depreciation expense for
the Crude Gathering System increased to $517,000 for the second
quarter of 1998 from $479,000 for the second quarter of 1997.
Operating loss, before depreciation, for the Crude Gathering System
was $208,000 for the second quarter of 1998 compared to operating
income, before depreciation, of $573,000 for the second quarter of
1997. The net margin was negative $0.17 per barrel for the second
quarter of 1998 versus positive $0.02 per barrel for the same
period in 1997. The volume of crude oil gathered by the Crude
Gathering System decreased to 46,605 BPD for the second quarter of
1998 from 49,729 BPD for the second quarter of 1997.
First Six Months 1998 Compared to First Six Months 1997
GENERAL -- Net loss for the first six months of 1998 was $3.8
million compared to $3.5 million for the first six months of 1997.
The increase was primarily due to a reserve of $1.0 million for the
market valuation of inventory for the first six months of 1998 and
an increase in credit and loan fees of $696,000 during the first
six months of 1998. Credit and loan fees increased due to the
amortization of restructuring cost during the first six months of
1998. This was partially offset by lower depreciation during the
first six months of 1998 due to devaluing certain assets on
December 31, 1997.
Operating income was $215,000 for the first six months of 1998
compared to operating loss of $468,000 for the first six months of
1997. Operating income improved primarily as a result of lower
depreciation expense during the first six months of 1998 due to the
devaluation of certain assets at December 31, 1997. Operating
income, before depreciation, decreased for the first six months of
1998 to $1.9 million from $3.0 million for the first six months of
1997.
The table below details the operating income (loss);
depreciation; and the operating income (loss), before depreciation
by division (in thousands) for the first six months of 1998 and
1997.
<TABLE>
<CAPTION>
Operating
Income
Operating (Loss)
Income Before
(Loss) Depreciation Depreciation
--------- ------------ ------------
<S> <C> <C> <C>
First Six Months 1998
Products Marketing
Business (1) $ 662 $ 714 $ 1,376
Crude Gathering System (447) 999 552
------- ------- --------
Total $ 215 $ 1,713 $ 1,928
======= ======= ========
First Six Months 1997
Refinery and Products System $(1,725) $ 2,474 $ 749
Crude Gathering System 1,257 960 2,217
------- ------- --------
Total $ (468) $ 3,434 $ 2,966
======= ======= ========
(1) The Partnership began operating the Products Marketing
Business in the second quarter of 1998. Prior to this the
Partnership operated the Refinery and Products System.
</TABLE>
PRODUCTS MARKETING BUSINESS -- Operating income of the
Products Marketing Business was $662,000 for the first six months
of 1998 which includes operating income of $1.0 million from the
Refinery and Products System for the first three months of 1998.
Depreciation expense for the Products Marketing Business was
approximately $714,000 for the first six months of 1998 which
includes depreciation expense of $368,000 from the Refinery and
Products System for the first three months of 1998. Operating
income, before depreciation, of the Products Marketing Business was
$1.4 million for the first six months of 1998 which includes
operating income, before depreciation, of $1.4 million from the
Refinery and Products System for the first three months of 1998.
REFINERY AND PRODUCTS SYSTEM -- Operating loss of the Refinery
and Products System was $1.7 million for the first six months of
1997. Depreciation expense of the Refinery and Products System was
approximately $2.5 million for the first six months of 1997.
Operating income, before depreciation, of the Refinery and Products
System was $749,000 for the first six months of 1997.
Operating loss of the Refinery was $2.1 million for the first
six months of 1997. Depreciation expense for the Refinery was $2.0
million for the first six months of 1997. Operating loss, before
depreciation, of the Refinery was $41,000 for the first six months
of 1997.
Refinery gross margin per barrel was $1.47 for the first six
months of 1997. Refinery throughput averaged 31,654 BPD for the
first six months of 1997. Operating expenses per barrel, before
depreciation, were $1.05 for the first six months of 1997.
Operating income for the Products System was $355,000 for the
first six months of 1997. Depreciation expense for the Products
System was $435,000 for the first six months of 1997. Operating
income, before depreciation, for the Products System was $790,000
for the first six months of 1997. Total transportation volumes
were 12,791 for the first six months of 1997.
CRUDE GATHERING SYSTEM -- Operating loss for the Crude
Gathering System was $447,000 for the first six months of 1998
compared to operating income of $1.3 million for the same period in
1997 due to lower margins for the first six months of 1998 and a
reserve of $1.0 million for the market valuation of inventory for
the first six months of 1998. Depreciation expense for the Crude
Gathering System was $999,000 for the first six months of 1998 and
$960,000 for the first six months of 1997. Operating income,
before depreciation, for the Crude Gathering System was $552,000
for the first six months of 1998 and $2.2 million for the first six
months of 1997. The net margin was negative $0.05 per barrel for
the first six months of 1998 compared to positive $0.14 per barrel
for the first six months of 1997. The volume of crude oil gathered
by the Crude Gathering System was 49,376 BPD for the first six
months of 1998 compared to 49,162 BPD for the first six months of
1997.
Factors and Trends Affecting Operating Results
A number of factors have affected the Partnership's operating
results, both indirectly and directly, such as environmental
compliance, other regulatory matters, industry trends and price of
crude oil, inventory prices, and seasonality and weather. The
Managing General Partner expects that such conditions will continue
to affect the Partnership's business to varying degrees in the
future. The order in which these factors are discussed is not
intended to represent their relative significance.
Environmental Compliance. Increasing public and governmental
concern about air quality is expected to result in continued
regulation of air emissions. Regulations relating to carbon
monoxide and regulations on oxygen content in gasoline and sulfur
content in diesel fuel are expected to be increasingly important as
a means of improving air quality in urban areas. The Partnership
plans to spend approximately $1.0 million in 1998 and 1999 on
several projects to maintain compliance with various environmental
requirements including approximately $600,000 related to
mothballing the Refinery.
Effective January 1, 1995, the Clean Air Act Amendment of 1990
required that certain areas of the country use reformulated
gasoline ("RFG"). The Abilene and San Angelo market areas do not
require RFG. Collin, Dallas, Denton, and Tarrant Counties, which
comprise the Dallas-Fort Worth ("DFW") metroplex area, do require
RFG; however, the Partnership's Aledo terminal lies outside this
area and is allowed to supply conventional gasoline that is not
destined for sale in these four counties. In addition to the
requirement for RFG in certain areas, new but much less restrictive
regulations took effect that impose new quality standards for
conventional gasoline in the rest of the country. Management does
not anticipate that these have had or will have a material adverse
effect on the Partnership's operations.
Other Regulatory Requirements. The Partnership is also
subject to the rules and regulations of, among others, the
Occupational Safety and Health Administration, Texas Air Control
Board, Texas Railroad Commission, and Texas Water Commission.
Industry Trends and Price of Crude Oil. Industry trends and
the price of crude oil will continue to affect the Partnership's
business. As a result of purchasing product from Equilon, the
Partnership will be impacted by fluctuations in the cost of those
products versus fluctuations in the price realized by the
Partnership on the sale of such products and the amount of
competition in its markets. The general level of crude oil prices
can also have a significant effect on the margins in the crude
gathering business. Margins in the Crude Gathering System
generally tend to be influenced by competition and the general
price level of crude oil. When prices are higher, crude oil can
generally be resold at higher margins. Additionally,
transportation charges are slightly less competitive when higher
crude oil prices result in increased exploration and development.
Conversely, when crude oil prices decrease, margins on the resale
of crude oil and transportation charges generally tend to decrease.
Inventory Prices. The Partnership utilizes the last-in/first-
out (LIFO) method of determining inventory values. LIFO minimizes
the effect of fluctuations in inventory prices on earnings by
matching current costs with current revenue. The LIFO method is
the predominant method used in the refining industry.
Seasonality and Weather. Gasoline consumption is typically
highest in the United States in the summer months and lowest in the
winter months. Diesel consumption in the southern United States is
generally higher just prior to and during the winter months when
commercial trucking is routed on southern highways to avoid severe
weather conditions further north.
<PAGE>
Financial Condition
Inflation
The Partnership's operations would be adversely impacted by
significant, sustained increases in crude oil and other energy
prices. Although the Partnership's operating costs are generally
impacted by inflation, the Managing General Partner does not expect
general inflationary trends to have a material adverse impact on
the Partnership's operations.
Financial Resources and Liquidity
The Partnership receives payments from the United States
Government, major oil companies, and other customers within
approximately 7 to 15 days from shipment in the case of product
sales and by the 20th of the following month in the case of third-
party crude oil sales and exchanges. The Partnership maintains
refined products inventory in the amount of approximately 5 to 10
days of sales and crude inventory of approximately 10 to 15 days of
sales. Equilon has agreed to maintain the refined products
inventory previously held by the Partnership from August 1, 1998
through December 31, 1998. The Partnership pays for refined
products 10 days after receipt from Equilon and crude oil on the
20th of the month following the month in which it is received. As
a result, the Partnership's operating cycle is such that there is
a lag on when it receives payment for the refined products versus
when it pays for such products. Letters of credit are an integral
part of the operations of the Crude Gathering System since the
Partnership takes title to both first purchased barrels and custom
gathered barrels.
On December 31, 1997, Varde Partners, Inc. ("Varde") purchased
and assumed the then existing lenders' rights and obligations under
the Partnership's outstanding bank debt. In conjunction with
Varde's purchase and assumption of the lenders' rights and
obligations under such bank debt, BankBoston, N.A. ("BankBoston")
refinanced the Partnership's letter of credit and revolver
facilities (the "Revolver") on December 31, 1997 for a 5-year term.
Varde and BankBoston each amended their respective credit
agreements effective April 15, 1998. The credit agreement with
Varde was amended to provide a $2.0 million loan for working
capital purposes (the "Varde Revolver") through deferral of
principal amortization on the A Term Loan and additional cash
advances (see below). In addition, both credit agreements were
amended to ease certain financial covenants through December 31,
1998.
The Revolver from BankBoston provides for the issuance of
letters of credit to third parties to support the Partnership's
purchase or exchange of crude oil and petroleum products in an
aggregate amount not to exceed $65.0 million, with a sublimit of
$10.0 million for direct cash borrowings for general working
capital purposes. Amounts available under the Revolver are subject
to a borrowing base calculated as the sum of the Partnership's cash
and cash equivalents, certain receivables, deposits, inventory and
other amounts, reduced by a portion of crude oil royalties payable
and certain other amounts payable. The amount available under the
borrowing base net of outstanding letters of credit and advances
under the Revolver was $1.4 million as of June 30, 1998.
Though no advances had been drawn under the letter of credit
facility at June 30, 1998, the Partnership did have approximately
$28.3 million in outstanding letters of credit. The Partnership
had no advances under the Revolver for direct cash borrowings as of
June 30, 1998. The fee on outstanding letters of credit was 2.5%
per annum as of June 30, 1998. There is also an issuance fee of
0.125% per annum on the face amount of each letter of credit. The
fee for the unused portion of the Revolver is 0.5% per annum. At
the Partnership's discretion, cash borrowings under the Revolver at
June 30, 1998 bore interest at either LIBOR plus 3% or prime plus
1.75%. LIBOR and the prime rate were 5.66% and 8.5%, respectively,
at June 30, 1998. The credit agreement evidencing the Revolver
also requires the Partnership to pay an agency fee of up to $70,000
per annum depending on the number of participants in the credit
facility and restricts the payment of distributions to unitholders
throughout the term of the credit agreement. BankBoston also
charged a $75,000 amendment fee related to the amendment that
became effective April 15, 1998.
