SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 1, 1999
----- -----------------------------
Common Units 4,950,000
<PAGE>
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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>
June 30,
1999 December 31,
(unaudited) 1998
----------- ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 7,705 $ 2,592
Accounts receivable, less allowance
for doubtful accounts 16,650 10,052
Inventories 7,932 7,582
Prepaid expenses 536 704
----------- -----------
Total current assets 32,823 20,930
----------- -----------
Property, plant and equipment - net 44,427 45,534
Assets no longer used in the business 4,235 4,301
Deferred financing costs 4,535 5,307
Other assets 386 390
----------- -----------
$ 86,406 $ 76,462
=========== ===========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIENCY):
Current liabilities:
Accounts payable $ 29,023 $ 16,573
Accrued payroll and related benefits 1,102 903
Accrued taxes 3,186 2,972
Other accrued liabilities 1,057 924
Current portion of long-term debt 3,219 237
----------- -----------
Total current liabilities 37,587 21,609
Long-term debt, excluding current portion 41,755 44,859
Deferred income taxes 2,230 2,295
Other long-term liabilities 12,482 12,160
Redeemable preferred equity 19,529 19,529
Partners' capital (deficiency):
Common units (5,275,000 units
authorized, 4,950,000 units
outstanding) (26,165) (23,042)
General partners' interest (1,012) (948)
----------- -----------
$ 86,406 $ 76,462
=========== ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Three Months Ended June 30,
1999 1998
Restated
-------------- -----------
<S> <C> <C>
Revenues $ 107,006 $ 102,986
Cost of sales and operating expenses,
excluding depreciation 104,475 101,104
Marketing, general and
administrative expenses 1,769 2,088
Depreciation 875 863
------------ -----------
Operating income (loss) (113) (1,069)
Other income (expense):
Interest income 65 16
Interest expense (including interest
paid in kind of $677 and $332,
respectively, and increasing rate
accrued interest of $164 and $256,
respectively) (1,570) (1,527)
Credit and loan fees (including
amortization of $440 and $331,
respectively, and credit and loan
fees paid in kind of $100 and
$150, respectively) (939) (912)
Other - net 4 27
------------ -----------
Loss before income taxes (2,553) (3,465)
Income tax expense (benefit) (66) 8
------------ -----------
Net loss $ (2,487) $ (3,473)
============ ===========
Basic and diluted net loss
per Common Unit $ (.59) $ (.77)
============ ===========
<PAGE>
Numerator:
Net loss $ (2,487) $ (3,473)
Preferred distributions in
arrears (474) (438)
------------ -----------
Net loss less preferred
distributions (2,961) (3,911)
Net loss allocable to 2% general
partner interest (59) (78)
------------ -----------
Numerator for basic and diluted
earnings per unit $ (2,902) $ (3,833)
============ ===========
Denominator:
Denominator for basic and diluted
earnings per unit 4,950 4,950
============ ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per unit amounts)
<CAPTION>
Six Months Ended June 30,
1999 1998
Restated
------------ -----------
<S> <C> <C>
Revenues $ 190,172 $ 209,205
Cost of sales and operating expenses,
excluding depreciation 183,517 203,003
Marketing, general and
administrative expenses 3,785 4,274
Depreciation 1,743 1,713
------------ -----------
Operating income (loss) 1,127 215
Other income (expense):
Interest income 100 57
Interest expense (including interest
paid in kind of $1,318 and $644,
respectively, and increasing rate
accrued interest of $249 and $503,
respectively) (3,060) (2,999)
Credit and loan fees (including
amortization of $772 and $660,
respectively, and credit and
loan fees paid in kind of $100
and $150, respectively) (1,552) (1,584)
Other - net 80 60
------------ -----------
Loss before income taxes (3,305) (4,251)
Income tax expense (benefit) (118) 2
------------ -----------
Net loss $ (3,187) $ (4,253)
============ ===========
Basic and diluted net loss
per Common Unit $ (.82) $ (1.01)
============ ===========
<PAGE>
Numerator:
Net loss $ (3,187) $ (4,253)
Preferred distributions in
arrears (932) (866)
------------ -----------
Net loss less preferred
distributions (4,119) (5,119)
Net loss allocable to 2% general
partner interest (82) (102)
------------ -----------
Numerator for basic and diluted
