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 September 30, 1999
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 November 1, 1999
----- -------------------------------
Common Units 4,950,000
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRIDE COMPANIES, L.P.
BALANCE SHEETS
(Amounts in thousands, except unit amounts)
<CAPTION>
September 30, December 31,
1999 1998
(unaudited) (Restated)
----------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 7,952 $ 2,592
Accounts receivable, less allowance
for doubtful accounts 22,015 10,052
Inventories 273 250
Prepaid expenses 751 704
Net current assets of the
discontinued operation 27,225 7,102
----------- -----------
Total current assets 58,216 20,700
----------- -----------
Property, plant and equipment 30,636 29,994
Accumulated depreciation 13,723 12,476
----------- -----------
Property, plant and equipment - net 16,913 17,518
Assets no longer used in the business 4,235 4,301
Deferred financing costs 4,040 5,307
Other assets 380 383
Net long-term assets of the
discontinued operation - 20,398
----------- -----------
$ 83,784 $ 68,607
=========== ===========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIENCY):
Current liabilities:
Accounts payable $ 36,266 $ 16,573
Accrued payroll and related benefits 1,328 903
Accrued taxes 2,318 2,966
Other accrued liabilities 1,334 872
Current portion of long-term debt 40,314 65
----------- -----------
Total current liabilities 81,560 21,379
Long-term debt, excluding current portion - 39,529
Other long-term liabilities 12,882 12,160
Redeemable preferred equity 19,529 19,529
Partners' capital (deficiency):
Common units (5,275,000 units
authorized, 4,950,000 units
outstanding) (29,116) (23,042)
General partners' interest (1,071) (948)
----------- -----------
$ 83,784 $ 68,607
=========== ===========
See accompanying notes.
</TABLE>
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<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Three Months Ended September 30,
1999 1998
Restated
------------ -----------
<S> <C> <C>
Revenues $ 39,582 $ 25,433
Cost of sales and operating expenses,
excluding depreciation 38,805 24,110
Marketing, general and
administrative expenses 952 937
Depreciation 399 349
------------ -----------
Operating income (loss) from
the continuing operation (574) 37
Other income (expense):
Interest income 85 19
Interest expense (including interest
paid in kind of $691 and $347,
respectively, and increasing rate
accrued interest of $136 and $257,
respectively) (1,468) (1,426)
Credit and loan fees (including
amortization of $495 and $331,
respectively) (509) (294)
Other - net (30) 68
------------ -----------
Net loss from the continuing operation (2,496) (1,596)
------------ -----------
Discontinued operation:
Income (loss) from operation of the
Crude Gathering System segment
prior to August 1, 1999 (514) 469
------------ -----------
Net loss $ (3,010) $ (1,127)
============ ===========
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Basic and diluted loss
per Common Unit:
Net loss from the continuing
operation $ (.59) $ (.40)
Net income (loss) from the
discontinued operation (.10) .09
------------ -----------
Net loss $ (.69) $ (.31)
============ ===========
Numerator:
Net loss from the continuing
operation $ (2,496) $ (1,596)
Preferred distributions in
arrears (481) (445)
------------ -----------
Net loss from the continuing
operation less preferred
distributions (2,977) (2,041)
Net loss from the continuing
operation allocable to 2%
general partner interest (60) (41)
------------ -----------
Numerator for basic and diluted
earnings per unit from
the continuing operation $ (2,917) $ (2,000)
============ ===========
Net income (loss) from the
discontinued operation (514) 469
Net income (loss) from the
discontinued operation allocable
to 2% general partner interest (10) 10
------------ -----------
Numerator for basic and diluted
earnings per unit from the
discontinued operation $ (504) $ 459
============ ===========
Numerator for basic and
diluted earnings per unit $ (3,421) $ (1,541)
============ ===========
Denominator:
Denominator for basic and diluted
earnings per unit 4,950 4,950
============ ===========
See accompanying notes.
</TABLE>
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<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Nine Months Ended September 30,
1999 1998
Restated
------------ -----------
<S> <C> <C>
Revenues $ 88,293 $ 99,697
Cost of sales and operating expenses,
excluding depreciation 85,248 94,845
Marketing, general and
administrative expenses 2,761 3,089
Depreciation 1,122 1,063
------------ -----------
Operating income (loss) from
the continuing operation (838) 700
Other income (expense):
Interest income 185 76
Interest expense (including interest
paid in kind of $2,008 and $991,
respectively, and increasing rate
accrued interest of $386 and $760,
respectively) (4,310) (4,159)
Credit and loan fees (including
amortization of $1,267 and $992,
respectively, and credit and
loan fees paid in kind of $100
and $150, respectively) (1,524) (1,297)
Other - net 21 119
------------ -----------
Net loss from the continuing operation (6,466) (4,561)
------------ -----------
Discontinued operation:
Income (loss) from operation of the
Crude Gathering System segment
prior to August 1, 1999 269 (819)
------------ -----------
Net loss $ (6,197) $ (5,380)
============ ===========
<PAGE>
Basic and diluted loss
per Common Unit:
Net loss from the continuing
operation $ (1.56) $ (1.16)
Net income (loss) from the
discontinued operation .05 (.16)
------------ -----------
Net loss $ (1.51) $ (1.32)
============ ===========
Numerator:
Net loss from the continuing
operation $ (6,466) $ (4,561)
Preferred distributions in
arrears (1,413) (1,312)
------------ -----------
Net loss from the continuing
operation less preferred
distributions (7,879) (5,873)
Net loss from the continuing
operation allocable to 2%
general partner interest (158) (118)
------------ -----------
Numerator for basic and diluted
earnings per unit from
the continuing operation $ (7,721) $ (5,755)
============ ===========
Net income (loss) from the
discontinued operation 269 (819)
Net income (loss) from the
discontinued operation allocable
to 2% general partner interest 5 (16)
------------ -----------
Numerator for basic and diluted
earnings per unit from the
discontinued operation $ 264 $ (803)
============ ===========
Numerator for basic and
diluted earnings per unit $ (7,457) $ (6,558)
============ ===========
Denominator:
Denominator for basic and diluted
earnings per unit 4,950 4,950
============ ===========
See accompanying notes.
</TABLE>
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<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<CAPTION>
Nine Months Ended September 30,
1999 1998
Restated
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,197) $ (5,380)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation 2,613 2,569
Amortization of loan costs 1,267 992
Deferred tax benefit (98) (90)
(Gain) loss on sale of
property, plant and equipment 12 (114)
Deferred loss on sale of the Crude
Gathering System segment (1,476) -
Paid in kind interest and credit
and loan fees 2,108 1,141
Increasing rate accrued interest 386 760
Lower of cost or market
adjustment (reversal) (1,197) 336
Net effect of changes in:
Accounts receivable (11,963) 1,006
Inventories 2,134 4,273
Prepaid expenses (47) (65)
Accounts payable and other
long-term liabilities 20,029 (8,094)
Accrued liabilities 223 (1,960)
------------ -----------
Total adjustments 13,991 754
------------ -----------
Net cash provided by (used in)
operating activities 7,794 (4,626)
Cash flows from investing activities:
Purchases of property, plant and
equipment (1,121) (1,433)
Proceeds from asset disposals 241 167
Other 3 (30)
------------ -----------
Net cash provided by (used in)
investing activities (877) (1,296)
Cash flows from financing activities:
Proceeds from debt and credit
facilities 17,007 58,930
Payments on debt and credit
facilities (18,564) (57,186)
------------ -----------
Net cash provided by (used in)
financing activities (1,557) 1,744
------------ -----------
Net increase (decrease) in cash and
cash equivalents 5,360 (4,178)
Cash and cash equivalents at the
beginning of the period 2,592 5,008
------------ -----------
Cash and cash equivalents at the
end of the period $ 7,952 $ 830
============ ===========
See accompanying notes.
</TABLE>
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 a common carrier products pipeline
system and three products terminals in Abilene, Texas (the "Abilene
Terminal"); San Angelo, Texas (the "San Angelo Terminal"); and Aledo,
Texas (the "Aledo Terminal") (collectively the "Products Terminals")
that are used to market conventional gasoline, low sulfur diesel fuel,
and military aviation fuel (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,
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 pipeline and
Products Terminals.
Prior to October 1, 1999, the Partnership also owned and operated
a crude oil gathering business that gathered, transported, resold and
redelivered crude oil in the Texas market (the "Crude Gathering
System"). On October 1, 1999, the Partnership sold the operating
assets utilized by the Crude Gathering System to Sun Pipe Line
Services, Inc. ("Sun") for $29.6 million in cash proceeds and the
assumption by Sun of certain indebtedness in the amount of $5.3
million (the "Crude Gathering Sale"). See "Notes 5 and 6".
Accordingly, the Crude Gathering System has been presented as a
discontinued operation for all periods.
As a result of the Equilon Agreement and the mothballing of the
Refinery, the Crude Gathering System had marketed crude oil to other
refineries and the Partnership operated two separate and distinct
industry segments from March 22, 1998 to October 1, 1999, the Crude
Gathering System and the Products Marketing Business. The Crude
Gathering System consisted of pipeline gathering systems and a fleet
of trucks which transported crude oil into third party pipelines and
into the system's primary asset, a common carrier pipeline. The
Products Marketing Business operates one products pipeline, that
originates at the Abilene Terminal and terminates at the San Angelo
Terminal (the "San Angelo Pipeline"), and the Products Terminals. In
connection with the mothballing of the Refinery, another products
pipeline owned by the Partnership that extends from the Abilene
Terminal to the Aledo Terminal (the "Aledo Pipeline") was idled, since
Equilon's pipeline is connected to the Aledo Terminal. The
Partnership's operation are conducted primarily in the State of Texas.
Concurrent with the sale of the Crude Gathering System, the
Partnership's continuing operation consists of the Products Marketing
Business.
Pride Refining, Inc., a Texas corporation (the "Managing General
Partner"), owns a 1.9% general partner interest in and serves as the
managing general partner of the Partnership. Pride SGP, Inc.
("Special General Partner" or "Pride SGP") 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 ("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
wholly-owned subsidiaries including partnership interests. All
intercompany transactions have been eliminated. 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, 1998
include a summary of significant accounting policies that should be
read in conjunction with this quarterly report on Form 10-Q. The
Partnership had two corporate subsidiaries which are separate taxable
entities whose operations are subject to federal income taxes. On
October 1, 1999, one of the subsidiaries was sold to Sun as part of
the Crude Gathering Sale.