As a result of Varde's assumption of the outstanding bank
debt, additional loans to the Partnership and subsequent interest
being paid in kind, Varde now holds a term loan of $20.2 million
("A Term Loan"), a term loan of $9.9 million ("B Term Loan"), a
term loan of $4.8 million ("C Term Loan") and an unsecured note of
$2.6 million ("Subordinate Note A") as of June 30, 1998. The A
Term Loan bears interest rates of 11% in the first two years, 13%
in the third year, 15% in the fourth and 17% in the fifth year.
The Partnership has included $1.3 million of the A Term Loan in the
current portion of long-term debt as of June 30, 1998. The B Term
Loan and C Term Loan bear interest rates of 11% in the first three
years, 13% in the fourth year and 15% in the fifth year except for
$3.4 million of the B Term Loan which is subject to interest rates
of 12% through maturity. If the A Term Loan is not refinanced, the
interest rates applicable to the A Term Loan, B Term Loan and C
Term Loan would be 11%, 13%, 15%, 17% and 19% for the first,
second, third, fourth and fifth years, respectively, during all or
any portion of the period after February 1998 that the A Term Loan
is held by Varde, except for $3.4 million of the B Term Loan which
is subject to interest rates of 18% through maturity. The
Subordinate Note A is convertible into 416,000 Common Units and
bears interest at prime plus one percent.
The cash interest and dividend payments on the B Term Loan, C
Term Loan, Subordinate Note A and the redeemable preferred equity
held by Varde are limited to $90,833 per month or $1.1 million
annually. To the extent the interest and dividends on the various
Varde securities exceed the cap on cash payments, such excess will
be paid in kind. The A Term Loan is due December 31, 2002. The B
Term Loan, C Term Loan and Subordinate Note A are due December 31,
2002. The Partnership is required to make quarterly principal
payments on the A Term Loan as set forth in the Varde credit
agreement as well as make payments of excess cash flow for the
preceding year. Such principal payments have been deferred for
1998 by agreement of Varde. The Partnership will not have to make
principal payments prior to the scheduled maturity on the B Term
Loan, C Term Loan and Subordinate Note A except in the case the
Partnership receives proceeds related to the DFSC Claim and certain
other transactions (See "Legal Proceedings").
Any payments of principal on the securities held by Varde
shall be applied in the following order: A Term Loan (if then
outstanding), B Term Loan, C Term Loan, Subordinate Note A, Series
B Preferred Units, Series C Preferred Units, and Series D Preferred
Units (See "-Cash Distributions and Paid In Kind Distributions" for
information on the preferred units).
The Partnership or management has a three-year call on Varde's
position for an amount equal to a 40% annual rate of return to
Varde, subject to a minimum payment of $7.5 million over Varde's
cost. The securities held by Varde will have certain antidilution
provisions and registration rights. Any litigation proceeds
received by the Partnership related to the DFSC Claim will be used
to retire up to $6.0 million of either the A Term Loan if then
outstanding, and up to $5.0 million of either the B Term Loan or
New Series A Preferred, whichever is then outstanding, with any
excess divided one-third to Varde to be used to retire Varde's most
senior securities and two-thirds to the Partnership.
On December 31, 1997, certain members of management agreed to
invest an aggregate of $2.0 million in the form of a note payable
to Varde and will receive a one-third economic non-directive
interest in $6.0 million of the B Term Loan, C Term Loan,
Subordinate Note A, Series B Preferred Units, Series C Preferred
Units and Series D Preferred Units. The note payable to Varde will
be secured by management's interest in such securities. Any cash
yield on management's share of such securities will be paid to
Varde as interest, net of applicable federal income tax.
Advances under the Varde Revolver bear interest at 11% per
annum, payable monthly. Under the credit agreement, the Varde
Revolver was subject to an administration fee equal to 5.0% of any
incremental advance and any principal deferral on the A Term Loan
and was limited to $100,000. The fee was payable in the form of an
additional Series B Term Loan. Since the Partnership deferred
$750,000 in principal amortization on the A Term Loan and drew an
additional $1,250,000 under the Varde Revolver, the entire $100,000
fee was payable in the second quarter of 1998. Also, the
Partnership paid a commitment fee in the amount of $50,000 in the
form of an additional Series B Term Loan. Cash advances under the
Varde Revolver are due January 1, 1999. Accordingly, the
$1,250,000 outstanding at June 30, 1998 has been included in the
current portion of long-term debt.
Other installment loans include a $6.0 million nonrecourse
note, due 2014, payable monthly with interest at 8% and a balance
of $5.6 million at June 30, 1998. The note is supported by a
minimum throughput agreement. The assets of Pride Borger, Inc., a
wholly-owned subsidiary of the Partnership, are pledged as
collateral. Monthly principal payments are based on the number of
throughput barrels. The Partnership has classified $164,000 as
current at June 30, 1998.
Varde has proposed an additional restructuring of its
investment ("Restructuring") that could further reduce the
Partnership's bank debt in connection with the authorization and
issuance of new preferred equity, which would in turn be
convertible into Common Units, if approved by the unitholders
pursuant to a consent solicitation on or before October 1, 1999
(the "Restructuring Consent Solicitation"). Subject to unitholder
authorization of additional preferred equity in connection with the
Restructuring Consent Solicitation, Varde has agreed to exchange a
total of $34.9 million of debt and preferred equity securities as
of June 30, 1998 composed of $9.9 million of B Term Loan, $4.8
million of C Term Loan, $2.6 million of Subordinate Note A, $9.6
million of Series B Preferred Units, $5.1 million of Series C
Preferred Units and $2.9 million of Series D Preferred Units
(including any additional paid in kind distributions on these
instruments after June 30, 1998) for the following series of newly
authorized preferred equity:
(i) Nonconvertible redeemable preferred equity in the amount
of $9.5 million ("New Series A Preferred Units") which
includes $500,000 that was Varde's transaction fee for
bridging the A Term Loan,
(ii) Convertible redeemable preferred equity in the amount of
$2.5 million ("New Series B Preferred Units"), which
would be convertible into 10% of the Common Units
outstanding,
(iii) Convertible redeemable preferred equity in the amount of
$2.5 million ("New Series C Preferred Units") which would
be convertible into an additional 42% of the Common Units
outstanding, plus an additional 8% of the Common Units
for Varde's account if the A Term Loan continues to be
held by Varde, and
(iv) Nonconvertible nonredeemable preferred equity in the
amount of $6.0 million ("New Series D Preferred Units").
As part of the proposed Restructuring, Pride SGP will be asked,
subject to unitholder approval, to approve the Partnership
recapitalization and convert $2.4 million of claims and the Series
E Preferred Units and Series F Preferred Units into a total of 7.5%
of the outstanding Common Units.
If all requisite unitholder consents are received and all
proposed transactions are consummated, including the restructuring
of certain claims of Pride SGP and the authorization and issuance
of additional preferred equity, Varde will convert the $34.9
million of debt and equity securities that it holds of the
Partnership into $20.5 million of newly authorized equity
securities.
Cash flows have been and will continue to be significantly
affected by fluctuations in the cost and volume of crude oil and
refined products held in inventory and the timing of accounts
receivable collections. Cash flows are also affected by refined
product margins and crude oil gathering margins.
Recent declines in crude oil and refined product prices have
had a negative impact on the borrowing base under the Partnership's
credit agreement as well as working capital. Further declines
could have a material adverse effect on the Partnership.
The Partnership has incurred recurring operating losses and
has working capital and partners' deficiencies. In addition, the
Partnership has not historically complied with certain of the
financial and performance covenants included in its credit
facilities with lenders and management is not certain whether the
Partnership will be able to comply with various financial covenants
contained in these credit facilities throughout 1998. Currently,
the Partnership is not in compliance with certain financial
covenants contained in the credit agreement. These covenant
violations or any other covenant violation could enable the lenders
to accelerate the Partnership's loans. The ability of the
Partnership to operate in future periods may be adversely affected
by these conditions.
The losses and capital expenditures incurred in the second
quarter of 1998 were funded by additional borrowing which became
available under the Partnership's Varde Revolver.
Product sales for April 1998 through June 1998 were below
management's budgeted sales due to startup problems experienced by
Equilon with its new products pipeline. As a result, delivery and
corresponding sales of gasoline, diesel and jet fuel were
substantially below expectations. Throughout the second quarter of
1998, the Partnership was unable to deliver contractual volumes,
particularly to the government. The failure by the Partnership to
deliver such contractual volumes to the government could result in
a termination of the contract and the Partnership being liable for
any additional costs associated with the government procuring such
product from an alternative source. The Partnership is currently
delivering to the government contractual volumes and gasoline and
diesel sales have also increased from the second quarter of 1998.
Equilon recently performed an extensive pipeline cleaning operation
and the situation has significantly improved. However, there can
be no assurance that further problems will not be encountered. As
a result of the problems associated with the startup of the
pipeline, Equilon has agreed to certain contract concessions.
The Partnership's ability to generate profits is principally
dependent upon increased volumes and/or improved profit margins, as
well as continued cost control initiatives. The ability to
generate profits could be affected if other Gulf Coast refiners
bring refined products into West Texas from the Gulf Coast via
pipeline. Though management has and will continue to pursue
options regarding increasing volumes and margins and reducing
costs, including limiting any significant capital expenditures,
these improvements, if achieved, will be gradual and, in many
cases, will take sustained periods of time to implement in order to
achieve profitability. As a result, management is also reviewing
other strategic alternatives including redeployment of its
operating assets, possible asset sales and alliances with other
companies.
The Partnership has been notified by the New York Stock
Exchange that the Partnership will be delisted from trading on the
New York Stock Exchange effective August 17, 1998. The
Partnership, however, is in the process of applying for listing on
the NASDAQ OTC bulletin board.
Capital Expenditures
The Partnership incurred capital expenditures of $517,000 for
the second quarter of 1998 which includes $200,000 related to the
reactivation of a crude pipeline and $83,000 related to the
conversion of its computer system.
Cash Distributions and Paid in Kind Distributions
In conjunction with Varde's assumption of the outstanding bank
debt, Varde received preferred equity securities. As a result of
the assumption and subsequent distributions being paid in kind,
Varde now holds preferred equity securities including $9.6 million
of Series B Cumulative Convertible Preferred Units ("Series B
Preferred Units"), $5.1 million of Series C Cumulative Convertible
Preferred Units ("Series C Preferred Units") and $2.9 million of
Series D Cumulative Preferred Units ("Series D Preferred Units")
which mature December 31, 2002. The Series B Preferred Units and
Series C Preferred Units are convertible into 1,522,000 and 816,000
Common Units, respectively, at June 30, 1998. The preferential
quarterly payments on the Series B Preferred Units and Series C
Preferred Units will be 6% per annum in the first three years after
issuance, 12% per annum in the fourth and fifth years and 15% per
annum thereafter or may be paid in kind at 8% per annum in the
first three years, 12% per annum in the fourth and fifth years and
15% per annum thereafter. The preferential quarterly payments on
the Series D Preferred Units will be 11% per annum in the first
three years after issuance, 13% per annum in the fourth and fifth
years and 15% per annum thereafter or may be paid in kind through
maturity at 13% per annum in the first five years and 15% per annum
thereafter. Distributions are payable on the 5th day of the second
month in each quarter. Accordingly, the Partnership had paid, in
kind, distributions of $534,000 and accrued an additional
distribution of $241,000 at June 30, 1998 on these preferred equity
securities.