earnings per unit $ (4,037) $ (5,017)
============ ===========
Denominator:
Denominator for basic and diluted
earnings per unit 4,950 4,950
============ ===========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
PRIDE COMPANIES, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
<CAPTION>
Six Months Ended June 30,
1999 1998
Restated
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (3,187) $ (4,253)
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation 1,743 1,713
Amortization of loan costs 772 660
Deferred tax benefit (65) (37)
(Gain) loss on sale of
property, plant and equipment (18) (61)
Paid in kind interest and credit
and loan fees 1,418 794
Increasing rate accrued interest 249 503
Lower of cost or market
adjustment (reversal) (1,197) 1,002
Net effect of changes in:
Accounts receivable (6,598) 3,034
Inventories 847 2,050
Prepaid expenses 168 339
Accounts payable and other
long-term liabilities 12,523 (6,983)
Accrued liabilities 546 (2,302)
------------ -----------
Total adjustments 10,388 712
------------ -----------
Net cash provided by (used in)
operating activities 7,201 (3,541)
Cash flows from investing activities:
Purchases of property, plant and
equipment (662) (1,356)
Proceeds from asset disposals 114 90
Other - (54)
------------ -----------
Net cash provided by (used in)
investing activities (548) (1,320)
Cash flows from financing activities:
Proceeds from debt and credit
facilities 14,669 35,447
Payments on debt and credit
facilities (16,209) (34,660)
------------ -----------
Net cash provided by (used in)
financing activities (1,540) 787
------------ -----------
Net increase (decrease) in cash and
cash equivalents 5,113 (4,074)
Cash and cash equivalents at the
beginning of the period 2,592 5,008
------------ -----------
Cash and cash equivalents at the
end of the period $ 7,705 $ 934
============ ===========
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 (i) a crude oil gathering business
that gathers, transports, resells and redelivers crude oil in the
Texas market (the "Crude Gathering System") and (ii) one 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 mothballing the Refinery, the Partnership's operations
were considered a single industry segment, the refining of crude oil
and the sale of the resulting petroleum products. The primary purpose
of the Crude Gathering System was to purchase and sell crude oil in
order to provide a supply of the appropriate grade of crude oil at
strategic locations to be used as feedstock for the Refinery.
As a result of the Equilon Agreement and the mothballing of the
Refinery, the Crude Gathering System now markets crude oil to other
refineries and the Partnership now operates two separate and distinct
industry segments, the Crude Gathering System segment and the Products
Marketing Business segment. The Crude Gathering System consists of
pipeline gathering systems and a fleet of trucks which transport crude
oil into third party pipelines and into the system's primary asset, a
common carrier pipeline. The Products Marketing Business 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 operations are conducted primarily
in the State of Texas.
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 has two corporate subsidiaries which are separate taxable
entities whose operations are subject to federal income taxes.
The financial statements included with this Form 10-Q have been
restated for the second 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".
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 second quarters 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.
<PAGE>
5. Inventories
<TABLE>
<CAPTION>
Inventories are valued at the
lower of cost or market and June 30, December 31,
consist of: 1999 1998
(in thousands)
----------------------------- ----------- -----------
<S> <C> <C>
Crude oil $ 8,892 $ 5,433
Refined products and blending
materials 90 133
----------- -----------
8,982 5,566
Market valuation - (1,197)
LIFO reserve (1,694) 2,515
----------- -----------
Petroleum inventories 7,288 6,884
Spare parts and supplies 644 698
----------- -----------
$ 7,932 $ 7,582
=========== ===========
</TABLE>
The last-in/first-out (LIFO) inventory cost method is used for
crude oil and refined products and blending materials. The weighted
average inventory cost method is used for spare parts and supplies.