The financial statements included with this Form 10-Q have been
restated for the third quarter of 1998 to reflect the impact for the
1998 year-end adjustments to recognize increasing rate accrued
interest expense using the effective rate and to reflect distributions
on the preferred equity securities as arrearages. See "Notes 6 and
7". Further, the financial statements for all periods in 1998 have
also been restated to reflect the Crude Gathering System segment as a
discontinued operation.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to
be adopted in years beginning after June 15, 2000. The Statement will
require the Partnership to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The Partnership has not yet determined what
the effect of Statement No. 133 will be on the operations and
financial position of the Partnership.
3. Earnings Per Unit
Basic net loss per common unit is computed using the weighted
average number of common units outstanding. Diluted net loss per unit
is computed by adjusting the units outstanding and net loss for the
potential dilutive effect of the convertible securities and unit
appreciation rights. However, the effect of these securities was
antidilutive for the third quarters of 1999 and 1998 and for the first
nine months of 1999 and 1998.
4. Related Party Transactions
In accordance with the Third 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. Discontinued Operation
On October 1, 1999, the Partnership sold the operating assets
utilized by the Crude Gathering System to Sun for $29.6 million in
cash proceeds and the assumption by Sun of certain indebtedness in the
amount of $5.3 million. Accordingly, the operating results of the
Crude Gathering System have been segregated from the continuing
operation and are reported as a discontinued operation. Interest
expense and general corporate administrative expenses have not been
allocated to the discontinued operation. However, management does
expect that interest expense will be reduced as a portion of the
proceeds have been used to reduce debt.
The measurement date used to estimate the net gain on disposal is
August 1,1999. Such net gain is estimated to be $48,000 which
includes a loss from the discontinued operation from August 1, 1999 to
September 30, 1999 of $1,477,000 and a gain of $1,525,000 on the sale
of operating assets utilized in the Crude Gathering System. Due to
the subjective nature of estimated future operations and incremental
costs of disposal, it is reasonably possible that these estimates may
change in the future. Future changes in estimates will be included in
the consolidated statement of operations in the reporting period
determined.
Revenues for the Crude Gathering System were $97.5 million and
$67.3 million for the three months ended September 30, 1999 and 1998,
respectively, and $239.1 million and $242.3 million for the nine
months ended September 30, 1998 and 1998, respectively. The net
carrying value of the assets sold at September 30, 1999 was $27.2
million. Under the terms of the asset sale, the Partnership retained
receivables of $13.7 million, other payables excluding suspense
liability of $20.7 million, and crude suspense liability of $10.9
million. These retained amounts are not classified as assets or
liabilities of the discontinued operation on the September 30, 1999
balance sheet.
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 facility and provided a new revolver
facility (the "BankBoston Revolver") on December 31, 1997.
The BankBoston Revolver 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 and $10.0 million for
direct cash borrowings for general working capital purposes. Amounts
available under the BankBoston 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 payables for crude oil and refined products. The amount
available under the borrowing base net of outstanding letters of
credit and advances under the BankBoston Revolver was $5.5 million as
of September 30, 1999.
Effective April 15, 1999, BankBoston amended the facility which
will mature January 2, 2001. The total credit line available was
lowered from $65.0 million to $55.0 million. In conjunction with the
Crude Gathering Sale, the total credit line was further reduced to
$20.0 million on October 31, 1999.
Though no advances had been drawn under the letter of credit
facility at September 30, 1999, the Partnership did have approximately
$38.1 million in outstanding letters of credit which included $30.4
million in outstanding letters of credit related to the Crude
Gathering System. The Partnership did not have any outstanding
borrowings under the BankBoston Revolver as of September 30, 1999.
The fee on outstanding letters of credit was 2.5% per annum as of
September 30, 1999. 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 BankBoston Revolver is 0.5% per annum. Under the terms
agreed to by the parties, cash borrowings under the BankBoston
Revolver bear interest at prime plus 1.75%. The prime rate was 8.25%
at September 30, 1999. The credit agreement evidencing the BankBoston
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
charged a $100,000 amendment fee related to an amendment that became
effective April 15, 1999.
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 term loans of $20.1 million ("A Term Loan"),
$11.4 million ("B Term Loan"), $5.5 million ("C Term Loan") and an
unsecured note of $2.9 million ("Subordinate Note A") as of September
30, 1999. In connection with the Crude Gathering Sale, the
Partnership applied $15.0 million of the cash proceeds to the A Term
Loan on October 1, 1999.
Effective April 15, 1999, Varde's credit agreement was also
amended. In 1999, cash interest payments on the Varde Revolver (see
below) and A Term Loan are limited to $208,000 per month. Any excess
on the Varde Revolver and A Term Loan along with interest on the B
Term Loan, C Term Loan, Subordinate Note A and distributions on
Varde's preferred securities, will be paid in kind or accumulate in
arrears. The A Term Loan, B Term Loan, and C Term Loan bear interest
rates of 11%, 13%, 15%, 17% and 18% for the first, second, third,
fourth and fifth years, respectively, except for $3.6 million of the B
Term Loan which is subject to interest rates of 18% through maturity.
In addition, if the A Term Loan is repaid or refinanced, the B Term
Loan and C Term Loan bear interest at 11% the first three years, 13%
in the fourth year and 15% in the fifth year, except for $3.6 million
of the B Term Loan which is subject to interest rates of 12% through
maturity. The Subordinate Note A is convertible into 465,000 Common
Units and bears interest at prime plus one percent. As consideration
for the amendment effective April 15, 1999, the principal amount of
the B Term Loan was increased by $100,000.
Because a portion of the debt is subject to increasing rates of
interest, the Partnership is accruing interest at the effective rate
over the term of the debt. Interest expense for the third quarters of
1999 and 1998 reflects an accrual of $136,000 and $257,000,
respectively, which is based on the difference between the effective
interest rates and the stated rates.
Effective April 15, 1999, the Partnership has a $3.0 million
revolving credit facility with Varde ("Varde Revolver"). Advances
under the Varde Revolver bear interest at 11% per annum, payable
monthly. The Partnership did not have any outstanding borrowings
under the Varde Revolver as of September 30, 1999. In the second
quarter of 1998, the Partnership paid Varde fees totaling $150,000 in
the form of additional Series B Term Loans. Cash advances under the
Varde Revolver mature January 2, 2001.
Under the terms agreed to on April 15, 1999, payments on the
Varde Revolver and A Term Loan are capped at $2.5 million per annum.
To the extent the interest on the Varde Revolver and A Term Loan
exceed the cap on cash payments along with the interest and
distributions on the various other Varde securities, such amounts will
be paid in kind or increase accumulated arrearages, respectively. As
a result of the above limitations, it is likely that all interest on
the B Term Loan, C Term Loan and Subordinate Note A will be paid in
kind and all preferred distributions will accumulate in arrears until
such time as the Partnership can restructure its capital structure.
The A Term Loan is due December 31, 2002. The B Term Loan, C
Term Loan and Subordinate Note A are also due December 31, 2002 if the
A Term Loan has not been refinanced. If the A Term Loan is
refinanced, the B Term Loan, C Term Loan and Subordinate Note A mature
180 days after the maturity of the new term loan, but no later than
June 30, 2003. 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. However, Varde has agreed to forego all principal
payments in 1998 and 1999.
As a result of the Crude Gathering Sale, the Partnership has
classified the Varde debt as current since the covenants in the
current loan agreement for the year 2000 were based on the combined
results of the Products Marketing Business and the Crude Gathering
System. Absent the Crude Gathering System, management believes it is
unlikely the Partnership can maintain compliance with its debt
covenants. The Partnership will attempt to renegotiate such covenants
during the first quarter of 2000. Compliance with the covenants was
waived by the lenders for the quarter ended September 30, 1999. As
previously mentioned, in connection with the Crude Gathering Sale, the
Partnership applied $15.0 million of the cash proceeds to the A Term
Loan on October 1, 1999.
Other installment loans include a $6.0 million nonrecourse note,
due 2014, payable monthly with interest at 8% and a balance of $5.3
million at September 30, 1999. 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. On October 1, 1999, the note was assumed by Sun as part of
the Crude Gathering Sale. The Partnership has included the note in net
current assets from the discontinued operation at September 30,1999.
7. Preferred Equity
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and preferred equity securities effective as
of January 1, 1998. As a result of the amendment, preferred equity
securities are now treated as accumulated arrearages rather than being
considered paid in kind. This reduces the amount of preferred equity
on the balance sheet and also affects the tax treatment of the
distributions to the unitholders and the holders of the preferred
equity securities.
In conjunction with Varde's assumption of the outstanding bank
debt, Varde received preferred equity securities. As a result of the
assumption, Varde now holds preferred equity securities including $9.3
million of Series B Cumulative Preferred Units ("Series B Preferred
Units"), $5.0 million of Series C Cumulative Preferred Units ("Series
C Preferred Units") and $2.8 million of Series D Cumulative Preferred
Units ("Series D Preferred Units") which are all redeemable on
December 31, 2002. The Series B Preferred Units and Series C
Preferred Units are convertible into 1,480,000 and 794,000 Common
Units, respectively. The preferential quarterly payments on the
Series B Preferred Units and Series C Preferred Units are 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 at the Partnership's
option may accumulate in arrears at 8% per annum in the first three
years. The preferential quarterly payments on the Series D Preferred
Units are 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 at the Partnership's option may accumulate in arrears at 13% per
annum in the first three years. Distributions are payable on the 5th
day of the second month in each quarter. Distributions are also
subject to the cap on payments to Varde (See "Note 6"). Accordingly,
for the third quarter of 1999, the Partnership accumulated arrearages
of $432,000 on these preferred equity securities. Through September
30, 1999, these securities had total accumulated arrearages of $2.8
million.
On December 31, 1997, Pride SGP converted (i) a $2.0 million
note from the Partnership into Series E Cumulative Convertible
Preferred Units ("Series E Preferred Units") which was convertible
into 317,000 Common Units and (ii) a $450,000 note from the
Partnership into Series F Cumulative Preferred Units ("Series F
Preferred Units") which were both redeemable on December 31, 2002.