On December 31, 1997, Pride SGP agreed to convert (i) a $2.0
million note from the Partnership into Series E Cumulative
Convertible Preferred Units ("Series E Preferred Units") which is
convertible into 317,000 Common Units at June 30, 1998 and (ii) a
$450,000 note from the Partnership into Series F Cumulative
Preferred Units ("Series F Preferred Units"). The Series E
Preferred Units and Series F Preferred Units mature December 31,
2002. The Series E Preferred Units and Series F Preferred Units
will be subordinated to the Series B Preferred Units, Series C
Preferred Units and Series D Preferred Units. The preferential
quarterly payments on the Series E Preferred Units and Series F
Preferred Units will be 6% per annum in the first three years after
issuance, 12% per annum in the fourth and fifth years and 15% per
annum thereafter or may be paid in kind at 8% per annum in the
first three years, 12% per annum in the fourth and fifth years and
15% per annum thereafter until mandatory redemption at December 31,
2002. Distributions are payable on the 5th day of the second month
in each quarter; however, the Partnership may not make any cash
distributions or paid in kind distributions on the Series E
Preferred Units or Series F Preferred Units if the distributions
with respect to the Series B Preferred Units, Series C Preferred
Units or Series D Preferred Units are paid in kind. Accordingly,
at June 30, 1998, the Partnership accrued distributions of $91,000
but had not paid such distributions in cash or in kind.
At June 30, 1998, 4,950,000 Common Units were outstanding,
representing a 98% limited partner interest in the Partnership.
The general partners are entitled to 2% of all distributions.
Under the terms of the Partnership's credit agreement, the
bank restricted the payment of distributions to unitholders
throughout the term of the credit agreement. Future distributions
will be dependent on, among other things, payment in full of the
bank debt, expiration of all liabilities for letters of credit, and
the termination of the credit agreement.<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership has filed a substantial claim against the
Defense Fuel Supply Center relating to erroneous pricing of fuel
purchased over a period of several years from the Partnership and
its predecessors. The ultimate outcome of this matter cannot
presently be determined.
The Partnership was contractually committed to supply Diamond
Shamrock with vacuum gas oil through December 31, 1998. The
commitment was cancelled by mutual agreement and in conjunction
with such cancellation, the Partnership executed a two-year
contract with Diamond Shamrock to supply them crude oil.
The Partnership is involved in various claims and routine
litigation incidental to its business for which damages are sought.
Management believes that the outcome of all claims and litigation
is either adequately insured or will not have a material adverse
effect on the Partnership's financial position or results of
operations.
Item 2. Changes in Securities
None
Item 3. Defaults in Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
4.1 Certificate of Limited Partnership of the Partnership
(incorporated by reference to Exhibit 3.1 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (Commission File No. 1-
10473)).
4.2 Second Amended and Restated Agreement of Limited
Partnership of the Partnership (incorporated by reference
to Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
(Commission File No. 1-10473)).
4.3 Deposit Agreement among the Partnership and the
Depository (incorporated by reference to Exhibit 4.1 of
the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (Commission File No.
1-10473)).
4.4 Transfer Application (included as Exhibit A to the
Deposit Agreement, which is incorporated by reference to
Exhibit 4.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.5 Form of Depositary Receipt for Common Units of Pride
Companies, L.P. (incorporated by reference to Exhibit 4.5
of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (Commission File No.
1-10473)).
27 Financial Data Schedule for the Second Quarter of 1998.
28.1 First Amendment to the Sixth Restated and Amended Credit
Agreement dated as of April 15, 1998, by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride
SGP, Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc., and Pride Borger, Inc. (collectively
Guarantors) and Varde Partners, Inc. as Lender.
28.2 Amendment No. 1 to the Revolving Credit and Term Loan
Agreement, dated as of April 15, 1998, among Pride
Companies, L.P., Pride SGP, Inc., Pride Refining, Inc.,
Desulfur Partnership, Pride Borger, Inc., Pride Marketing
of Texas (Cedar Wind), Inc., and BankBoston, N.A., as an
Agent and as a Lender, Lehman Commercial Paper, Inc. as
a Lender and as a Documentation Agent.
b. Reports on Form 8-K:
None<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PRIDE COMPANIES, L.P.
(Registrant)
By: Pride Refining, Inc.
as its Managing General Partner
Date: August 14, 1998 /s/ Brad Stephens
Chief Executive Officer
(Signing on behalf of Registrant)
Date: August 14, 1998 /s/ George Percival
Principal Financial Officer
(Signing as Principal Financial
Officer)
<PAGE>
PRIDE COMPANIES, L.P.
Exhibits to
Report to Form 10-Q
INDEX TO EXHIBITS
Exhibit Number
(Reference to
Item 601 of
Regulation S-K)
_________________
4.1 Certificate of Limited Partnership of the Partnership
(incorporated by reference to Exhibit 3.1 of the
Partnership's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 (Commission File No. 1-
10473)).
4.2 Second Amended and Restated Agreement of Limited
Partnership of the Partnership (incorporated by reference
to Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1996
(Commission File No. 1-10473)).
4.3 Deposit Agreement among the Partnership and the
Depository (incorporated by reference to Exhibit 4.1 of
the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (Commission File No.
1-10473)).
4.4 Transfer Application (included as Exhibit A to the
Deposit Agreement, which is incorporated by reference to
Exhibit 4.2 of the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1990
(Commission File No. 1-10473)).
4.5 Form of Depositary Receipt for Common Units of Pride
Companies, L.P. (incorporated by reference to Exhibit 4.5
of the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (Commission File No.
1-10473)).
27 Financial Data Schedule for the Second Quarter of 1998.
28.1 First Amendment to the Sixth Restated and Amended Credit
Agreement dated as of April 15, 1998, by and among Pride
Companies, L.P. ("Borrower"), Pride Refining, Inc., Pride
SGP, Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc., and Pride Borger, Inc. (collectively
Guarantors) and Varde Partners, Inc. as Lender.
28.2 Amendment No. 1 to the Revolving Credit and Term Loan
Agreement, dated as of April 15, 1998, among Pride
Companies, L.P., Pride SGP, Inc., Pride Refining, Inc.,
Desulfur Partnership, Pride Borger, Inc., Pride Marketing
of Texas (Cedar Wind), Inc., and BankBoston, N.A., as an
Agent and as a Lender, Lehman Commercial Paper, Inc. as
a Lender and as a Documentation Agent.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 934
<SECURITIES> 0
<RECEIVABLES> 11,509
<ALLOWANCES> 0
<INVENTORY> 9,984
<CURRENT-ASSETS> 24,184
<PP&E> 68,361
<DEPRECIATION> 21,214
<TOTAL-ASSETS> 83,767
<CURRENT-LIABILITIES> 28,096
<BONDS> 41,987
20,063
0
<COMMON> (19,180)
<OTHER-SE> (869)
<TOTAL-LIABILITY-AND-EQUITY> 83,767
<SALES> 209,205
<TOTAL-REVENUES> 209,205
<CGS> 203,003
<TOTAL-COSTS> 203,003
<OTHER-EXPENSES> 1,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,496
<INCOME-PRETAX> (3,748)
<INCOME-TAX> 2
<INCOME-CONTINUING> (3,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,750)
<EPS-PRIMARY> (.91)
<EPS-DILUTED> (.91)
<PAGE>
FIRST AMENDMENT TO SIXTH
RESTATED AND AMENDED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SIXTH RESTATED AND AMENDED
CREDIT AGREEMENT, dated as of April 15, 1998 (this "First
Amendment"), amends the Sixth Restated and Amended Credit
Agreement dated as of December 30, 1997 (the "Credit Agreement")
by and among PRIDE COMPANIES, L.P. (the "Borrower"), PRIDE
REFINING, INC., PRIDE SGP, INC., DESULFUR PARTNERSHIP, PRIDE
MARKETING OF TEXAS (CEDAR WIND), INC. and PRIDE BORGER, INC.
(collectively, the "Guarantors") and VARDE PARTNERS, INC., as
Lender (the "Lender"). Capitalized terms used herein but not
otherwise defined herein shall have the meanings assigned thereto
in the Credit Agreement.
WHEREAS, the Borrower, the Guarantors and the Lender
have entered into the Credit Agreement; and
WHEREAS, the parties desire to amend the Credit
Agreement as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 Amendments. Effective on (and subject to the
occurrence of) the First Amendment Effective Date (as defined in
Section 4 below), the Credit Agreement shall be amended as set
forth below:
1.1 Section 1.1 of the Credit Agreement is hereby
amended by amending and restating the following definitions in
their entirety to read as follows:
"Consolidated EBITDA" shall mean, for any period, the
gross revenues of the Borrower and its Subsidiaries from
operations, determined in accordance with GAAP on a
Consolidated basis, minus (a) the sum of (i) the cost of
operations of the Borrower and its Subsidiaries for such
period, determined in accordance with GAAP on a Consolidated
basis, and (ii) the selling, general and administrative
expenses of the Borrower and its Subsidiaries for such
period, determined in accordance with GAAP on a Consolidated
basis plus (b) all amounts included in clause (a) as
deductions in respect of depreciation and amortization;
provided, that, for the purposes of calculating compliance
with the provisions of Sections 6.2(a), (b) and (c) hereof
(and for no other purpose of this Agreement) (1) the
Consolidated EBITDA for each of the four consecutive fiscal
quarters of the Borrower commencing January 1, 1997 and
ending December 31, 1997 shall be assumed to be one-quarter
of (x) the actual Consolidated EBITDA of the Borrower and
its Subsidiaries for the fiscal year ended December 31, 1997
excluding (y) the lesser of the accrual taken in such fiscal
year with respect to the Refinery conversion expenses or
$1,800,000, (2) that any writedown on or prior to
December 31, 1998 of the Refinery assets associated with the
Refinery conversion referred to in the proviso to clause (c)
of the definition of "Consolidated Net Income" herein, to
the extent that the same would reflect both a non-cash item
and a reduction of Consolidated EBITDA, shall not be
deducted in calculating Consolidated EBITDA, (3) that non-
cash losses or gains realized on the sale of inventory
layers (consisting of 625,367 barrels at a cost of
$13.49/barrel or 118,012 barrels at a cost of $28.69/barrel)
between March 1, 1998 and December 31, 1998 shall be added
in the case of a loss, and subtracted in the case of a gain,
in calculating Consolidated EBITDA, and (4) that to the
extent that capitalized processing costs associated with
Refinery operations increase or decrease after December 31,
1997 such increase or decrease will be, respectively,
subtracted or added in calculating Consolidated EBITDA.
"Consolidated Excess Cash Flow" shall mean, for any
period, the total of: (a) Consolidated Operating Cash Flow,
minus (b) Consolidated Debt Service (but in no event
including contingent prepayments required by Section 2.7),
minus (c) Discretionary Capital Expenditures (to the extent
not financed by debt for borrowed money), plus or minus (d)
other cash income or cash expense, respectively, to the
extent not included in Section 2.7(c), 2.7(d) or 2.7(e) or
in (a), (b) or (c) above but included in determining net
income determined in accordance with GAAP.
"Consolidated Operating Cash Flow" shall mean, for any
period, the remainder of Consolidated EBITDA for such
period, minus the Non-Discretionary Capital Expenditures of
the Borrower and its Subsidiaries for such period, minus the
amounts of all taxes based upon or measured by net income
paid or payable by the Borrower and its Subsidiaries for
such period. For the purpose of determining Consolidated
Operating Cash Flow, Non-Discretionary Capital Expenditures
will be deemed to be $187,500 for each of the fiscal
quarters ended March 31, June 30, September 30 and December
31, 1997.
"Interest Rate" shall mean (a) with respect to each
Term Loan (i) from the Effective Date until but not
including the Refinancing Date, a rate per annum equal to
the lesser of (x) the rate per annum set forth on Schedule
1.1 hereto set forth opposite each Term Loan for the
applicable year and (y) the Maximum Rate, (ii) from and
including the Refinancing Date until the Maturity Date, a
rate per annum equal to the lesser of (x) the rate per annum
set forth on Schedule 1.2 hereto set forth opposite each
Term Loan for the applicable year and (y) the Maximum Rate,
and (iii) if the Refinancing Date shall not occur prior to
the Stage 3 Closing Date, from the Stage 3 Closing Date
until the Maturity Date, a rate per annum equal to the
lesser of (x) a rate per annum equal to the rate per annum
set forth on Schedule 1.3 hereto set forth opposite each
Term Loan for the applicable year and (y) the Maximum Rate
and (b) with respect to each Revolving Credit Loan, eleven
percent (11%) per annum.