The Series E Preferred Units and Series F Preferred Units were
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 were 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 at the
Partnership's option could accumulate in arrears at 8% per annum in
the first three years. Distributions were payable on the 5th day of
the second month in each quarter; however, the Partnership could not
make any cash distributions on the Series E Preferred Units or Series
F Preferred Units if the Series B Preferred Units, Series C Preferred
Units or Series D Preferred Units had accumulated arrearages
outstanding. Accordingly, for the third quarter of 1999, the
Partnership accumulated arrearages of $49,000 on the Series E
Preferred Units and Series F Preferred Units. Through September 30,
1999, these securities had total accumulated arrearages of $343,000.
On October 1, 1999, the accumulated arrearages through September 30,
1999 on the Series E Preferred Securities and Series F Preferred
Securities were cancelled in conjunction with the exchange described
in the next paragraph.
In connection with the Crude Gathering Sale, Pride SGP exchanged
(a) certain trunklines and related pumping facilities owned by Pride
SGP, (b) interest payable to Pride SGP of $548,000, (c) rentals
payable to Pride SGP of $2.0 million, (d) the Series E Preferred Units
in the face amount of $2.0 million held by Pride SGP, and (e) the
Series F Preferred Units in the face amount of $450,000 held by Pride
SGP for (y) $2.0 million in cash and (z) a newly issued subordinated
preferred security ("Subordinated Preferred Security") in the face
amount of $3.0 million. The Subordinated Preferred Security will not
accrue any distributions for the first five years after its date of
issuance, and thereafter, distributions will accrue at a rate equal to
the lesser of (i) the Partnership's net income less any distributions
accrued or paid on any preferred securities issued to Varde or (ii)
10% per annum.
As referenced above, the cash interest payments on the Varde
Revolver and A Term Loan are limited to $2.5 million annually. The
interest and distributions on the other debt and preferred securities
held by Varde will be paid in kind or accumulate in arrears. Any
payments of principal on the securities held by Varde shall be applied
in the following order: Varde Revolver, A Term Loan, B Term Loan, C
Term Loan, Subordinate Note A, Series B Preferred Units, Series C
Preferred Units, and Series D Preferred Units. As a result of the
cap, it is unlikely that any distributions will be paid in cash on the
preferred securities in the near future.
8. Common Units
At September 30, 1999, 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
On September 5, 1995, the Partnership filed a substantial claim
in the United States Court of Federal Claims against the United States
of America (Defense Energy Support Center) relating to erroneous
pricing of fuel purchased over a period of several years from the
Partnership and its predecessors (the "DESC Claim"). The Partnership
seeks recovery of the difference between the market value of the jet
fuel and the amount originally paid by the Defense Energy Support
Center for such jet fuel. 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.
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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 prior to October 1, 1999 a 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 condition in the future are: (i)
the margins between the revenue realized by the Partnership on the
sale of refined products and the cost of those products purchased from
Equilon, a refining and marketing joint venture between Royal
Dutch/Shell Group and Texaco, Inc., and the availability of such
products, (ii) the volume of throughput at the Products Terminals,
(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 and meet its
debt obligations, and (v) fluctuations in refined product prices and
their impact on working capital and the borrowing base under the
Partnership's credit agreements. Prior to the sale of the operating
assets of the Crude Gathering System on October 1, 1999 (the "Crude
Gathering Sale"), the Partnership was subject to the following
additional risks: (i) the volume of throughput on and margins from the
transportation and resale of crude oil from the Partnership's Crude
Gathering System, (ii) the amount of crude oil produced in the areas
the Partnership gathered, and (iii) fluctuations in crude oil prices
and their impact on working capital and the borrowing base under the
Partnership's credit agreement. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Financial
Condition."
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 oil and
products marketing and distribution, the Partnership's operating
results for the Products Marketing Business depends principally on
(i) the margins between the revenue realized by the Partnership on the
sale of refined products and the cost of those refined products
purchased from Equilon and the availability of such products, and (ii)
the volume of throughput at the Products Terminals. 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 the Products System
would not be meaningful and, therefore, is not included with this Form
10-Q.
Prior to mothballing the Refinery and entering into the Equilon
agreement (the "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.
The Crude Gathering System was sold on October 1, 1999 and
accordingly the Crude Gathering System is treated as a discontinued
operation in the financial statements of the partnership. The Crude
Gathering System's operating results depended principally on (i) the
volume of throughput on and margins from the transportation and resale
of crude oil from the Partnership's Crude Gathering System, and (ii)
the amount of crude oil produced in the areas the Partnership gathers.
Margins from the Crude Gathering System were influenced by the level
of competition and the price of crude oil. When prices were higher,
crude oil could generally be resold at higher margins. Additionally,
transportation charges trended upward when higher crude oil prices
resulted in increased exploration and development. Conversely, when
crude oil prices decreased, exploration and development declined and
margins on the resale of crude oil as well as transportation charges
tended to decrease.
Beginning in April 1998, the Partnership sold crude oil to third
parties that in the past would have been refined at the Refinery. The
gross margin per barrel from such sales was based in part on the sales
price of crude oil above the Partnership's posted price for the
purchase of such crude oil (the "Premium").
Prior to April 1998, a substantial portion of the crude gathered
by the Crude Gathering System was sold to the Refinery. The total
intrasystem price for crude oil between the Refinery and the Crude
Gathering System included an intracompany premium ("Intracompany
Premium"), the Partnership's posted price and transportation costs.
An increase in the Intracompany Premium for crude oil had a negative
impact on the Refinery and a positive impact on the Crude Gathering
System. On the other hand, a decrease in the Intracompany Premium for
crude oil had a positive impact on the Refinery and a negative impact
on the Crude Gathering System.
In evaluating the financial performance of the Partnership,
management believes it is important to look at operating income,
excluding depreciation, in addition to operating income which is after
depreciation. Operating income, excluding depreciation, measures the
Partnership's ability to generate and sustain working capital and
ultimately cash flows from operations. However, such measure is
before debt service, so it does not indicate the amount available for
distribution, reinvestment or other discretionary uses. Gross
revenues primarily reflect the level of crude oil prices and are not
necessarily an accurate reflection of the Partnership's profitability.
Third Quarter 1999 Compared to Third Quarter 1998
GENERAL -- Net loss for the third quarter of 1999 was $3.0
million compared to net loss of $1.1 million for the third quarter of
1998. The decline is due to weaker results from both the continuing
operation and the discontinued operation for the third quarter of
1999.
CONTINUING OPERATION -- Net loss from the continuing operation
was $2.5 million for the third quarter of 1999 compared to a net loss
from the continuing operation of $1.6 million for the third quarter of
1998 and is due to weaker margins for the Products Marketing Business
in the third quarter of 1999. Operating loss for the Products
Marketing Business was $574,000 for the third quarter of 1999 compared
to operating income of $37,000 for the third quarter of 1998.
Depreciation expense for the Products Marketing Business was $399,000
for the third quarter of 1999 compared to $349,000 for the third
quarter of 1998. Operating loss excluding depreciation for the
Products Marketing Business was $175,000 for the third quarter of 1999
compared to operating income excluding depreciation of $386,000 for
the third quarter of 1998. During the third quarter of 1999, the
Partnership marketed 15,908 barrels per day ("BPD") of refined
products compared to 14,248 BPD for the third quarter of 1998. The
net margin per barrel for the third quarter of 1999 declined to
negative $0.38 compared to positive $0.03 for the third quarter of
1998 due to lower margins under the new jet fuel contract in 1999 (see
"-Financial Condition - Financial Resources and Liquidity").
DISCONTINUED OPERATION -- Net loss from the discontinued
operation for the Crude Gathering System was $514,000 for the month of
July 1999 compared to net income from the discontinued operation of
$469,000 for the third quarter of 1998. Net income from the
discontinued operation for the third quarter of 1998 included the
reversal of a $708,000 lower of cost or market adjustment recorded in
the first six months of 1998 since the market value of the crude oil
owned by the Partnership was more than its LIFO carrying value at
September 30, 1998. During the first six months of 1998, the
Partnership reported a negative $1.0 million lower of cost or market
adjustment since the market value of crude owned by the Partnership
was less than its carrying value at June 30, 1998. Net loss from the
discontinued operation for the month of July 1999 included a $328,000
increase in cost of sales due to hedging losses in the third quarter
of 1999. The volume of crude oil gathered by the Crude Gathering
System decreased to 34,201 BPD for the month of July 1999 from 39,906
BPD for the third quarter of 1998 due to the elimination of marginal
contracts and lower crude oil production in the field. Subsequent to
July 31, 1999, the Crude Gathering System incurred losses of $1.5
million; however, in accordance with "Discontinued Operation
Treatment", these losses have been deferred until the expected gain on
the sale is realized in October 1999.
First Nine Months of 1999 Compared to First Nine Months of 1998
GENERAL -- Net loss for the first nine months of 1999 was $6.2
million compared to net loss of $5.4 million for the first nine months
of 1998. The decline was due to weaker results from the continuing
operation which was partially offset by an improvement in the
discontinued operation.
CONTINUING OPERATION -- Net loss from the continuing operation
for the Products Marketing Business was $6.5 million for the first
nine months of 1999 compared to net loss from the continuing operation
of $4.6 million for the first nine months of 1998. The increased loss
was due to weaker results for the Products Marketing Business and an
increase in interest expense and credit and loan fees of $378,000 for
the first nine months of 1999. Operating loss, depreciation expense,
and operating income excluding depreciation of the Products Marketing
Business was $838,000, $1.1 million, and $284,000, respectively, for
the first nine months of 1999. Operating income of the Products
Marketing Business was $700,000 for the first nine months of 1998
which included 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 $1.1 million for the
first nine months of 1998 which included depreciation expense of
$368,000 from the Refinery and Products System for the first three
months of 1998. Operating income excluding depreciation of the
Products Marketing Business was $1.8 million for the first nine months
of 1998 which included operating income excluding depreciation of $1.4
million from the Refinery and Products System for the first three
months of 1998. During the first nine months of 1999, the Partnership
marketed 14,489 barrels per day ("BPD") of refined products compared
to 18,528 BPD for the first nine months of 1998. The net margin per
barrel for the first nine months of 1999 was negative $0.21 compared
to positive $0.14 for the first nine months of 1998.
DISCONTINUED OPERATION -- Net income from the discontinued
operation for the Crude Gathering System was $269,000 for the first
seven months of 1999 compared to net loss from the discontinued
operation of $819,000 for the first nine months of 1998. Net income
from the discontinued operation for the first seven months of 1999 for
the Crude Gathering System included the reversal of a $1.2 million
lower of cost or market inventory adjustment since the market value of
the crude oil owned by the Partnership was more than its LIFO carrying
value at September 30, 1999, whereas, net loss from the discontinued
operation for the first nine months of 1998 for the Crude Gathering
System included a negative $294,000 lower of cost or market adjustment
since the market value of the crude oil owned by the Partnership was
less than its carrying value at September 30, 1998. The improvement
for the first seven months of 1999 related to the lower of cost or
market adjustment was partially offset by $944,000 million in higher
costs of sales due to hedging losses in the first seven months of
1999. The volume of crude oil gathered by the Crude Gathering System
decreased to 38,110 BPD for the first seven months of 1999 from 46,185
BPD for the first nine months of 1998 due to the elimination of
marginal contracts and lower crude oil production in the field.
Subsequent to July 31, 1999, the Crude Gathering System incurred
losses of $1.5 million; however, in accordance with "Discontinued
Operation Treatment", these losses have been deferred until the
expected gain on the sale is realized in October 1999.
Factors and Trends Affecting Operating Results
A number of factors have affected the Partnership's operating
results, both indirectly and directly, such as environmental
compliance, other regulatory requirements, industry trends, price of
crude oil, and, with respect to certain products, 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 may not
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
both diesel fuel and gasoline are expected to be increasingly
important in urban areas. In addition, the Partnership plans to spend
approximately $540,000 in 1999 and 2000 on several projects to
maintain compliance with various other environmental requirements
including $315,000 related to an investigative study by the Texas
Natural Resource Conservation Commission. The remaining $225,000 is
for various normal operating expenses to be incurred in the ordinary
course of business.
The Partnership is currently involved in Phase II of an
investigative study by the Texas Natural Resource Conservation
Commission. Management estimates the cost to comply with this study
approximates $315,000 and accrued for this amount at December 31,
1998. Management does not currently believe any significant
additional amounts will be required to maintain compliance with this
study or other environmental requirements other than expenditures
incurred in the ordinary course of business.
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 currently
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 believe that these
regulations have had or are likely to have a material adverse effect
on the Partnership's operations.
OTHER REGULATORY REQUIREMENTS -- The Partnership is subject to
the rules and regulations of, among others, the Occupational Safety
and Health Administration, Texas Railroad Commission, Texas Natural
Resource Conservation Commission, and United States Environmental
Protection Agency.
INDUSTRY TRENDS AND PRICE OF CRUDE OIL -- Prior to the Crude
Gathering Sale, industry trends and the price of crude oil affected
the Partnership's crude gathering business. In the last three years,
the posting price for WTI crude oil has varied from approximately
$8.25 to $25.00 per barrel. The general level of crude oil prices had
a significant effect on the margins in the crude gathering business.
Margins from the Crude Gathering System were influenced by the level
of competition and the price of crude oil. When prices were higher,
crude oil could generally be resold at higher margins. The
Partnership is also impacted by fluctuations in the cost of products
purchased from Equilon versus fluctuations in the price realized by
the Partnership on the sale of such products and the amount of
competition in its markets.
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.
OTHER FACTORS -- On October 1, 1999, the Partnership completed
the sale of the Crude Gathering System operating assets to Sun Pipe
Line Services Co., Inc. ("Sun"), a subsidiary of Sunoco, Inc. The
Partnership received $29.6 million in cash proceeds from the sale and
Sun assumed certain indebtedness in the amount of $5.3 million. The
sales price was determined based on a purchase price of $24.9 million
plus the value of the inventory which was $10.0 million on October 1,
1999. The net proceeds were applied as follows: $15.0 million
principal payment on the A term loan (See "-Financial Condition -
Financial Resources and Liquidity"), $2.0 million was paid to Pride
SGP, Inc. ("Pride SGP" or "Special General Partner") as part of the
exchange (see below) and $11.0 million net of transaction costs of
$1.6 million was retained for working capital (such amounts are being
applied to accounts payable and being retained for payments of the
suspense liability).
The assets sold included an 800-mile pipeline system, 800,000
barrels of tankage, 430,000 barrels of crude oil, 40 truck injection
stations, and other related equipment.
In connection with the Crude Gathering Sale, Pride SGP exchanged
(a) certain trunklines and related pumping facilities owned by Pride
SGP, (b) interest payable to Pride SGP of $548,000, (c) rentals
payable to Pride SGP of $2.0 million, (d) the Series E Cumulative
Convertible Preferred Units ("Series E Preferred Units") in the face
amount of $2.0 million held by Pride SGP, and (e) the Series F
Cumulative Preferred Units ("Series F Preferred Units") in the face
amount of $450,000 held by Pride SGP for (y) $2.0 million in cash and
(z) a newly issued subordinated preferred security ("Subordinated
Preferred Security") in the face amount of $3.0 million. The
Subordinated Preferred Security will not accrue any distributions for
the first five years after its date of issuance, and thereafter,
distributions will accrue at a rate equal to the lesser of (i) the
Partnership's net income less any distributions accrued or paid on any
preferred securities issued to Varde Partners, Inc. ("Varde") or (ii)
10% per annum.
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Financial Condition
Inflation
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
With respect to the Products Marketing Business, the Partnership
receives payments from the United States Government, major oil
companies, and other customers within approximately 7 to 15 days from
shipment. Effective on the close of business on September 30, 1998
and extending to December 31, 1999, Equilon agreed to maintain the
refined products inventory on hand at the Partnership's marketing
facilities. As a result, the Partnership purchases product inventory
daily from Equilon, thereby eliminating most of the carrying costs,
including interest costs. Further, this arrangement substantially
reduces the lag between the time the Partnership must pay Equilon for
the product, 10 days after the sale, and the time the Partnership
receives payment from its customers.
Cash flows have been significantly affected by fluctuations in
the cost and volume of crude oil and refined products held in
inventory and the timing of accounts receivable collections. For the
nine months ended September 30, 1999, cash was provided as a result of
an increase in accounts payable (resulting from higher crude oil
prices and refined product prices). This was partially offset by an
increase in accounts receivable (resulting from higher crude oil
prices and refined product prices). For the nine months ended
September 30, 1998, cash was utilized as a result of a decrease in
accounts payable (resulting from lower crude oil prices and refined
product prices) and a reduction in various accrued liabilities. This
was partially offset by a decline in accounts receivable (resulting
from the lower crude oil prices and refined product prices) and
inventory (resulting from a decrease in the number of barrels in
inventory).
On December 31, 1997, 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 facility and provided a new revolver facility (the
"BankBoston Revolver") on December 31, 1997.
The BankBoston Revolver 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 and $10.0 million for
direct cash borrowings for general working capital purposes. Amounts
available under the BankBoston 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 payables for crude oil and refined products. The amount
available under the borrowing base net of outstanding letters of
credit and advances under the BankBoston Revolver was $5.5 million as
of September 30, 1999.
Effective April 15, 1999, BankBoston amended the facility which
will mature January 2, 2001. The total credit line available has been
lowered from $65.0 million to $55.0 million. In conjunction with the
Crude Gathering Sale, the total credit line was further reduced to
$20.0 million on October 31, 1999.
Though no advances had been drawn under the letter of credit
facility at September 30, 1999, the Partnership did have approximately
$38.1 million in outstanding letters of credit which included $30.4
million in outstanding letters of credit related to the Crude
Gathering System. The Partnership did not have any outstanding
borrowings under the BankBoston Revolver as of September 30, 1999.
The fee on outstanding letters of credit was 2.5% per annum as of
September 30, 1999. 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 BankBoston Revolver is 0.5% per annum. Under the terms
agreed to by the parties, cash borrowings under the BankBoston
Revolver bear interest at prime plus 1.75%. The prime rate was 8.25%
at September 30, 1999. The credit agreement evidencing the BankBoston
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
charged a $100,000 amendment fee related to an amendment that became
effective April 15, 1999.
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 term loans of $20.1 million ("A Term Loan"),
$11.4 million ("B Term Loan"), $5.5 million ("C Term Loan") and an
unsecured note of $2.9 million ("Subordinate Note A") as of September
30, 1999. In connection with the Crude Gathering Sale, the
Partnership applied $15.0 million of the cash proceeds to the A Term
Loan on October 1, 1999.
Effective April 15, 1999, Varde's credit agreement was also
amended. In 1999, cash interest payments on the Varde Revolver (see
below) and A Term Loan are limited to $208,000 per month. Any excess
on the Varde Revolver and A Term Loan along with interest on the B
Term Loan, C Term Loan, Subordinate Note A and distributions on
Varde's preferred securities, will be paid in kind or accumulate in
arrears. The A Term Loan, B Term Loan, and C Term Loan bear interest
rates of 11%, 13%, 15%, 17% and 18% for the first, second, third,
fourth and fifth years, respectively, except for $3.6 million of the B
Term Loan which is subject to interest rates of 18% through maturity.
In addition, if the A Term Loan is repaid or refinanced, the B Term
Loan and C Term Loan bear interest at 11% the first three years, 13%
in the fourth year and 15% in the fifth year, except for $3.6 million
of the B Term Loan which is subject to interest rates of 12% through
maturity. The Subordinate Note A is convertible into 465,000 Common
Units and bears interest at prime plus one percent. As consideration
for the amendment effective April 15, 1999, the principal amount of
the B Term Loan was increased by $100,000.
Because a portion of the debt is subject to increasing rates of
interest, the Partnership is accruing interest at the effective rate
over the term of the debt. Interest expense for the third quarters of
1999 and 1998 reflects an accrual of $136,000 and $257,000,
respectively, which is based on the difference between the effective
interest rates and the stated rates.
Effective April 15, 1999, the Partnership has a $3.0 million
revolving credit facility with Varde ("Varde Revolver"). Advances
under the Varde Revolver bear interest at 11% per annum, payable
monthly. The Partnership did not have any outstanding borrowings
under the Varde Revolver as of September 30, 1999. In the second
quarter of 1998, the Partnership paid Varde fees totaling $150,000 in
the form of additional Series B Term Loans. Cash advances under the
Varde Revolver mature January 2, 2001.
Under the terms agreed to on April 15, 1999, payments on the
Varde Revolver and A Term Loan are capped at $2.5 million per annum.
To the extent the interest on the Varde Revolver and A Term Loan
exceed the cap on cash payments along with the interest and
distributions on the various other Varde securities, such amounts will
be paid in kind or increase accumulated arrearages, respectively. As
a result of the above limitations, it is likely that all interest on
the B Term Loan, C Term Loan and Subordinate Note A will be paid in
kind and all preferred distributions will accumulate in arrears until
such time as the Partnership can restructure its capital structure.