"Loans" shall mean, collectively, the Term Loans and
the Revolving Credit Loans.
"Notes" shall mean, collectively, the Revolving Credit
Note, the Series A Term Notes, the Series B-1 Term Note, the
Series B-2 Term Note, the Series B-3 Term Note and the
Series C Term Note, each in substantially the form set forth
as Exhibit "A" hereto.
"Pride SGP Securities" shall mean the Indebtedness of
the Borrower to Pride SGP and the Series E and F Preferred
Units of the Borrower more fully described in Exhibit 5.1.9
to the BankBoston Credit Agreement.
1.2 Section 1.1 of the Credit Agreement is hereby
further amended by amending the definition of "Consolidated Net
Income" by deleting from paragraph (c) of such definition the
figure "$30,000,000" and substituting in lieu thereof the figure
"$40,000,000".
1.3 Section 1.1 of the Credit Agreement is hereby
further amended by adding the following new definitions in the
appropriate alphabetical position:
"Administration Fee" has the meaning specified in
Section 2.5(a).
"Available Commitment" shall mean, at any time, an
amount equal to the excess, if any, of (a) the amount of the
Revolving Credit Commitment over (b) the aggregate principal
amount of all Revolving Credit Loans then outstanding plus
Deferred Amortization.
"BankBoston Borrowing Base Certificate" shall mean the
borrowing base report required to be delivered to BankBoston
pursuant to Section 6.4.4 of the BankBoston Credit
Agreement.
"Borrowing" shall mean the incurrence of a Revolving
Credit Loan on a single date.
"Borrowing Base" shall mean on any day an amount, based
upon the most recent BankBoston Borrowing Base Certificate
(or if such certificate is not available, then upon the
Borrower's good faith estimate of financial performance for
such period), equal to the excess, if any, of (a) the sum of
(i) the aggregate amount of Revolving Loans (as defined in
the BankBoston Credit Agreement) outstanding plus (ii) the
Letter of Credit Exposure (as defined in the BankBoston
Credit Agreement) over (b) the Borrowing Base (as defined in
the BankBoston Credit Agreement); provided, however, that
the Borrowing Base shall be reduced by an amount equal to
the sum of (i) Non-Discretionary Capital Expenditures which
exceed $750,000 for the last nine months of 1998, plus
(ii) Discretionary Capital Expenditures which exceed
$370,000 for the last nine months of 1998, plus
(iii) closure costs relating to the Refinery which exceed
$1,200,000 for the last nine months of 1998, plus
(iv) severance costs which exceed $530,000 for the last nine
months of 1998.
"Borrowing Base Certificate" shall mean a certificate
in form and detail satisfactory to the Lender, executed and
certified by a Financial Officer of the Borrower, which
shall include appropriate exhibits thereto.
"Borrowing Date" shall mean any Business Day specified
in a notice pursuant to Section 2.4 as a date on which the
Borrower requests the Lender to make a Revolving Credit
Loan.
"Commitment Period" shall mean the period from and
including the First Amendment Effective Date to but not
including the Revolving Credit Termination Date or such
earlier date on which the Revolving Credit Commitment shall
terminate as provided herein.
"Deferred Amortization" has the meaning specified in
Section 2.6(ii).
"First Amendment Effective Date" shall mean April 15,
1998.
"Notice of Borrowing" has the meaning specified in
Section 2.4.
"Repayment Amount" shall mean an amount equal to the
sum of (i) 100% of the Revolving Commitments available to be
drawn under the BankBoston Credit Agreement, plus (ii) 100%
of the proceeds resulting from asset sales, new securities
issues and litigation described in Sections 2.7(c), (d) or
(e) of this Agreement.
"Revolving Credit Commitment" shall mean the obligation
of the Lender to make Revolving Credit Loans to the Borrower
hereunder in an aggregate principal amount at any one time
outstanding not to exceed Two Million Dollars ($2,000,000)
as such amount may be reduced from time to time in
accordance with the terms of this Agreement.
"Revolving Credit Loan" has the meaning specified in
Section 2.2.
"Revolving Credit Note" has the meaning specified in
Section 2.3.
"Revolving Credit Termination Date" shall mean January
1, 1999.
"Term Loans" shall mean, collectively, the Series A
Term Loans, the Series B Term Loans and the Series C Term
Loans.
1.4 Section 1.3 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
1.3 Series and Types of Term Loans. Term Loans
hereunder are distinguished by "Series". The "Series" of a
Term Loan refers to whether such Term Loan is a Series A
Term Loan, a Series B-1 Term Loan, a Series B-2 Term Loan, a
Series B-3 Term Loan, or a Series C Term Loan, each of which
constitutes a Series.
1.5 Section 2.1 of the Credit Agreement is hereby
amended by inserting the word "Term" immediately preceding the
defined term "Loans" appearing in the last sentence of such
section.
1.6 Section 2.2 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
2.2 Revolving Credit Commitment.
(a) Subject to the terms and conditions of this
Agreement, the Lender agrees to make revolving credit loans
("Revolving Credit Loans") to the Borrower from time to time
during the Commitment Period in an aggregate principal
amount at any one time outstanding not to exceed the lesser
of the Available Commitment and the Borrowing Base. During
the Commitment Period the Borrower may use the Revolving
Credit Commitment by borrowing, prepaying the Revolving
Credit Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof.
(b) The Borrower shall have the right, upon not less
than five Business Days' notice to the Lender, to terminate
the Revolving Credit Commitment or, from time to time, to
reduce the amount of the Revolving Credit Commitment. Any
such reduction shall be in an amount equal to $100,000 or a
whole multiple thereof and shall reduce permanently the
Revolving Credit Commitment then in effect.
1.7 Section 2.3 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
2.3 Revolving Credit Notes. The Revolving Credit
Loans made by the Lender shall be evidenced by a promissory
note of the Borrower, substantially in the form of Exhibit
A-6, with appropriate insertions as to payee, date and
principal amount (a "Revolving Credit Note"), payable to the
order of the Lender and in a principal amount equal to the
lesser of (a) the amount of the Revolving Credit Commitment
and (b) the aggregate unpaid principal amount of all
Revolving Credit Loans made by the Lender. The Revolving
Credit Note shall (x) be dated the First Amendment Effective
Date, (y) be stated to mature on the Revolving Credit
Termination Date and (z) provide for the payment of interest
in accordance with Section 2.6.
1.8 Section 2.4 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
2.4 Procedure For Revolving Credit Borrowing. (a) The
Borrower may borrow under the Revolving Credit Commitment
during the Commitment Period on any Business Day. The
Borrower shall give the Lender irrevocable notice of each
Borrowing hereunder by delivering a notice of borrowing in
substantially the form of Exhibit K hereto (a "Notice of
Borrowing") (which Notice of Borrowing must be received by
the Lender prior to 12:00 P.M., New York City time, two
Business Days prior to the requested Borrowing Date),
specifying (A) the amount to be borrowed and (B) the
requested Borrowing Date. Each Borrowing under the
Revolving Credit Commitment shall be in an amount equal to
$50,000 or a whole multiple thereof (or, if the then
Available Commitment is less than $50,000, such lesser
amount).
(b) Upon receipt of any such notice from the Borrower,
the Lender shall promptly make the amount of each Borrowing
available to the Borrower on the Borrowing Date requested by
the Borrower by wire transfer to an account designated by
the Borrower with the aggregate of the amount made available
to the Borrower by the Lender.
1.9 Section 2.5 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
2.5 Administration Fee. (a) The Borrower agrees to
pay to the Lender an administration fee (the "Administration
Fee") equal to 5% of the amount of each Revolving Credit
Loan made by the Lender to the Borrower on any Borrowing
Date which, when added to the aggregate amount of Revolving
Credit Loans then outstanding, exceeds the highest aggregate
amount of Revolving Credit Loans outstanding at any time
prior to such Borrowing Date during the Commitment Period;
provided, that, for purposes of this Section 2.5 the
Deferred Amortization shall be considered a Revolving Credit
Loan made hereunder; provided, further, that the aggregate
amount of all Administration Fees paid by the Borrower shall
not exceed $100,000.
(b) Each Administration Fee shall be payable in the
form of an additional Series B-3 Term Loan. The Borrower
agrees that each such Series B-3 Term Loan shall be deemed
made on each Borrowing Date upon which a Revolving Credit
Loan is made if the making of such Revolving Credit Loan
results in an Administration Fee becoming payable pursuant
to subsection (a) above.
1.10 Section 2.6 of the Credit Agreement is hereby
amended by amending and restating subsection (a) thereof in its
entirety to read as follows:
(a) Repayment. Borrower shall repay the outstanding
principal balances of the Loans, together with accrued
interest from time to time outstanding on such outstanding
principal balances, as follows:
(i) all accrued and unpaid interest on the
Term Loans shall be due and payable on the Interest Payment
Date, commencing on January 31, 1998, and continuing on each
Interest Payment Date thereafter until the Maturity Date;
provided, however, that on any date upon which interest
shall be payable hereunder, the Borrower shall pay the
applicable amount of PIK Interest hereunder on (x) the
Series A Term Loan by adding the amount of such interest to
the principal (such amount when so added, "Capitalized
Series A Interest") of the Series A Term Loan (any such
interest so added to the principal of such Series A Term
Loan shall bear interest hereunder as if it had originally
been part of the principal of the Series A Term Loan), and
(y) the Series B-3 Term Loan by adding the amount of such
interest to the principal of the Series B-3 Term Loan (and
any such interest so added to the principal of such Series
B-3 Term Loan shall bear interest hereunder as if it had
originally been part of the principal of the Series B-3 Term
Loan);
(ii) on each Principal Payment Date in each
Year set forth below, the Borrower will pay to the Lender as
a prepayment of the Series A Term Loan the lesser of (x) the
amount set forth below for such date or (y) the amount of
the Series A Term Loan then outstanding:
Principal Payment Date Amount
---------------------- --------
1998 $375,000
1999 $562,500
2000 $625,000
2001 $750,000
2002 $750,000;
provided, that, the Borrower shall defer each 1998
amortization payment as each such payment becomes due (all
such amortization payments which are so deferred,
collectively, the "Deferred Amortization"); provided,
further, that upon such deferral by the Borrower, on each
Principal Payment Date in each Year set forth below the
Borrower will pay to the Lender as a prepayment of the
Series A Term Loan the lesser of (x) the amount set forth
below for such date or (y) the amount of the Series A Term
Loan then outstanding:
Principal Payment Date Amount
---------------------- -----------
1998 Deferred
1999 $640,988.37
2000 $712,209.30
2001 $854,651.16
2002 $854,651.16
(iii) on December 31, 1998, the Borrower
will pay to the Lender as a prepayment of the Series A Term
Loan the amount of Capitalized Series A Interest then
outstanding;
(iv) all amounts outstanding on all Term
Loans shall be due and payable on the Maturity Date;
(v) all accrued and unpaid interest on the
Revolving Credit Loans shall be due and payable in arrears
on the last day of each Month during the Commitment Period;
and
(vi) all amounts outstanding on all Revolving
Credit Loans shall be due and payable on the Revolving
Credit Termination Date.
1.11 Section 2.7(a) of the Credit Agreement is hereby
amended by (i) inserting the phrase "to the Revolving Credit
Loans until all outstanding Revolving Credit Loans are prepaid in
full, then" immediately following the phrase "shall be applied"
in the second sentence of such subsection and (ii) inserting the
word "Term" immediately preceding the defined term "Loans" in
each instance where such defined term appears in such subsection.