The A Term Loan is due December 31, 2002. The B Term Loan, C
Term Loan and Subordinate Note A are also due December 31, 2002 if the
A Term Loan has not been refinanced. If the A Term Loan is
refinanced, the B Term Loan, C Term Loan and Subordinate Note A mature
180 days after the maturity of the new term loan, but no later than
June 30, 2003. 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. However, Varde has agreed to forego all principal
payments in 1998 and 1999.
As a result of the Crude Gathering Sale, the Partnership has
classified the Varde debt as current since the covenants in the
current loan agreement for the year 2000 were based on the combined
results of the Products Marketing Business and the Crude Gathering
System. Absent the Crude Gathering System, management believes it is
unlikely the Partnership can maintain compliance with its debt
covenants. The Partnership will attempt to renegotiate such covenants
during the first quarter of 2000. Compliance with the covenants was
waived by the lenders for the quarter ended September 30, 1999. As
previously mentioned, in connection with the Crude Gathering Sale, the
Partnership applied $15.0 million of the cash proceeds to the A Term
Loan on October 1, 1999.
The Partnership or management has a three-year call on Varde's
position for an amount equal to a 40% annual return to Varde, subject
to a minimum payment of $7.5 million over Varde's cost. (For a
discussion of the terms of Varde's preferred equity securities, see
the discussion under "Cash Distributions and Preferred Arrearages".)
The securities held by Varde have certain antidilution provisions and
registration rights. Any litigation proceeds received by the
Partnership related to the DESC Claim will be used to retire up to
$6.0 million of the A Term Loan, if then outstanding, and up to $5.0
million of the B Term Loan 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 invested an
aggregate of $2.0 million in the form of a note payable to Varde and
received a one-third economic non-directive interest in $6.0 million
of the B Term Loan, C Term Loan, Subordinate Note A, Series B
Cumulative Convertible Preferred Units (" Series B Preferred Units"),
Series C Cumulative Convertible Preferred Units (" Series C Preferred
Units") and Series D Cumulative Convertible Preferred Units ("Series D
Preferred Units"). The note payable to Varde is secured by
management's interest in such securities. Any cash yield on
management's share of such securities is paid to Varde as interest,
net of applicable federal income tax.
Other installment loans include a $6.0 million nonrecourse note,
due 2014, payable monthly with interest at 8% and a balance of $5.3
million at September 30, 1999. 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. On October 1, 1999, the note was assumed by Sun as part of
the Crude Gathering Sale. The Partnership has included the note in net
current assets from the discontinued operation at September 30,1999.
As referenced above, the cash interest payments on the Varde
Revolver and A Term Loan are limited to $2.5 million annually. The
interest and distributions on the other debt and preferred securities
held by Varde will be paid in kind or accumulate in arrears. (For a
discussion of the terms of Varde's preferred equity securities, see
the discussion under "Cash Distributions and Preferred Arrearages".)
Any payments of principal on the securities held by Varde shall be
applied in the following order: Varde Revolver, A Term Loan, B Term
Loan, C Term Loan, Subordinate Note A, Series B Preferred Units,
Series C Preferred Units, and Series D Preferred Units.
The Partnership has not historically complied with its financial
and performance covenants included in its various credit facilities
with lenders. On October 1, 1999, the Partnership received a waiver
of the earnings before interest, taxes, depreciation and amortization
covenant ("EBITDA Covenant") for the period ended September 30, 1999
and an increase in the capital expenditure covenant from $1.0 million
to $1.3 million for the year ended December 31, 1999. The Partnership
was in violation of the EBITDA Covenant due to the hedging losses
realized when crude oil prices rose sharply during the third quarter
of 1999. The current covenants in the year 2000 are based in part on
results from the Crude Gathering System being included in such
calculations. In order for the Partnership to be able to maintain
compliance with such covenants in the year 2000, the covenants will
need to be renegotiated due to the Crude Gathering Sale. Pending such
renegotiation, the Partnership has classified its long-term debt along
with its net long-term assets of the discontinued operation as current
at September 30, 1999. There can be no assurance that the Partnership
will be successful in renegotiating the covenants.
The Partnership's operating results have declined over the past
several years as a result of increasing competition, depressed
operating margins and higher financing costs. Crude gathering volumes
have declined in each of the last five years. Gasoline, diesel and
military aviation fuel sales have also declined.
Under the new military aviation fuel contract with the U. S.
Government which began April 1, 1999 and ends March 31, 2000, the
Partnership will supply 25.3 million gallons or approximately 48% of
the volumes that it supplied under the contract which began April 1,
1998 and ended March 31, 1999. Margins under the new contract are
1.5 cents per gallon lower than the prior contract.
Declines in crude oil and refined product prices in 1998 had a
negative impact on the borrowing base under the Partnership's credit
agreement as well as working capital. In 1999, to mitigate the
negative effects crude oil price declines could have on the borrowing
base, the Partnership hedged 375,000 barrels of crude oil inventory.
The Partnership liquidated the above hedge on October 1, 1999 in
conjunction with the Crude Gathering Sale.
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 military aviation fuel
were substantially below expectations. Throughout the third quarter
of 1998, the Partnership was unable to deliver contractual volumes,
particularly to the government. The Partnership is currently
delivering to the government contractual volumes and gasoline and
diesel sales have also increased from the third quarter of 1998.
Equilon performed an extensive pipeline cleaning operation and the
situation has 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. On
October 1, 1998 the Partnership sold to Equilon the refined products
held by it at the Products Terminals and in the San Angelo Pipeline.
In addition, Equilon is leasing certain tankage from the Partnership
and will sell refined products to the Partnership daily from such
facilities through December 31, 1999, thus eliminating the need for
the Partnership to maintain its own refined products inventory. On
April 15, 1999, Equilon further agreed to extend the lease and
maintain the inventory after December 31, 1999 provided the
Partnership reimburses Equilon for its carrying costs beginning
January 1, 2000.
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. Since 1993, the
Partnership has been able to achieve certain reductions in
marketing, general and administrative expenses. The ability to
generate profits could be adversely affected if other Gulf Coast
refiners bring refined products into West Texas from the Gulf Coast
via pipeline or significant declines in crude oil and petroleum prices
occur.
The Partnership sold the operating assets of the Crude Gathering
System to Sun on October 1, 1999. The sales price was $24.9 million
plus the value of the inventory which was $10.0 million on October 1,
1999, reduced by certain indebtedness in the amount of $5.3 million.
(See "-Results of Operations - Factors and Trends Affecting Operating
Results - Other Factors"). The net proceeds were applied as follows:
$15.0 million principal payment on the A Term Loan, $2.0 million was
paid to Pride SGP as part of the exchange (see "-Cash Distributions
and Preferred Arrearages") and $11.0 million net of transaction costs
of $1.6 million was retained for working capital (such amounts are
being applied to accounts payable and being retained for payments of
the suspense liability).
This sale is expected to result in a taxable gain to the
Partnership which will be allocated to the unitholders without a
corresponding cash distribution from the Partnership. If a
unitholder's passive loss carryforwards are less than the unitholders
share of such income, the unitholder will have to satisfy any
resulting tax liability with cash from other sources. None of the
proceeds are available for distribution to unitholders.
Regardless of any changes made to the Partnership operations, the
Partnership's financing arrangements will have to be significantly
restructured before the BankBoston facility and Varde Revolver expire
January 2, 2001 and the Varde securities begin maturing on December
31, 2002. There can be no assurances that BankBoston or Varde will
agree to any such restructuring.
The Partnership was delisted from trading on the New York Stock
Exchange effective August 17, 1998 for failing to meet certain listing
requirements. The Partnership is now listed on the NASDAQ OTC
bulletin board under the symbol PRDE.
Capital Expenditures
Capital expenditures totaled $450,000 and $1.1 million for the
quarter ended September 30, 1999 and the first nine months of 1999,
respectively, compared to $77,000 and $1.4 million for the quarter
ended September 30, 1998 and the first nine months of 1998,
respectively. Management anticipates spending $315,000 in 1999 for
environmental expenditures which were fully accrued for at
December 31, 1998.
Cash Distributions and Preferred Arrearages
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and preferred equity securities effective as
of January 1, 1998. As a result of the amendment, preferred equity
securities are now treated as accumulated arrearages rather than being
considered paid in kind. This reduces the amount of preferred equity
on the balance sheet and also affects the tax treatment of the
distributions to the unitholders and the holders of the preferred
equity securities.
In conjunction with Varde's assumption of the outstanding bank
debt, Varde received preferred equity securities. As a result of the
assumption, Varde now holds preferred equity securities including $9.3
million of Series B Preferred Units, $5.0 million of Series C
Preferred Units and $2.8 million of Series D Preferred Units which are
all redeemable on December 31, 2002. The Series B Preferred Units and
Series C Preferred Units are convertible into 1,480,000 and 794,000
Common Units, respectively. The preferential quarterly payments on
the Series B Preferred Units and Series C Preferred Units are 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 at the
Partnership's option may accumulate in arrears at 8% per annum in the
first three years. The preferential quarterly payments on the Series
D Preferred Units are 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 at the Partnership's option may accumulate in
arrears at 13% per annum in the first three years. Distributions are
payable on the 5th day of the second month in each quarter.
Distributions are also subject to the cap on payments to Varde as
previously discussed. Accordingly, for the third quarter of 1999, the
Partnership accumulated arrearages of $432,000 on these preferred
equity securities. Through September 30, 1999, these securities had
total accumulated arrearages of $2.8 million. Management believes the
amount in arrears will continue to increase until such time as the
Partnership can restructure its capital structure.
On December 31, 1997, Pride SGP converted (i) a $2.0 million
note from the Partnership into Series E Preferred Units which was
convertible into 317,000 Common Units and (ii) a $450,000 note from
the Partnership into Series F Preferred Units which were both
redeemable on December 31, 2002. The Series E Preferred Units and
Series F Preferred Units were 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 were 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 at the Partnership's option could accumulate
in arrears at 8% per annum in the first three years. Distributions
were payable on the 5th day of the second month in each quarter;
however, the Partnership could not make any cash distributions on the
Series E Preferred Units or Series F Preferred Units if the Series B
Preferred Units, Series C Preferred Units or Series D Preferred Units
had accumulated arrearages outstanding. Accordingly, for the third
quarter of 1999, the Partnership accumulated arrearages of $49,000 on
the Series E Preferred Units and Series F Preferred Units. Through
September 30, 1999, these securities had total accumulated arrearages
of $343,000. On October 1, 1999, the accumulated arrearages through
September 30, 1999 on the Series E Preferred Securities and Series F
Preferred Securities were cancelled in conjunction with the exchange
described in the next paragraph.