1.12 Section 2.7(b) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(b) Excess Cash Flow. (i) Within five Business
Days after the fifteenth day of each Month, Borrower shall
pay to the Lender as a prepayment of Revolving Credit Loans
an amount equal to the lesser of the aggregate amount of all
Revolving Credit Loans then outstanding and the Repayment
Amount;
(ii) On each Principal Payment Date in 1998,
the Borrower shall pay to the Lender as a prepayment of
Revolving Credit Loans an amount equal to the excess, if
any, of (a) the amount of the Series A Term Loan due on such
Principal Payment Date the payment of which is deferred
under Section 2.6(a)(ii) over (b) the Available Commitment;
and
(iii) Within five Business Days after the
date annual financial statements have been (or are required
to have been) furnished by the Borrower to the Lender in
accordance with Section 6.1, commencing with such financial
statements for the fiscal year ended December 31, 1998, the
Borrower shall pay to the Lender as a prepayment of the Term
Loans, to be applied as provided in Section 2.7(f), (a) an
amount equal to 100% of Consolidated Excess Cash Flow from
its most recently completed fiscal year, but only until the
Deferred Amortization shall have been prepaid under this
Section 2.7(b) and Sections 2.7(c), 2.7(d) and 2.7(e) and
then only so long as after giving effect to such payment the
Maximum Amount of Revolving Credit Outstanding (as defined
in the BankBoston Credit Agreement) shall exceed by at least
$1,000,000 the sum of the aggregate principal amount of
loans made under Section 2.1.1 of the BankBoston Credit
Agreement at the time outstanding plus the Letter of Credit
Exposure (as defined in the BankBoston Credit Agreement) at
the time in effect, and (b) after the Deferred Amortization
shall have been prepaid under this Section 2.7(b) and
Sections 2.7(c), 2.7(d) and 2.7(e), an amount equal to 75%
of Consolidated Excess Cash Flow for its most recently
completed fiscal year (or, if applicable, the portion of
Consolidated Excess Cash Flow remaining after a payment on
account of such year under the preceding clause (a)).
1.13 Article IV of the Credit Agreement is hereby
amended by inserting the following new Section 4.2 at the end
thereof:
4.2. Conditions to Each Revolving Credit Loan. The
agreement of the Lender to make any Revolving Credit Loan
requested to be made by it on any date (including, without
limitation, its initial Revolving Credit Loan) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower and each
Guarantor in or pursuant to the Loan Documents shall be true
and correct in all material respects on and as of such date
as if made on and as of such date.
(b) No Default. No default or Event of Default
shall have occurred and be continuing on such date or after
giving effect to the Revolving Credit Loans requested to be
made on such date.
(c) Notice. The Lender shall have received a
Notice of Borrowing as required by Section 2.4 which Notice
of Borrowing shall be accompanied by a Borrowing Base
Certificate demonstrating the Borrower's ability to incur
Revolving Credit Loans.
(d) Additional Matters. All corporate and other
proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by
this Agreement and the other Loan Documents shall be
satisfactory in form and substance to the Lender, and the
Lender shall have received such other documents and legal
opinions in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as it shall
reasonably request.
Each Borrowing by the Borrower hereunder shall
constitute a representation and warranty by the Borrower as
of the date of such Revolving Credit Loan that the
conditions contained in paragraphs (a) and (b) of this
Section 4.2 have been satisfied and that after giving effect
to such Borrowing the Borrower shall continue to be in
compliance with the Borrowing Base.
1.14 Section 6.2(a) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(a) Leverage Ratio. The Leverage Ratio shall not on
the last day of each fiscal quarter of the Borrower ending
on a date during each period specified below exceed the
percentage set forth in the table below next to such period.
Fiscal Quarter Ending Percentage
--------------------------- ----------
On December 31, 1997 350%
On or after March 31, 1998
and prior to March 31, 1999 385%
On or after March 31, 1999
and prior to December 31, 1999 300%
On or after December 31, 1999 250%
1.15 Section 6.2(b) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(b) Consolidated Interest Coverage. For each period
of four consecutive fiscal quarters of the Borrower ending
on a date during each period specified below, the
Consolidated Interest Coverage shall equal or exceed the
percentage set forth in the table below next to such period,
measured as of the last day of such period.
Fiscal Quarter Ending Percentage
------------------------ ----------
On December 31, 1998 125%
On or after March 31, 1999
and prior to December 31, 1999 175%
On or after December 31, 1999
and prior to December 31, 2000 200%
On or after December 31, 2000
and prior to December 31, 2001 225%
On or after December 31, 2001 250%
1.16 Section 6.2(c) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(c) Consolidated Operating Cash Flow to Consolidated
Debt Service. For each period of four consecutive fiscal
quarters of the Borrower ending on a date during each period
specified below, the Consolidated Operating Cash Flow shall
equal or exceed the percentage of Consolidated Debt Service
specified in the table below, measured as of the last day of
such period.
First Quarter Ending Percentage
----------------------- ----------
On or after March 31, 1998
and prior to March 31, 1999 100%
On or after March 31, 1999
and prior to December 31, 1999 115%
On or after December 31, 1999 120%
1.17 Section 6.2(e) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(e) Consolidated Net Worth. Consolidated Net Worth
shall at all times on and after December 31, 1997 equal or
exceed the sum of (a) negative $21,531,885, plus (b) the
amount by which Consolidated Net Worth has been increased
after December 31, 1997 as a result of capital
contributions, the issuance of partnership units or other
equity interests of the Borrower or any of its Subsidiaries,
the issuance of warrants, options, or other rights to
acquire such partnership units or other equity interests or
the exercise of warrants, options or other rights or the
conversion of securities into such partnership units or
other equity interests, plus (c) 50% of Consolidated Net
Income (if positive) for each fiscal quarter of the Borrower
thereafter, plus (d) 100% of the Net Equity Proceeds
realized by the Borrower after December 31, 1997, minus (e)
the amount of any net deductions to Consolidated EBITDA
described in clause (3) or (4) of the provisio to the
definition of "Consolidated EBITDA" set forth in
Section 1.1, but only to the extent that such items account
for negative Consolidated Net Income in any fiscal quarter
ending after December 31, 1997 and before January 1, 1999.
1.18 Section 6.2(f) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(f) Minimum Consolidated EBITDA. (a) For each fiscal
quarter of the Borrower, commencing with the fiscal quarter
ending December 31, 1997, the Consolidated EBITDA shall
equal or exceed zero; and (b) for each period of four
consecutive fiscal quarters of the Borrower ending on a date
during each period specified below, the Consolidated EBITDA
of the Borrower shall equal or exceed the amount set forth
below next to such period.
Fiscal Quarter Ending Amount
--------------------------- ----------
On December 31, 1997 $8,800,000
After December 31, 1997
and prior to March 31, 1999 $6,500,000
On and after March 31, 1999
and prior to December 31, 1999 $9,000,000
On and after December 31, 1999 $10,000,000
1.19 Section 6.2(g) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(g) Net Working Capital. Consolidated Net Working
Capital shall not on any date prior to January 31, 1999 be
less than negative $1,000,000 and shall not any date on or
after January 31, 1999 be less than $1.00.
1.20 Schedule 2.1 of the Credit Agreement is hereby
amended by deleting the amount "$3,000,000" contained therein and
inserting in lieu thereof the amount "$3,150,000".
1.21 Exhibit A to the Credit Agreement is hereby
amended by inserting a new Exhibit A-6 immediately following
Exhibit A-5 in the form of Exhibit A hereto.
1.22 The Credit Agreement is hereby amended by
inserting a new Exhibit K immediately following Exhibit J thereto
in the form of Exhibit B hereto.
SECTION 2 Waiver and Consent. (a) Lender agrees to
waive until December 31, 1998, any Default or Event of Default
existing or arising under Section 6.2 of the Credit Agreement or
the Amended Credit Agreement and any default or event of default
arising under Sections 4.3.2, 6.5.1, 6.5.2, 6.5.3, 6.5.5, 6.5.6
and 6.5.7 of the BankBoston Credit Agreement which would
otherwise result in a Default or Event of Default under the
Amended Credit Agreement.
(b) Lender hereby consents to the terms and
conditions contained in the letter agreement dated as of
April 15, 1998 among the Borrower, BankBoston, Lehman Commercial
Paper Inc. and Union Bank of California and to the transaction
with Gary-Williams Energy Corporation contemplated thereby.
SECTION 3 Representations and Warranties. The Borrower
and each of the Guarantors represents and warrants to the Lender
that (a) each representation and warranty set forth in Article V
of the Credit Agreement is true and correct in all material
respects (except for any such representations and warranties
which are qualified by their terms by a reference to materiality,
which representations and warranties as so qualified shall be
true and correct in all respects) as of the date of the execution
and delivery of this First Amendment by the Borrower and the
Guarantors (and assuming the effectiveness hereof), with the same
effect as if made on such date (except for any such
representations and warranties which are made with respect to a
specified date, which representations and warranties shall only
be required to be true and correct as of such date); and (b) the
execution and delivery by the Borrower and the Guarantors of this
First Amendment and the performance by the Borrower and the
Guarantors of their respective obligations under the Credit
Agreement, as amended hereby (as so amended, the "Amended Credit
Agreement"), (i) are within the corporate powers of the Borrower
and Guarantors, (ii) have been duly authorized by all necessary
corporate action on the part of the Borrower and the Guarantors,
(iii) have received all necessary approvals and consents from any
governmental authority and (iv) do not and will not contravene or
conflict with, or result in or require the creation or imposition
of any Lien under, any provision or requirements of law or of the
certificate of incorporation or by-laws (or equivalent
organizational or governing document) of the Borrower or any
Guarantor or of any agreement, instrument, order or decree which
is binding upon the Borrower of any Guarantor.
SECTION 4 Effectiveness. The amendments set forth in
Section 1 hereof shall become effective on such date (the "First
Amendment Effective Date") when the Lender shall have received
all of the following:
(i) Counterparts of this First Amendment
executed by a duly authorized officer of the Borrower and each of
the Guarantors.
(ii) Payment of a commitment fee in the
amount of $50,000 which shall be payable in the form of an
additional Series B-3 Term Loan.
(iii) An executed Revolving Credit Note
in the form of Exhibit A hereto.
(iv) An executed Series B-3 Term Note in the
form of Exhibit C hereto.
(v) An opinion of Andrews & Kurth, LLP
counsel of the Borrower, substantially in the form of Attachment
I hereto.
(vi) Confirmation that the Borrower has paid
to the Lender all reasonable expenses, fees and charges payable
to the Lender's counsel, Paul, Weiss, Rifkind, Wharton &
Garrison.
(vii) All documents the Lender may
reasonably request relating to the existence of the Borrower and
the Guarantors, the corporate authority for and the validity of
this First Amendment, and any other matters relevant hereto, all
in form and substance satisfactory to the Lender.
(viii) Counterparts of the Consent and
Agreement, substantially in the form of Attachment II hereto,
executed by a duly authorized officer of each of the Guarantors.
(ix) A duly executed copy of Amendment No. 1
to the BankBoston Credit Agreement in form and substance
satisfactory to the Lender.
SECTION 5 Conditions Subsequent. On the Stage 3
Closing Date, the Borrower shall issue additional preferred stock
in a face amount of $6,000,000 to Lender, the terms and
conditions of which shall be in conformity with the New Unit A
Preferred Stock; provided, that, such preferred stock will be
non-redeemable and have a dividend rate of 5% per annum;
provided, further, that the Borrower agrees to use reasonable
efforts, if necessary, to amend the Restructuring Agreement to
effectuate the transaction contemplated by this Section 5(a); it
being understood, however, that the failure to amend the
Restructuring Agreement will not relieve the Borrower of its
obligation to issue such additional preferred stock. Breach of
this provision shall result in an immediate Event of Default
under the Amended Credit Agreement.
SECTION 6 Guaranties. Each of Pride SGP and the
Guarantors (other than Pride SGP) agrees that any existing
guaranties by the Guarantors of the Borrower's obligations with
respect to the Pride SGP Securities are hereby terminated and of
no further force or effect.
SECTION 7 Miscellaneous.
7.1 Continuing Effectiveness, etc. The Credit
Agreement as hereby amended and all other Loan Documents are
hereby ratified and confirmed in all respects. After the First
Amendment Effective Date, all references in the Credit Agreement
and the other Loan Documents to "Credit Agreement", "Agreement"
or similar terms shall refer to the Amended Credit Agreement.
The execution, delivery and effectiveness of this First Amendment
shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Lender under the
Credit Agreement or any other Loan Document nor constitute a
waiver of any provision of the Credit Agreement, the Notes, or
any other Loan Document nor constitute a waiver of any Default or
Event of Default.
7.2 Counterparts. This First Amendment may be
executed in any number of counterparts and by the different
parties on separate counterparts, and each such counterpart shall
be deemed to be an original but all such counterparts shall
together constitute one and the same First Amendment.
7.3 Governing Law. This First Amendment shall be
governed by and construed in accordance with the internal laws of
the State of New York (without reference to the conflicts of laws
provisions thereof).
7.4 Successors and Assigns. This First Amendment
shall be binding upon the Borrower, the Guarantors, the Lender
and their respective permitted successors and assigns, and shall
inure to the benefit of the Borrower, the Guarantors, the Lender
and their respective permitted successors and assigns.
7.5 Further Assurances. Each of the Borrower and
the Guarantors will, promptly upon the request of the Lender,
from time to time execute, acknowledge and deliver, and file and
record, all such agreements, documents, instruments and notices,
and take all such action, as the Lender deems necessary or
advisable to carry out the intent and purposes of this First
Amendment and the Credit Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
First Amendment to be duly executed by their respective
authorized officers as of the day and year first above written.
PRIDE COMPANIES, L.P.
By Pride Refining, Inc., its
Managing General Partner
By:____________________________
Name:
Title:
PRIDE REFINING, INC.
By:____________________________
Name:
Title:
PRIDE SGP, INC.
By:____________________________
Name:
Title:
PRIDE BORGER, INC.
By:____________________________
Name:
Title:
PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.
By:____________________________
Name:
Title:
DESULFUR PARTNERSHIP
by Pride Companies, L.P., its
General Partner, by Pride
Refining, Inc.,
its Manager General Partner
By:____________________________
Name:
Title:
and by Pride Marketing of Texas
(Cedar Wind), Inc., its General
Partner
By:____________________________
Name:
Title:
VARDE PARTNERS, INC., as lender
By:____________________________
Name:
Title:
<PAGE>
Attachment I
Form of Opinion<PAGE>
Attachment II
CONSENT AND AGREEMENT
Each of Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and
Pride Borger, Inc. hereby consents to the provisions of this
First Amendment and the transactions contemplated herein, and
hereby ratifies and confirms the respective Third Restated
Guaranty Agreements, each dated as of December 30, 1997, made by
it for the benefit of Lender, and agrees that its obligations and
covenants thereunder are unimpaired hereby and shall remain in
full force and effect.
Dated: April 15, 1998
PRIDE REFINING, INC.
By:______________________________
Name:
Title:
PRIDE SGP, INC.
By:______________________________
Name:
Title:
DESULFER PARTNERSHIP
By:______________________________
Name:
Title:
PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.
By:______________________________
Name:
Title:
PRIDE BORGER, INC.
By:______________________________
Name:
Title:<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
$2,000,000 New York, New York
April 15, 1998
FOR VALUE RECEIVED, the undersigned, PRIDE COMPANIES,
L.P., a Delaware limited partnership (the "Borrower"),
unconditionally promises to pay on the Revolving Credit
Termination Date (as defined in the Credit Agreement defined
below) to the order of VARDE PARTNERS, INC. (the "Lender"), on
the dates and in the manner set forth in sections 2.6 and 2.8 of
the Credit Agreement, the lesser of (a) the principal amount of
TWO MILLION DOLLARS ($2,000,000) and (b) the aggregate unpaid
principal amount of all Revolving Credit Loans made by the Lender
to the Borrower pursuant to section 2.2 of the Credit Agreement.
The Borrower further agrees to pay interest on the unpaid
principal amount hereof on the dates and at the applicable rates
per annum as provided in section 2.6(b) of the Credit Agreement
until any such amount shall be due and payable (whether at the
stated maturity, by acceleration or otherwise).
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of each Revolving Credit Loan
made pursuant to the Credit Agreement and the date and amount of
each payment or prepayment of principal thereof. Each such
endorsement shall constitute prima facie evidence of the accuracy
of the information endorsed; provided, however, that the failure
of the Lender to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Revolving Credit
Loans.
This Note (a) is the Revolving Credit Note referred to
in the Sixth Restated and Amended Credit Agreement, dated as of
December 30, 1997 (as the same may from time to time be amended,
modified or supplemented, the "Credit Agreement"), among the
Borrower, Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc., Pride
Borger, Inc. and the Lender, (b) is subject to the provisions of
the Credit Agreement and (c) is subject to optional and mandatory
prepayment in whole or in part as provided in the Credit
Agreement. This Note is secured and guaranteed as provided in
the Collateral Documents. Reference is hereby made to the
Collateral Documents for a description of the properties and
assets in which a security interest has been granted, the nature
and extent of the security and the guarantees, the terms and
conditions upon which the security interests and each guarantee
were granted and the rights of the holder of this Note in respect
thereof.
<PAGE>
Upon the occurrence of any one or more of the Events of
Default specified in the Credit Agreement, all amounts then
remaining unpaid on this Note may become, or be declared to be,
immediately due and payable as provided in the Credit Agreement.
Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement.
The Borrower hereby waives presentment, demand, protest
and all other notices of any kind.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS THEREOF).
PRIDE COMPANIES, L.P., a Delaware
limited partnership
By: PRIDE REFINING, INC., a Texas
corporation, Managing General
Partner
By:
Dave Caddell
Vice President
<PAGE>
SCHEDULE A to
Revolving Credit Note
LOAN REPAYMENTS OF REVOLVING CREDIT LOAN
<PAGE>
EXHIBIT B
EXHIBIT "K"
NOTICE OF BORROWING
Varde Partners, Inc., as Lender
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Ladies and Gentlemen:
This Notice of Borrowing is delivered to you pursuant to
Section 2.4 of the Sixth Restated and Amended Credit Agreement,
dated as of December 30, 1997, (as amended, amended and restated,
supplemented or modified from time to time, the "Credit
Agreement") among Pride Companies, L.P. as borrower (the
"Borrower"), Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc. and
Pride Borger, Inc. as guarantors and Varde Partners, Inc. as
lender (the "Lender"); terms defined therein being used herein as
therein defined.
The Borrower hereby requests that a Revolving Credit Loan
be made by the Lender in the aggregate principal amount of
$_______ on _________ __, 19__.
The Borrower hereby certifies that (i) the Borrower is and
will be in compliance with all terms and provisions of the Credit
Agreement to be observed and performed, and the Borrower and each
Guarantor is and will be in compliance with all terms and
provisions to be observed and performed by either or both of them
in each of the other Loan Documents, on and as of the date hereof
and on and as of the date of the Borrowing of the Revolving
Credit Loan herein requested; (ii) on and as of the date hereof
and immediately after giving effect to the Revolving Credit Loan
herein requested, no Default or Event of Default has occurred and
is continuing or will have occurred and be continuing and
(iii) the representations and warranties of the Borrower or any
of its Subsidiaries contained in the Credit Agreement or any of
the other Loan Documents or otherwise made in writing in
connection therewith are true and correct in all material
respects on and as of the date hereof and will be true and
correct in all material respect on and as of the date of the
Borrowing of the Revolving Credit Loan herein requested with the
same effect as if made on and as of such date except to the
extent such representations and warranties expressly relate to an
earlier date.
Attached hereto as Schedule I is a Borrowing Base
Certificate demonstrating the Borrower's ability to incur the
Revolving Credit Loan herein requested.
IN WITNESS WHEREOF, the Borrower has caused this Notice of
Borrowing to be executed and delivered by a Financial Officer
this ______ day of _____________, ____.
PRIDE COMPANIES, L.P., a
Delaware limited partnership
By: PRIDE REFINING, INC., a
Texas Corporation, its
Managing General Partner
By:____________________________
Name:
Title:<PAGE>
Schedule I
to
Notice of Borrowing
BORROWING BASE CERTIFICATE
<PAGE>
EXHIBIT C
SERIES B-3
TERM NOTE
$3,150,000 New York, New York
April 15, 1998
FOR VALUE RECEIVED, the undersigned, PRIDE COMPANIES, L.P.,
a Delaware limited partnership (the "Borrower"), unconditionally
promises to pay to the order of VARDE PARTNERS, INC. (the
"Lender"), on the dates and in the manner set forth in sections
2.6(a) and 2.8 of the Credit Agreement (as defined below), the
lesser of (a) the principal amount of THREE MILLION ONE HUNDRED
FIFTY THOUSAND DOLLARS ($3,150,000) and (b) the aggregate unpaid
principal amount of the Series B-3 Term Loan made by the Lender
to the Borrower pursuant to section 2.1 of the Credit Agreement.
The Borrower further agrees to pay interest on the unpaid
principal amount hereof on the dates and at the applicable rates
per annum as provided in section 2.6(b) of the Credit Agreement
until any such amount shall be due and payable (whether at the
stated maturity, by acceleration or otherwise).
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a
continuation thereof which shall be attached hereto and made a
part hereof the date and amount of the Series B-3 Term Loan made
pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal thereof. Each such
endorsement shall constitute prima facie evidence of the accuracy
of the information endorsed; provided, however, that the failure
of the Lender to make any such endorsement shall not affect the
obligations of the Borrower in respect of such Series B-3 Term
Loan.
This Note (a) is the Series B-3 Term Note referred to in
the Sixth Restated and Amended Credit Agreement, dated as of
December 30, 1997 (as the same may from time to time be amended,
modified or supplemented, the "Credit Agreement"), among the
Borrower, Pride Refining, Inc., Pride SGP, Inc., Desulfur
Partnership, Pride Marketing of Texas (Cedar Wind), Inc., Pride
Borger, Inc. and the Lender, (b) is subject to the provisions of
the Credit Agreement and (c) is subject to optional and mandatory
prepayment in whole or in part as provided in the Credit
Agreement. This Note is secured and guaranteed as provided in
the Collateral Documents. Reference is hereby made to the
Collateral Documents for a description of the properties and
assets in which a security interest has been granted, the nature
and extent of the security and the guarantees, the terms and
conditions upon which the security interests and each guarantee
were granted and the rights of the holder of this Note in respect
thereof.
Upon the occurrence of any one or more of the Events of
Default specified in the Credit Agreement, all amounts then
remaining unpaid on this Note may become, or be declared to be,
immediately due and payable as provided in the Credit Agreement.
Unless otherwise defined herein, terms defined in the
Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement.
The Borrower hereby waives presentment, demand, protest and
all other notices of any kind.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS THEREOF).
PRIDE COMPANIES, L.P., a Delaware
limited partnership
By: PRIDE REFINING, INC., a Texas
corporation, Managing General
Partner
By:
Dave Caddell
Vice President
<PAGE>
SCHEDULE A to
Series B-3 Term Note
LOAN REPAYMENTS OF SERIES B-3 TERM LOAN
<PAGE>
EXHIBIT 28.2
PRIDE COMPANIES, L.P.