In connection with the Crude Gathering Sale, Pride SGP exchanged
(a) certain trunklines and related pumping facilities owned by Pride
SGP, (b) interest payable to Pride SGP of $548,000, (c) rentals
payable to Pride SGP of $2.0 million, (d) the Series E Preferred Units
in the face amount of $2.0 million held by Pride SGP, and (e) the
Series F Preferred Units in the face amount of $450,000 held by Pride
SGP for (y) $2.0 million in cash and (z) a newly issued subordinated
preferred security ("Subordinated Preferred Security") in the face
amount of $3.0 million. The Subordinated Preferred Security will not
accrue any distributions for the first five years after its date of
issuance, and thereafter, distributions will accrue at a rate equal to
the lesser of (i) the Partnership's net income less any distributions
accrued or paid on any preferred securities issued to Varde or (ii)
10% per annum.
At September 30, 1999, 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 debt, expiration of all
liabilities for letters of credit, and the termination of the credit
agreements.
Year 2000 Compliance
The year 2000 issue ("Year 2000 Issue") is the result of computer
programs being written using two digits rather than four digits to
define the applicable year. Any of the Partnership's computer
programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculation
causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Based on completed assessments, the Partnership determined that
it will be required to modify or replace significant portions of its
software and certain hardware so that those systems will properly
utilize dates beyond December 31, 1999. The Partnership presently
believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated. However,
if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on
the operations of the Partnership.
The Partnership's plan to resolve the Year 2000 Issue involves
the following four phases: assessment, remediation, testing and
implementation. To date, the Partnership has fully completed its
assessment of all systems that could be significantly affected by the
Year 2000. The completed assessment indicated that most of the
Partnership's significant information technology systems could be
affected, particularly the general ledger, billing, and inventory
systems. That assessment also indicated that software and hardware
(embedded chips) used in monitoring the Partnership's pipelines and
terminals are also at risk. The Partnership does not plan to replace
certain noncompliant pipeline and terminal hardware if the Partnership
believes the continued use of such equipment in the Year 2000 will not
result in any significant disruptions of operations. The Partnership
does not believe that the Year 2000 presents a material exposure as it
relates to the Partnership's products, but there can be no assurances
that the Partnership will not have unexpected problems or incur
unexpected costs or business interruptions.
For its information technology exposures, to date the Partnership
is complete on the remediation phase and expects to complete software
reprogramming and replacement in the fourth quarter of 1999. Once
software is reprogrammed or replaced for a system, the Partnership
begins testing and implementation. These phases run concurrently for
different systems. To date, the Partnership has completed 80% of its
testing and has implemented 100% of its remediated systems.
Completion of the testing phase for all significant systems is
expected by December 1, 1999. There can be no assurances that the
Partnership will complete implementation of its Year 2000 plan prior
to year-end, and contingency plans have not yet been developed.
The Partnership has queried its significant suppliers and
subcontractors, some of which share information systems with the
Partnership. To date, the Partnership is not aware of any suppliers
or subcontractors with a Year 2000 Issue that would materially impact
the Partnership's results of operations, liquidity, or capital
resources. However, the Partnership has no means of ensuring that
suppliers or subcontractors will be Year 2000 ready. The inability of
suppliers or subcontractors to complete their Year 2000 resolution
process in a timely fashion could materially impact the Partnership.
The effect of non-compliance by suppliers or subcontractors is not
determinable.
The Partnership expects to spend $930,000 related to the Year
2000 Issue. As of September 30, 1999, the Partnership had spent
$915,000 on the Year 2000 Issue with the rest scheduled to be incurred
in the remainder of 1999. Substantially all of the $930,000 is for
newly purchased software or hardware with new features and
enhancements in addition to being Year 2000 compliant. Accordingly,
substantially all of the costs have been or will be capitalized.
There is no guarantee that the Partnership will succeed in
implementing its Year 2000 Plan. If the Partnership's replaced
technology system fails the testing phase, delays in billing and/or
collection could occur. If the computer systems of third party
vendors that the Partnership exchanges data with fail, significant
problems could occur in billing and/or collection. Although the
Partnership doesn't yet have a formal contingency plan in place, one
will be developed based on the outcome of the testing phase, which is
currently expected to be complete by the fourth quarter of 1999.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 5, 1995, the Partnership filed a substantial claim
in the United States Court of Federal Claims against the United States
of America (Defense Energy Support Center) relating to erroneous
pricing of fuel purchased over a period of several years from the
Partnership and its predecessors (the "DESC Claim"). The Partnership
seeks recovery of the difference between the market value of the jet
fuel and the amount originally paid by the Defense Energy Support
Center for such jet fuel. 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.
Item 2. Changes in Securities
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and preferred equity securities effective as
of January 1, 1998. As a result of the amendment, preferred equity
securities are now treated as accumulated arrearages rather than being
considered paid in kind. This reduces the amount of preferred equity
on the balance sheet and also affects the tax treatment of the
distributions to the unitholders and the holders of the preferred
equity securities.
In connection with the Crude Gathering Sale, Pride SGP exchanged
(a) certain trunklines and related pumping facilities owned by Pride
SGP, (b) interest payable to Pride SGP of $548,000, (c) rentals
payable to Pride SGP of $2.0 million, (d) the Series E Preferred Units
in the face amount of $2.0 million held by Pride SGP, and (e) the
Series F Preferred Units in the face amount of $450,000 held by Pride
SGP for (y) $2.0 million in cash and (z) a newly issued subordinated
preferred security ("Subordinated Preferred Security") in the face
amount of $3.0 million. The Subordinated Preferred Security will not
accrue any distributions for the first five years after its date of
issuance, and thereafter, distributions will accrue at a rate equal to
the lesser of (i) the Partnership's net income less any distributions
accrued or paid on any preferred securities issued to Varde or (ii)
10% per annum.
Item 3. Defaults in Senior Securities
Under the terms agreed to on April 15, 1999, payments on the
Varde Revolver and A Term Loan are capped at $2.5 million per annum.
To the extent the interest and distributions on the Varde Revolver and
A Term Loan exceed the cap on cash payments along with the interest
and distributions on the various other Varde securities, such amounts
will be paid in kind or increase accumulated arrearages, respectively.
As a result of the above limitations, it is likely that all interest
on the B Term Loan, C Term Loan and Subordinate Note A will be paid in
kind and all preferred distributions will accumulate in arrears until
such time as the Partnership can restructure its capital structure.
Distributions on the Series B Preferred Units, the Series C
Preferred Units and the Series D Preferred Units are payable on the
5th day of the second month in each quarter. Distributions are
subject to the cap on payments to Varde. Accordingly, for the third
quarter of 1999, the Partnership accumulated arrearages of $432,000 on
these preferred equity securities. Through September 30, 1999, these
securities had total accumulated arrearages of $2.8 million.
Management believes the amount in arrears will continue to increase
until such time as the Partnership can restructure its capital
structure.
Distributions on the Series E Preferred Units and Series F
Preferred Units were payable on the 5th day of the second month in
each quarter; however, the Partnership could not make any cash
distributions on the Series E Preferred Units or Series F Preferred
Units if the Series B Preferred Units, Series C Preferred Units or
Series D Preferred Units had accumulated arrearages outstanding.
Accordingly, for the third quarter of 1999, the Partnership
accumulated arrearages of $49,000 on the Series E Preferred Units and
Series F Preferred Units. Through September 30, 1999, these
securities had total accumulated arrearages of $343,000. On October
1, 1999, the accumulated arrearages through September 30, 1999 on the
Series E Preferred Securities and Series F Preferred Securities were
cancelled in conjunction with the exchange between the Partnership and
Pride SGP (see "Item 2. Changes in Securities").
The Partnership has not historically complied with its financial
and performance covenants included in its various credit facilities
with lenders. On October 1, 1999, the Partnership received a waiver
of the earnings before interest, taxes, depreciation and amortization
covenant ("EBITDA Covenant") for the period ended September 30, 1999
and an increase in the capital expenditure covenant from $1.0 million
to $1.3 million for the year ended December 31, 1999. The Partnership
was in violation of the EBITDA Covenant due to the hedging losses
realized when crude oil prices rose sharply during the third quarter
of 1999. The current covenants in the year 2000 are based in part on
results from the Crude Gathering System being included in such
calculations. In order for the Partnership to be able to maintain
compliance with such covenants in the year 2000, the covenants will
need to be renegotiated due to the Crude Gathering Sale. Pending such
renegotiation, the Partnership has classified its long-term debt along
with its net long-term assets of the discontinued operation as current
at September 30, 1999. There can be no assurance that the Partnership
will be successful in renegotiating the covenants.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Quantitative and Qualitative Disclosures About Market Risks
In the third quarter of 1999, the Partnership hedged 375,000
barrels or approximately 75% of its crude oil inventory to protect
against declines in the price of crude oil which have an adverse
effect on the borrowing base. During the third quarter of 1999, crude
oil prices increased resulting in hedging losses recognized in cost of
sales of $1.7 million. The derivative contracts were closed
concurrent with the sale of the Crude Gathering System on October 1,
1999. Other than these hedging losses and the reduction in debt from
the proceeds of the sale subsequent to September 30, 1999, there has
been no significant changes to the Partnership's market risks as
disclosed in the December 31, 1998 Form 10-K.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to
be adopted in years beginning after June 15, 2000. The Statement will
require the Partnership to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives
will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is
recognized in earnings. The Partnership has not yet determined what
the effect of Statement No. 133 will be on the operations and
financial position of the Partnership.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.1 Waiver and Consent dated as of October 1, 1999 among Pride
Companies, L.P. (the "Borrower"), Pride Refining, Inc.,
Pride SGP, Inc., Pride Marketing of Texas (Cedar Wind), Inc.
and Pride Borger, Inc. (collectively, the "Guarantors"), and
Varde Partners, Inc., ("Lender").
10.2 Amendment No. 6 to the Revolving Credit and Term Loan
Agreement, dated as of October 1, 1999 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 Agent and
as a Lender, Lehman Brothers Commercial Paper, Inc. as a
Lender and as a Documentation Agent.