REVOLVING CREDIT AND TERM LOAN AGREEMENT
Amendment No. 1
This Agreement, dated as of April 15, 1998, is among Pride
Companies, L.P., a Delaware limited partnership (the "Company"),
Pride SGP, Inc., a Texas corporation, Pride Refining, Inc., a
Texas corporation, Desulfur Partnership, a Texas general
partnership, Pride Borger, Inc., a Delaware corporation, and
Pride Marketing of Texas (Cedar Wind), Inc., a Texas corporation
(collectively, the "Pride Entities"), BankBoston, N.A., Lehman
Commercial Paper Inc. and Union Bank of California (collectively,
the "Lenders"), BankBoston, N.A., as agent (the "Agent") for
itself and the other Lenders, and Lehman Brothers Commercial
Paper Inc., as Documentation Agent (the "Documentation Agent")
for itself and the other Lenders. The parties agree as follows:
1. Reference to Credit Agreement; Background.
1.1. Reference to Credit Agreement; Definitions. Reference
is made to the Revolving Credit and Term Loan Agreement dated as
of December 30, 1997 (the "Credit Agreement") among the Pride
Entities, the Lenders, the Agent and the Documentation Agent.
The Credit Agreement, as amended by the amendments set forth in
Section 2 hereof (the "Amendment"), is referred to as the
"Amended Credit Agreement." Terms defined in the Amended Credit
Agreement and not otherwise defined herein are used herein with
the meanings so defined.
1.2. Background. The Company has requested that the Credit
Agreement be amended to cure certain existing and prospective
Defaults and for other purposes. The Lenders have agreed to such
amendments on the conditions that BankBoston be released from any
obligation to provide the Term Loan and on the other conditions
set forth herein.
2. Amendments to Credit Agreement. Subject to all of the terms
and conditions hereof and in reliance upon the representations
and warranties set forth or incorporated by reference in Section
4 hereof, the Credit Agreement is amended as follows, effective
as of December 31, 1997 (the "Amendment Closing Date").
2.1. The definition of "Consolidated EBITDA" set forth in
Section 1.1 of the Credit Agreement is amended to read in its
entirety as follows:
"Consolidated EBITDA" means, for any period, the gross
revenues of the Company and its Subsidiaries from
operations, determined in accordance with GAAP on a
Consolidated basis, minus (a) the sum of (i) the cost of
operations of the Company and its Subsidiaries for such
period, determined in accordance with GAAP on a Consolidated
basis, and (ii) the selling, general and administrative
expenses of the Company and its Subsidiaries for such
period, determined in accordance with GAAP on a Consolidated
basis plus (b) all amounts included in clause (a) as
deductions in respect of depreciation and amortization;
provided, that for the purposes of calculating compliance
with the provisions of Sections 6.5.1, 6.5.2 and 6.5.3
hereof (and for no other purpose of this Agreement) (1) the
Consolidated EBITDA for each of the four consecutive fiscal
quarters of the Company commencing January 1, 1997 and
ending December 31, 1997 shall be assumed to be one-quarter
of (x) the actual Consolidated EBITDA of the Company and its
Subsidiaries for the fiscal year ended December 31, 1997
excluding (y) the lesser of the accrual taken in such fiscal
year with respect to the Refinery conversion expenses or
$1,800,000, (2) that any writedown on or prior to December
31, 1998 of the Refinery assets associated with the Refinery
conversion referred to in the proviso to clause (c) of the
definition of "Consolidated Net Income" herein, to the
extent that the same would reflect both a non-cash item and
a reduction of Consolidated EBITDA, shall not be deducted in
calculating Consolidated EBITDA, (3) that non-cash losses or
gains realized on the sale of inventory layers (consisting
of 625,367 barrels at a cost of $13.49/barrel or 118,012
barrels at a cost of $28.69/barrel) between March 1, 1998
and December 31, 1998 shall be added in the case of a loss,
and subtracted in the case of a gain, in calculating
Consolidated EBITDA, and (4) that to the extent that
capitalized processing costs associated with refinery
operations increase or decrease after December 31, 1997 such
increase or decrease will be, respectively, subtracted or
added in calculating Consolidated EBITDA.
2.2. The definition of "Consolidated Excess Cash Flow" set
forth in Section 1.1 of the Credit Agreement is amended to read
in its entirety as follows:
"Consolidated Excess Cash Flow" means, for any period,
the total of: (a) Consolidated Operating Cash Flow, minus
(b) Consolidated Debt Service (but in no event including
contingent prepayments required by Section 4.3), minus (c)
Discretionary Capital Expenditures (to the extent not
financed by debt for borrowed money), plus or minus (d)
other cash income or cash expense, respectively, to the
extent not included in Section 4.3.3, 4.3.4 or 4.3.5 or in
(a), (b) or (c) above but included in determining net income
determined in accordance with GAAP.
2.3. The definition of "Consolidated Net Income" set forth
in Section 1.1 of the Credit Agreement is amended by deleting
from paragraph (c) thereof the figure "$30,000,000" and
substituting therefor the figure "$40,000,000".
2.4. The definition of "Consolidated Operating Cash Flow"
set forth in Section 1.1 of the Credit Agreement is amended to
read in its entirety as follows:
"Consolidated Operating Cash Flow" means, for any
period, the remainder of Consolidated EBITDA for such
period, minus the Non-Discretionary Capital Expenditures of
the Company and its Subsidiaries for such period, minus the
amounts of all taxes based upon or measured by net income
paid or payable by the Company and its Subsidiaries for such
period. For the purpose of determining Consolidated
Operating Cash Flow, Non-Discretionary Capital Expenditures
will be deemed to be $187,500 for each of the fiscal
quarters ended March 31, June 30, September 30 and December
31, 1997.
2.5. The definition of "Distribution" set forth in Section
1.1 of the Credit Agreement is amended by amending clause (iii)
of the proviso thereto to read in its entirety as follows:
(iii) payments of interest and principal on the Varde
Term Loan or the Varde Revolving Loan.
2.6. The definition of "SGP Securities" set forth in
Section 1.1 of the Credit Agreement is amended to read in its
entirety as follows:
"SGP Securities" means the Indebtedness of the Company
to the Special General Partner and the Series E and F
Preferred Units of the Company more fully described in
Exhibit 5.1.9.
2.7. The definition of "Varde Credit Agreement" set forth
in Section 1.1 of the Credit Agreement is amended to read in its
entirety as follows:
"Varde Credit Agreement" means that certain Sixth
Restated and Amended Credit Agreement dated as of December
30, 1997, among the Company, the General Partners, Pride
Borger, Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc. and Varde, as amended by Amendment No. 1
thereto dated as of April 15, 1998.
2.8. Section 1.1 of the Credit Agreement is amended by
adding the following definition in the appropriate alphabetical
position:
"Varde Revolving Loan" means, collectively, the
revolving loans extended by Varde to the Company from time
to time under the Varde Credit Agreement.
2.9. The definition of "Varde Securities" set forth in
Section 1.1 of the Credit Agreement is amended by amending clause
(i) thereof to read in its entirety as follows:
(i) the Indebtedness of the Company to Varde
(excluding the Varde Term Loan, the Varde Revolving Loan and
any interest accrued thereon)
2.10. Section 2.2 is deleted in its entirety. The Term
Lender shall be under no obligation to advance the Term Loan.
2.11. Section 3.3.2 is deleted in its entirety.
2.12. Section 4.3.2 of the Credit Agreement is amended to
read in its entirety as follows:
4.3.2. Excess Cash Flow. Within five Banking Days
after the date annual financial statements have been (or are
required to have been) furnished by the Company to the
Lenders in accordance with Section 6.4.1, commencing with
such financial statements for the fiscal year ending
December 31, 1998, the Company shall pay to the Agent as a
prepayment of the Term Loan, to be applied as provided in
Section 4.6.2 (a) an amount equal to 100% of Consolidated
Excess Cash Flow from its most recently completed fiscal
year, but only until an aggregate of $1,500,000 of principal
amount of the Term Loan shall have been prepaid under this
Section 4.3.2 and Sections 4.3.3, 4.3.4 and 4.3.5 and then
only so long as after giving effect to such payment the
Maximum Amount of Revolving Credit Outstanding shall exceed
by at least $1,000,000 the sum of the aggregate principal
amount of loans made under Section 2.1.1 at the time
outstanding plus the Letter of Credit Exposure at the time
in effect, and (b) after an aggregate of $1,500,000 of
principal amount of the Term Loan shall have been prepaid
under this Section 4.3.2 and Sections 4.3.3, 4.3.4 and
4.3.5, an amount equal to 75% of Consolidated Excess Cash
Flow for its most recently completed fiscal year (or, if
applicable, the portion of Consolidated Excess Cash Flow
remaining after a payment on account of such year under the
preceding clause (a)).
2.13. Section 6.4.4(g) of the Credit Agreement is amended
to read in its entirety as follows:
(g) A borrowing base report substantially in the form
of Exhibit 6.4.4 submitted to the Agent three times each
month detailing the calculation of the Company's Borrowing
Base. The first such report shall be dated as of the
fifteenth (15th) of the month and delivered to the Agent
within three Banking Days thereof; the second such report
shall be dated at month end and be delivered to the Agent
within three Banking Days thereof; and the third such report
shall be dated at month end and be delivered within 30 days
thereof (or, if such 30th day is not a Banking Day, the next
succeeding Banking Day). Reports may be required more
frequently as determined by the Agent.
2.14. Section 6.5.1 of the Credit Agreement is amended to
read in its entirety as follows:
6.5.1. Leverage Ratio. The Leverage Ratio shall not
on the last day of each fiscal quarter of the Company ending
on a date during each period specified below exceed the
percentage set forth in the table below next to such period.
Fiscal Quarter Ending Percentage
-------------------------- ----------
On December 31, 1997 350%
On or after March 31, 1998 385%
and prior to March 31, 1999
On or after March 31, 1999 300%
and prior to December 31, 1999
On or after December 31, 1999 250%
2.15. Section 6.5.2 of the Credit Agreement is amended to
read in its entirety as follows:
6.5.2. Consolidated Interest Coverage. For each
period of four consecutive fiscal quarters of the Company
ending on a date during each period specified below, the
Consolidated Interest Coverage shall equal or exceed the
percentage set forth in the table below next to such period,
measured as of the last day of such period.
Fiscal Quarter Ending Percentage
-------------------------- ----------
On December 31, 1998 125%
On or after March 31, 1999 175%
and prior to December 31, 1999
On or after December 31, 1999 200%
and prior to December 31, 2000
On or after December 31, 2000 225%
and prior to December 31, 2001
On or after December 31, 2001 250%
2.16. Section 6.5.3 of the Credit Agreement is amended to
read in its entirety as follows:
6.5.3. Consolidated Operating Cash Flow to
Consolidated Debt Service. For each period of four
consecutive fiscal quarters of the Company ending on a date
during each period specified below, the Consolidated
Operating Cash Flow shall equal or exceed the percentage of
Consolidated Debt Service specified in the table below,
measured as of the last day of such period.
First Quarter Ending Percentage
--------------------------- ----------
On or after March 31, 1998 100%
and prior to March 31, 1999
On or after March 31, 1999 115%
and prior to December 31, 1999
On or after December 31, 1999 120%
2.17. Section 6.5.5 of the Credit Agreement is amended to
read in its entirety as follows:
6.5.5. Minimum Consolidated EBITDA. (a) For each
fiscal quarter of the Company, commencing with the fiscal
quarter ending December 31, 1997, the Consolidated EBITDA
shall equal or exceed zero; and (b) for each period of four
consecutive fiscal quarters of the Company ending on a date
during each period specified below, the Consolidated EBITDA
of the Company shall equal or exceed the amount set forth
below next to such period.