27 Financial Data Schedule for the Third Quarter of 1999.
b. Reports on Form 8-K:
On October 15, 1999, the Partnership announced the completion on
October 1, 1999 of the sale of the operating assets of the Crude
Gathering System to Sun.
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: November 15, 1999 /s/ Brad Stephens
Chief Executive Officer
(Signing on behalf of Registrant)
Date: November 15, 1999 /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)
_________________
10.1 Waiver and Consent dated as of October 1, 1999 among Pride
Companies, L.P. (the "Borrower"), Pride Refining, Inc.,
Pride SGP, Inc., Pride Marketing of Texas (Cedar Wind), Inc.
and Pride Borger, Inc. (collectively, the "Guarantors"), and
Varde Partners, Inc., ("Lender").
10.2 Amendment No. 6 to the Revolving Credit and Term Loan
Agreement, dated as of October 1, 1999 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 Agent and
as a Lender, Lehman Brothers Commercial Paper, Inc. as a
Lender and as a Documentation Agent.
27 Financial Data Schedule for the Third Quarter of 1999.
<PAGE>
EXHIBIT 10.1
VARDE PARTNERS, INC.
3600 West 80th Street, Suite 425
Minneapolis, Minnesota 55431
WAIVER AND CONSENT
October 1, 1999
Pride Companies, Inc.
1209 N. 4th
Abilene, Texas 79601
Gentlemen:
We refer to the Sixth Restated and Amended Credit
Agreement dated as of December 30, 1997 among Pride Companies,
L.P., as borrower (the "Borrower"), Pride Refining, Inc., Pride
SGP, Inc., Pride Marketing of Texas (Cedar Wind), Inc. and Pride
Borger, Inc., as guarantors (the "Guarantors") and Varde
Partners, Inc., as lender (the "Lender") (as heretofore amended,
supplemented or modified, the "Credit Agreement"). Capitalized
terms not otherwise defined in this Waiver and Consent have the
meanings specified in the Credit Agreement.
The Borrower has requested that the Lender (i) consent
to the sale of the crude gathering business and related assets
(the "Gathering Assets") of the Borrower and its Subsidiaries
and, in connection therewith, to waive compliance with the
covenants contained in Sections 7.7 and 7.9 of the Credit
Agreement, (ii) waive compliance with the financial covenant
contained in Section 6.2(d) of the Credit Agreement through and
including December 31, 1999 to permit the Borrower to make
certain additional Capital Expenditures and (iii) waive
compliance with the financial covenant contained in Section
6.2(f) of the Credit Agreement through and including December
31, 1999. Accordingly, subject to the provisions contained
herein, the Lender hereby (i) consents to the sale of the
Gathering Assets as contemplated by the Purchase and Sale
Agreement dated August 4, 1999 (the "Sun Purchase Agreement")
among the Borrower and Pride SGP, Inc., as sellers, and Sun Pipe
Line Services Co., a Delaware corporation, as buyer, (ii) waives
compliance with Sections 7.7 and 7.9 of the Credit Agreement
solely in connection with the sale of the Gathering Assets
pursuant to the Sun Purchase Agreement, (iii) waives compliance
with Section 6.2(d) of the Credit Agreement through and
including December 31, 1999; provided, however, that Capital
Expenditure may not exceed $1,250,000 for the Borrower's fiscal
year ending December 31, 1999 and (iv) waives compliance with
Section 6.2(f) of the Credit Agreement through and including
December 31, 1999.
In order to induce the Lender to enter into this
Wavier and Consent, each of the Borrower and the Guarantors
jointly and severally represents and warrants to the Lender that
the Borrower has provided to the Lender a true and complete copy
of the Sun Purchase Agreement; each of the representations and
warranties of the Borrower and Pride SGP, Inc. set forth in
Article 3 of the Sun Purchase Agreement is true and accurate;
and the documents of release and termination presented by the
Borrower to the Lender or the Collateral Agent for execution in
connection with the closing under the Sun Purchase Agreement
release and terminate the liens securing the Borrower's and its
Subsidiaries' obligations under the Credit Agreement only with
respect to the Gathering Assets and not with respect to any
other property of the Borrower or any of its Subsidiaries. Any
breach of the foregoing representations and warranties shall be
deemed to be an Event of Default under the Credit Agreement.
This Waiver and Consent shall become effective on the
date on which (i) the Borrower, the Guarantors and the Lender
shall each have executed and delivered this instrument, (ii) the
Lender shall have received at least $15,000,000 in immediately
available funds from the Borrower or its agent to be applied in
accordance with the Credit Agreement, (iii) the closing of the
sale of the Gathering Assets shall have occurred pursuant to the
terms of the Sun Purchase Agreement as provided to the Lender,
without any modifications or waivers thereof, except as
disclosed to and approved by the Lender prior to such closing,
(iv) Pride SGP, Inc. shall have duly executed and delivered to
Lender that certain letter agreement dated September 1, 1999
between Lender and Pride SGP, Inc. regarding the application of
the proceeds of the sale of the Gathering Assets in connection
with the Sun Purchase Agreement, (v) the BankBoston Credit
Agreement shall have been amended in a manner satisfactory to
the Lender, (vi) no Default or Event of Default shall have
occurred and be continuing before and after giving effect to
this Waiver and Consent, (vii) the Borrower shall have paid to
the Lender all reasonable expenses, fee and charges, including
attorney's fees of Lender's counsel, Paul, Weiss, Rifkind,
Wharton & Garrison and (viii) the Lender shall have received
such other documentation and information as it may reasonably
request.
The parties hereto acknowledge and confirm that the
Lender will maintain its first priority lien upon the proceeds
of the sale of the Gathering Assets until such time as the
Lender shall have confirmed receipt of at least $15,000,000 in
immediately available funds from the Borrower or its agent.
Except as specifically provided herein, the Credit
Agreement and all other Loan Documents shall remain in full
force and effect and are hereby ratified and confirmed. The
execution, delivery and effectiveness of this Waiver and Consent
shall not operate as a waiver of any right, power or remedy of
the Lender under any of the Loan Documents, nor constitute a
waiver of any provision of the Loan Documents except as set
forth herein.
The Borrowers agree to pay the Lender on demand for
all costs, expenses and charges incurred in connection with the
preparation, reproduction, execution, delivery, filing,
recording and administration of this Waiver and Consent and any
other instruments and documents to be delivered hereunder,
including, without limitation, the fees and out-of-pocket
expenses of counsel for the Lender with respect thereto and with
respect to advising the Lender as to its rights and
responsibilities under such documents, and all costs and
expenses, if any, in connection with the enforcement of any such
documents.
This Waiver and Consent shall be governed by and
construed in accordance with the laws of the State of New York
(without reference to the conflicts of law provisions thereof).
This Waiver and Consent may be executed in any number
of counterparts, all of which taken together shall constitute
one and the same instrument, and any party hereto may execute
this Waiver and Consent by signing any such counterpart.
Very truly yours,
VARDE PARTNERS, INC.
By:_________________________________
Name:
Title:
The Borrower and the Guarantors hereby consent
to the provisions of this Waiver and Consent.
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:
<PAGE>
<PAGE>
EXHIBIT 10.2
PRIDE COMPANIES, L.P.
REVOLVING CREDIT AND TERM LOAN AGREEMENT
Amendment No. 6
This Agreement, dated as of October 1, 1999, is among Pride
Companies, L.P., a Delaware limited partnership (the "Company"), Pride
SGP, Inc., a Texas corporation, Pride Refining, Inc., a Texas
corporation, 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, N.A.
(collectively, the "Lenders"), BankBoston, N.A., as agent (the
"Agent") for itself and the other Lenders, and Lehman 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, as amended by Amendment No. 1 thereto dated as of
April 15, 1998, Amendment No. 2 thereto dated as of November 20, 1998,
Amendment No. 3 thereto dated as of December 31, 1998, Amendment No. 4
thereto dated as of March 1, 1999 and Amendment No. 5 thereto dated as
of April 15, 1999 (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 provisions of
the Credit Agreement be amended or waived to permit and take account
of the sale by the Company and Pride SGP, Inc. of the Company's crude
oil gathering and related business and facilities pursuant to the
Purchase and Sale Agreement dated August 4, 1999 (the "Sun Purchase
Agreement") between the Company and Pride SGP, Inc., as sellers, and
Sun Pipe Line Services Co., a Delaware corporation, as buyer, and for
other purposes. The date of the closing of the purchase and sale
under the Sun Purchase Agreement is hereinafter referred to as the
"Sun Closing Date". The Lenders have agreed to such amendments and
waivers on the 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 provided in this Section 2. The
amendments of the Credit Agreement set forth herein shall take effect
as of the thirtieth day following the Sun Closing Date; provided,
however, that the amendments set forth in Sections 2.4 and 2.7 and the
consent and waivers set forth in Section 3 shall take effect on the
Sun Closing Date; and provided, further, that unless the closing under
the Sun Purchase Agreement shall have occurred on or prior to November
1, 1999 (or such later date as the Agent shall have approved), then
the amendments, consent and waivers set forth in this Agreement shall
not take effect.
2.1. The definition of "Borrowing Base" set forth in Section 1.1
of the Credit Agreement is amended to read in its entirety as follows:
"Borrowing Base" means, on any date, an amount equal to the
sum of (without duplication):
(a) 100% of Cash and Cash Equivalents of the Company
held in Pledged Accounts;
(b) 90% of Net Government Accounts Receivable;
(c) 90% of Pre-approved Receivables;
(d) 85% of Eligible Receivables and Uninvoiced
Receivables not included in clause (b) or (c) above;
provided, however, that to the extent that the aggregate
amount of all Eligible Receivables and Uninvoiced
Receivables included in this clause (d) are owed by any
single account debtor and its Affiliates exceed ten percent
of the aggregate amount of all Eligible Receivables and
Uninvoiced Receivables included in this clause (d), such
excess shall not be included in the calculation of the
portion of the Borrowing Base provided in this clause (d),
except with the prior written consent of the Agent;
(e) 85% of Eligible Margin Deposits;
(f) 85% of the future sales price, net of storage and
transportation costs, of Hedged Eligible Inventory;
(g) 80% of Eligible Inventory other than Hedged
Eligible Inventory; plus
(h) 100% of Paid but Unexpired Letters of Credit;
provided, however, that there shall be deducted from the
foregoing sum an amount equal to 50% of accounts payable of the
Company arising in the ordinary course of business with respect
to the purchase of crude oil and other petroleum products,
excluding, without duplication, (i) accounts payable which have
been deducted in calculating Eligible Receivables and Uninvoiced
Receivables included in clauses (c) and (d) above and (ii)
accounts payable of the Company arising in the ordinary course of
business to the extent secured by Letters of Credit.
2.2. The definition of "Crude Royalties Payable" set forth in
Section 1.1 of the Credit Agreement is deleted in its entirety.
2.3. Section 2.1.3 of the Credit Agreement is amended to read in
its entirety as follows:
2.1.3. Maximum Amount of Revolving Credit. The term
"Maximum Amount of Revolving Credit" means the lesser of (a)
$20,000,000 or (b) the amount (in an integral multiple of
$1,000,000) to which the then applicable amount set forth in
clause (a) shall have been irrevocably reduced from time to time
by notice from the Company to the Agent.
2.4. Section 6.5.4 of the Credit Agreement is amended to read in
its entirety as follows:
6.5.4. Capital Expenditures. The aggregate amount of
Capital Expenditures of the Company and its Subsidiaries,
determined on a Consolidated basis, for the fiscal year of the
Company ending December 31, 1999 will not exceed $1,250,000. The
aggregate amount of Capital Expenditures of the Company and its
Subsidiaries, determined on a Consolidated basis, for each fiscal
year of the Company ending on or after December 31, 2000 shall
not exceed the sum of $1,200,000 plus the amount by which Capital
Expenditures made in the immediately preceding fiscal year were
less than $1,000,000.
2.5. Section 6.6.10 of the Credit Agreement is amended by adding
at the end thereof the following additional proviso: "provided,
further, that the outstanding principal amount of the Varde Term Loan
at no time shall exceed $6,000,000".
2.6. Section 6.6.14 of the Credit Agreement is amended to read
in its entirety as follows:
6.6.14. Other Indebtedness outstanding on the date hereof
and described in Exhibit 7.3 (excluding the Indebtedness to
Diamond Shamrock Refining and Marketing Company referred to in
Item 6 of Exhibit 7.3 and the Indebtedness to Varde referred to
in Item 7 of Exhibit 7.3) and (except with respect to the Prior
Credit Agreement, which shall be terminated on the Initial
Closing Date) all renewals and extensions thereof not in excess
of the amount thereof outstanding immediately prior to such
renewal or extension.
2.7. Section 6.10.1 of the Credit Agreement is amended by adding
at the end thereof the following proviso:
provided, that no Distribution shall be permitted under this
Section 6.10.1 with respect to the Varde Securities unless and
until the Varde Term Loan shall have been paid in full.
2.8. Exhibit 10.1 to the Credit Agreement is amended to read in
its entirety in the form of Exhibit 10.1 hereto.
3. Consent to Sale of Crude Oil Gathering Business; Waivers and
Release. The Lenders hereby consent to the sale of the crude oil
gathering business and related assets (the "Gathering Assets") of the
Company and its Subsidiaries as contemplated by the Sun Purchase
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 and subject also to the
particular terms and conditions that:
(a) Cash proceeds of the sale under the Sun Purchase
Agreement shall be applied to reduce the outstanding principal
amount of the Varde Term Loan to not more than $6,000,000;
provided, that the conditions to such application set forth in
Section 6.10.1 of the Amended Credit Agreement shall be
satisfied; and provided, further, that up to $2,000,000 of such
cash proceeds may be distributed to Pride SGP, Inc. as
contemplated by the letter agreement dated September 1, 1999
among the Company, Pride SGP, Inc. and Varde, a copy of which is
attached hereto as Exhibit A.
(b) All Letters of Credit relating to the Gathering Assets
will be terminated within 30 days following the Sun Closing Date.
On the Sun Closing Date the Company will be in compliance with
Borrowing Base and Maximum Amount of Credit limitations and all
of the financial covenants of the Company set forth in Section
6.5 of the Amended Credit Agreement (after giving effect to the
amendment set forth in Section 2.5 hereof and the waivers set
forth in Section 3 hereof).
(c) The closing of the sale of the Gathering Assets shall
occur pursuant to the terms of the Sun Purchase Agreement as
provided to the Agent, without any modifications or waivers
except as disclosed to and approved by the Agent prior to such
closing.
(d) The closing of the sale of the Gathering Assets shall
occur not later than November 1, 1999 or such later date as the
Agent shall have approved.
(e) Varde shall have agreed to the sale of the Gathering
Assets and authorized the release of liens on the Gathering
Assets.
In furtherance of such consent, and subject to the terms and
conditions referred to above, each of the Lenders hereby waives the
Default under Section 6.11 of the Credit Agreement which otherwise
would be caused by the sale of the Gathering Assets pursuant to the
Sun Purchase Agreement and, effective upon the closing of such sale,
releases Pride Borger, Inc., a Delaware corporation, from all existing
and future obligations in respect of the Credit Obligations and
authorizes and directs the Agent to release such portion of the Credit
Security as constitutes the Gathering Assets.
In addition, subject to the terms and conditions referred to
above, each of the Lenders hereby waives (a) any Default under
Sections 6.5.5(a) and 6.5.5(b) of the Credit Agreement which may exist
with respect to the fiscal quarter or period of three consecutive
fiscal quarters ending September 30, 1999 and (b) the Default under
Section 6.10 of the Credit Agreement that would be caused by applying
up to $2,000,000 of the cash proceeds of the sale under the Sun
Purchase Agreement to a Distribution to Pride SGP, Inc. or by applying
proceeds of the sale to pay the Varde Term Loan prior to the
effectiveness of the amendment set forth in Section 2.3 hereof;
provided that each such waiver shall be limited to such Defaults and
shall not be construed to permit or to waive any similar or subsequent
Default.
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 on the Sun
Closing Date to the amendments and waivers set forth in this Agreement
which take effect on such date, no Default shall exist. Immediately
after giving effect on the thirtieth day following the Sun Closing
Date to the amendments set forth in this Agreement which take effect
on such thirtieth day, no Default shall exist.
4.3. Incorporation of Representations and Warranties of Company.
Immediately after giving effect to this Agreement, 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 Sun
Closing Date (except to the extent of any representation or warranty
which refers to a specific earlier date).
4.4. Sale of Gathering Assets. The Company has provided to the
Agent a true and complete copy of the Sun Purchase Agreement; each of
the representations and warranties of the Company and Pride SGP, Inc.
set forth in Article 3 of the Sun Purchase Agreement is true and
accurate; and the documents of release and termination presented by
the Company to the Agent or the Collateral Agent for execution in
connection with the closing under the Sun Purchase Agreement release
and terminate the Credit Security only with respect to the Gathering
Assets and not with respect to any other property of the Company or
any of its Subsidiaries.
5. Conditions. The effectiveness of each of the amendments set forth
in Section 2 hereof and of the consent and waivers set forth in
Section 3 hereof shall be subject to the satisfaction on or before the
Sun Closing Date of each 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 Sun Closing Date with the same force and effect as though
originally made on and as of the Sun Closing Date; immediately after
giving effect to such amendments, no Default shall exist; no Material
Adverse Change shall have occurred since December 31, 1998 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 Sun
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 Sun 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 shall remain committed to providing
the Varde Revolving Loan subject to the terms and conditions thereof
as currently in effect. The Lenders hereby consent to the Company's
payment to Varde of $15,000,000 in sales proceeds under the Sun
Purchase Agreement on the Sun Closing Date to be applied to the Varde
Term Loan.
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. Expenses. The Company shall have paid to the Agent all
reasonable expenses, fees and charges payable to the Agent's counsel,
Ropes & Gray.
5.6. Certain Extensions of Credit. During the period commencing
on the Sun Closing Date and ending on the date on which the amendment
set forth in Section 2.3 hereof takes effect, the Company shall not
request any Loan or Letter of Credit under Section 2 of the Amended
Credit Agreement if (after giving effect to the termination of Letters
of Credit scheduled to terminate during such period and any
reimbursements of drawings under Letters of Credit for which the
Company is holding funds) the effect of such Loan or Letter of Credit
would be to cause the Company to fail to meet any of the conditions
set forth in Section 6.10.1 of the Amended Credit Agreement on the
effective date of the amendment set forth in Section 2.3 hereof.
5.7. Cash Deposit. The cash paid to the Company under the Sun
Purchase Agreement which is not applied to pay the Varde Term Loan or
the Distribution to Pride SGP, Inc. permitted hereunder shall be
deposited in the Company's deposit account with the Agent until
required to pay obligations of the Company in respect of crude oil
purchases and other current liabilities.
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.
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:
BANKBOSTON, N.A., for Itself and as
Agent
By _____________________________________
Authorized Officer
LEHMAN COMMERCIAL PAPER INC., for
Itself and as Documentation Agent
By _____________________________________
Authorized Signatory
UNION BANK OF CALIFORNIA, N.A.
By _____________________________________
Authorized Officer
Consented to:
VARDE PARTNERS, INC.
By _________________________________
Authorized Officer
<PAGE>
<PAGE>
EXHIBIT 10.1
PERCENTAGE INTERESTS
Principal Amount Approximate
Lender of Revolving Commitment Percentage Interest
- ------ ----------------------- -------------------
BankBoston, N.A. $6,200,000 31%
Lehman Commercial 7,600,000 38%
Paper Inc.
Union Bank of
California, N.A. 6,200,000 31%
---------- ----
TOTAL $20,000,000 100%
========== ====
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 7,952
<SECURITIES> 0
<RECEIVABLES> 22,015
<ALLOWANCES> 0
<INVENTORY> 273
<CURRENT-ASSETS> 58,216
<PP&E> 30,636
<DEPRECIATION> 13,723
<TOTAL-ASSETS> 83,784
<CURRENT-LIABILITIES> 81,560
<BONDS> 0
19,529
0
<COMMON> (29,116)
<OTHER-SE> (1,071)
<TOTAL-LIABILITY-AND-EQUITY> 83,784
<SALES> 88,293
<TOTAL-REVENUES> 88,293
<CGS> 85,248
<TOTAL-COSTS> 85,248
<OTHER-EXPENSES> 1,122
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,310
<INCOME-PRETAX> (6,466)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,466)
<DISCONTINUED> 269
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,197)
<EPS-BASIC> (1.51)
<EPS-DILUTED> (1.51)
</TABLE>