Fiscal Quarter Ending Amount
--------------------- ----------
On December 31, 1997 $8,800,000
After December 31, 1997 $6,500,000
and prior to March 31, 1999
On and after March 31, 1999 $9,000,000
and prior to December 31, 1999
On and after December 31, 1999 $10,000,000
2.18. Section 6.5.6 of the Credit Agreement is amended to
read in its entirety as follows:
6.5.6. Net Working Capital. Consolidated Net Working
Capital shall not on any date prior to January 31, 1999 be
less than negative $1,000,000 and shall not any date on or
after January 31, 1999 be less than $1.00.
2.19. Section 6.5.7 of the Credit Agreement is amended to
read in its entirety as follows:
6.5.7. Consolidated Net Worth. Consolidated Net Worth
shall at all times on and after December 31, 1997 equal or
exceed the sum of (a) negative $21,531,885 plus (b) the
amount by which Consolidated Net Worth has been increased
after December 31, 1997 as a result of capital
contributions, the issuance of partnership units or other
equity interests of the Company or any of its Subsidiaries,
the issuance of warrants, options, or other rights to
acquire such partnership units or other equity interests or
the exercise of warrants, options or other rights or the
conversion of securities into such partnership units or
other equity interests, plus (c) 50% of Consolidated Net
Income (if positive) for each fiscal quarter of the Company
thereafter, plus (d) 100% of the Net Equity Proceeds
realized by the Company after December 31, 1997, minus (e)
the amount of any net deductions to Consolidated EBITDA
described in clause (3) or (4) of the proviso to the
definition of "Consolidated EBITDA" set forth in Section
1.1, but only to the extent that such items account for
negative Consolidated Net Income in any fiscal quarter
ending after December 31, 1997 and before January 1, 1999.
2.20. Section 6.6.10 of the Credit Agreement is amended to
read in its entirety as follows:
6.6.10. Indebtedness of the Obligors in respect of the
Varde Term Loan, so long as the interest rate paid in cash
on the Varde Term Loan is not in excess of the Eurodollar
Rate plus 350 basis points (with the remainder to accrue as
PIK Interest) for interest accruing through December 31,
1998 and that interest accruing on the Varde Term Loan shall
not exceed the per annum rate of 11% in 1998, 13% in 1999,
15% in 2000, 17% in 2001 and 19% in 2002 (subject to
reduction by 2% in each year after 1998 from and after the
occurrence of the Stage 3 Closing Date); provided, that any
PIK Interest accruing on the Varde Term Loan through
December 31, 1998 may be paid in cash on or after such date.
2.21. Section 6.6 of the Credit Agreement is further
amended by adding thereto a new Section 6.6.15 reading in its
entirety as follows:
6.6.15. Indebtedness of the Obligors to Varde in
respect of the Varde Revolving Loan, so long as the
principal amount thereof at any time outstanding does not
exceed $2,000,000, the per annum rate of interest thereon
does not exceed 11% per annum and the stated maturity
thereof is not earlier than January 1, 1999.
2.22. Section 6.8.10 of the Credit Agreement is amended to
read in its entirety as follows:
6.8.10. Liens securing the Varde Term Loan, the Varde
Revolving Loan and the Varde Securities, so long as such
Liens are subject to the Intercreditor Agreement.
2.23. Section 6.13 of the Credit Agreement is amended to
read in its entirety as follows:
6.13. Voluntary Prepayments of Other Indebtedness.
Neither the Company nor any of its Subsidiaries shall make
any voluntary prepayment (other than mandatory scheduled
payments) of principal of or interest on any Financing Debt
(other than the Varde Term Loan, the Varde Revolving Loan
and the Credit Obligations) or make any voluntary
redemptions or repurchases of Financing Debt (other than the
Varde Term Loan, the Varde Revolving Loan and the Credit
Obligations), except as permitted by Sections 4.3.5 and
6.10. The Company shall make no payment of principal
(including accrued PIK Interest) on the Varde Term Loan
except to the extent of payments permitted under Section
4.3.5 and payments that otherwise would have been required
to be applied to payment of the Term Loan (if, as is no
longer the case, the Term Loan were to be advanced) under
Section 4.2 (excluding payments due on or before December
31, 1998) and Sections 4.3.2, 4.3.3 and 4.3.4.
3. Account Debtor Determination. The Company also requests, and
subject to the terms and conditions hereof the Required Revolving
Lenders hereby agree, that until the Company shall receive
written notice to the contrary from the Required Revolving
Lenders or the Agent acting on their behalf, each of the
following shall be considered a "major oil company" for the
purpose of the definition of "Pre-approved Receivables" set forth
in Section 1.1 of the Credit Agreement:
Amoco Canada
Gary-Williams Energy Corporation
Holly Corporation (Navajo Refining)
Scurlock Permian (subsidiary of Ashland Corporation)
NGC Oil Trading and Transportation
4. Representations and Warranties. In order to induce the
Lenders to enter into this Agreement, each of the Pride Entities
jointly and severally represents and warrants to each of the
Lenders that:
4.1. No Legal Obstacle to Agreements. Neither the
execution and delivery of this Agreement or any other Credit
Document, nor the making of any borrowing under the Amended
Credit Agreement, nor the guaranteeing of the Credit Obligations,
nor the securing of the Credit Obligations with the Credit
Security, nor the consummation of any transaction referred to in
or contemplated by this Agreement, the Amended Credit Agreement
or any other Credit Document, nor the fulfillment of the terms
hereof or thereof or of any other agreement, instrument, deed or
lease contemplated by this Agreement, the Amended Credit
Agreement or any other Credit Document, has constituted or
resulted in or will constitute or result in:
(a) any breach or termination of the provisions of any
agreement, instrument, deed or lease to which any of the
Pride Entities is a party or by which it is bound, or of the
Charter or By-laws of any of the Pride Entities;
(b) the violation of any law, statute, judgment,
decree or governmental order, rule or regulation applicable
to any of the Pride Entities;
(c) the creation under any agreement, instrument, deed
or lease of any Lien (other than Liens on the Credit
Security which secure the Credit Obligations and Liens
permitted by Section 6.8 of the Amended Credit Agreement)
upon any of the assets of any of the Pride Entities; or
(d) any redemption, retirement or other repurchase
obligation of any of the Pride Entities under any Charter,
By-law, agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to
or filing with, any governmental or administrative authority or
any other Person is required to be obtained or made by any of the
Pride Entities in connection with the execution and delivery of
this Agreement, the performance of this Agreement, the Amended
Credit Agreement or any other Credit Document, the transactions
contemplated hereby or thereby, the making of any borrowing under
the Amended Credit Agreement, the guaranteeing of the Credit
Obligations or the securing of the Credit Obligations with the
Credit Security.
4.2. Defaults. Immediately after giving effect to the
Amendment, no Default shall exist.
4.3. Incorporation of Representations and Warranties of
Company. Immediately after giving effect to the Amendment, the
representations and warranties set forth in Section 7 of the
Amended Credit Agreement will be true and correct as if
originally made on and as of the Amendment Closing Date (except
to the extent of any representation or warranty which refers to a
specific earlier date).
5. Conditions. The effectiveness of each of the amendments set
forth in Section 2 hereof and the determination set forth in
Section 3 hereof shall be subject to the satisfaction of the
following conditions:
5.1. Officer's Certificate. The representations and
warranties contained in Section 4 hereof shall be true and
correct on and as of the Amendment Closing Date with the same
force and effect as though originally made on and as of the
Amendment Closing Date; immediately after giving effect to such
amendments, no Default shall exist; no Material Adverse Change
shall have occurred since December 30, 1997 except as previously
disclosed by the Company in writing to the Lenders; and the
Company shall have furnished to the Lenders on or before the
Amendment Closing Date a certificate to these effects signed by a
Financial Officer of the Company.
5.2. Proper Proceedings. All proper proceedings shall have
been taken by each of the Pride Entities to authorize this
Agreement, the Amended Credit Agreement and the transactions
contemplated hereby and thereby. On or before the Amendment
Closing Date, the Agent shall have received copies of all
documents, including legal opinions of counsel and records of
corporate proceedings which the Agent may have requested in
connection therewith, such documents, where appropriate, to be
certified by proper corporate or governmental authorities.
5.3. Varde. Varde shall have consented to the terms and
conditions of this Agreement and the Amended Credit Agreement,
and the Varde Credit Agreement shall have been amended in a
manner satisfactory in form and substance to the Required
Revolving Lenders which tracks the provisions of Section 2 hereof
and which also provides, in documentation satisfactory in form
and substance to the Required Revolving Lenders, for the
following:
(a) extension of the revolving line of credit
contemplated by new Section 6.6.15 of the Credit Agreement;
and
(b) deferral of the amortization of the Varde term
loan consistent with the amendment of Section 6.13 of the
Credit Agreement provided for herein.
5.4. Execution and Delivery. Each of the Pride Entities,
the Lenders, the Agent and the Documentation Agent shall have
executed and delivered this Agreement.
5.5. Amendment Fee. The Company shall have paid to the
Agent for distribution to the Revolving Lenders pro rata in
proportion to their respective Revolving Commitments an amendment
fee in the amount of $75,000.
5.6. Expenses. The Company shall have paid to the Agent
all reasonable expenses, fees and charges payable to the Agent's
counsel, Ropes & Gray.
6. Further Assurances. The Company will, promptly upon the
request of the Agent from time to time, execute, acknowledge and
deliver, and file and record, all such instruments and notices,
and take all such action, as the Agent deems necessary or
advisable to carry out the intent and purposes of this Agreement.
In addition, the parties agree to enter into a restatement of the
Credit Agreement incorporating the amendments set forth in
Section 2 hereof and containing such additional provisions as
shall be appropriate to reflect fully the termination of the
commitment of the Term Lender to make the Term Loan. Such
restatement shall be effected as soon as reasonably possible.
7. General. The Amended Credit Agreement and all of the other
Credit Documents are each confirmed as being in full force and
effect. This Agreement, the Amended Credit Agreement and the
other Credit Documents referred to herein or therein constitute
the entire understanding of the parties with respect to the
subject matter hereof and thereof and supersede all prior and
current understandings and agreements, whether written or oral,
with respect to such subject matter. The invalidity or
unenforceability of any provision hereof shall not affect the
validity and enforceability of any other term or provision
hereof. The headings in this Agreement are for convenience of
reference only and shall not alter, limit or otherwise affect the
meaning hereof. Each of this Agreement and the Amended Credit
Agreement is a Credit Document and may be executed in any number
of counterparts, which together shall constitute one instrument,
and shall bind and inure to the benefit of the parties and their
respective successors and assigns, including as such successors
and assigns all holders of any Note. This Agreement shall be
governed by and construed in accordance with the laws (other than
the conflict of law rules) of The Commonwealth of Massachusetts.
<PAGE>
Each of the undersigned has caused this Agreement to be
executed and delivered by its duly authorized officer as an
agreement under seal as of the date first above written.
PRIDE COMPANIES, L.P.
by Pride Refining, Inc., its
Managing General Partner
By_____________________________
Title:
PRIDE REFINING, INC.
By ____________________________
Title:
PRIDE SGP, INC.
By ____________________________
Title:
PRIDE BORGER, INC.
By ____________________________
Title:
PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.
By ____________________________
Title:
<PAGE>
DESULFUR PARTNERSHIP
by Pride Companies, L.P., its
General Partner,
by Pride Refining, Inc., its
Managing General Partner
By _____________________________
Title:
and by Pride Marketing of Texas
(Cedar Wind), Inc., its General
Partner
By _____________________________
Title:
BANKBOSTON, N.A., for Itself and as
Agent
By _____________________________
Authorized Officer
LEHMAN COMMERCIAL PAPER INC., for
Itself and as Documentation Agent
By _____________________________
Authorized Officer
UNION BANK OF CALIFORNIA, N.A.
By ____________________________
Authorized Officer
<PAGE>
Consented to:
VARDE PARTNERS, INC.
By _________________________________
Authorized Officer
</TABLE>