At June 30, 1999, petroleum inventories valued using the LIFO
method were less than current cost determined using the FIFO method by
$1.7 million.
During 1998, the Partnership amended its agreement with Equilon
whereby Equilon has assumed title to all of the refined products
inventory on hand at the Products Terminals as of the close of
business on September 30, 1998. While this agreement is in place, the
Partnership will purchase refined products from Equilon.
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 $2.4 million as
of June 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. Though no advances had
been drawn under the letter of credit facility at June 30, 1999, the
Partnership did have approximately $39.1 million in outstanding
letters of credit. The Partnership did not have any outstanding
borrowings under the BankBoston Revolver as of June 30, 1999.
The fee on outstanding letters of credit was 2.5% per annum as of
June 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 will bear interest at prime plus 1.75%. The prime rate was
7.75% at June 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"),
$11.0 million ("B Term Loan"), $5.3 million ("C Term Loan") and an
unsecured note of $2.9 million ("Subordinate Note A") as of June 30,
1999.
Effective April 15, 1999, Varde's credit agreement was also
amended. In 1999, cash interest payments on the Varde Revolver (see
below), A Term Loan, B Term Loan, C Term Loan, Subordinate Note A and
Varde's preferred securities are limited to $208,000 per month. Any
excess 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 will bear interest rates of 12% through maturity. The
Subordinate Note A is convertible into 455,000 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 second quarters
of 1999 and 1998 reflects an accrual of $164,000 and $256,000,
respectively, which is based on the difference between the effective
interest rates and the stated rates.
Effective April 15, 1999, the Partnership had 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 June 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 to Varde
are capped at $2.5 million per annum. To the extent the interest and
distributions on the various Varde securities exceed the cap on cash
payments, the excess will be paid in kind or increase accumulated
arrearages, respectively. As a result of the cash cap, 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. The Partnership has classified $2.7
million of the A Term Loan as current due to the scheduled principal
payment due in the first and second quarters of the year 2000. The
Partnership will not have to make principal payments prior to the
scheduled maturity on the B Term Loan, C Term Loan and Subordinate
Note A except in the case the Partnership receives litigation proceeds
related to the DESC Claim (see "Note 9") and certain other
transactions including asset sales.
Other installment loans include a $6.0 million nonrecourse note,
due 2014, payable monthly with interest at 8% and a balance of $5.4
million at June 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. The Partnership has classified $185,000 as current at
June 30, 1999.
7. Preferred Equity
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and preferred equity securities
retroactively to 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. Accordingly, for the second
quarter of 1999, the Partnership accumulated arrearages of $422,000 on
these preferred equity securities. Through June 30, 1999, these
securities had total accumulated arrearages of $2.4 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 is 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 are both redeemable on December 31, 2002. The Series E
Preferred Units and Series F Preferred Units are 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 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. Distributions are payable on the 5th day of the second month in
each quarter; however, the Partnership may 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 have accumulated arrearages outstanding.
Accordingly, for the second quarter of 1999, the Partnership
accumulated arrearages of $52,000 on the Series E Preferred Units and
Series F Preferred Units. Through June 30, 1999, these securities had
total accumulated arrearages of $294,000.
As previously mentioned, the cash interest and distribution
payments on the debt and preferred equity held by Varde are limited to
$2.5 million annually. 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 June 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.
10. Business Segments
The Partnership adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information," during the fourth quarter
of 1998. SFAS No. 131 established standards for reporting information
about operating segments in annual financial statements and requires
selected information about operating segments in interim financial
reports issued to unitholders. Operating segments are defined as
components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance.
The Partnership has two segments: (i) the Products Marketing
Business, and (ii) the Crude Gathering System (see Note 1). Assets no
longer used in the business and corporate assets are considered part
of the Products Marketing Business. As discussed in Note 1, prior to
March 22, 1998, the Partnership operated as a single segment.
The segments follow the same accounting policies as described in
the Summary of Significant Accounting Policies in the Annual Report on
Form 10K for the year ended December 31, 1998 (see Note 1).
Information on the Partnership's operations by business segment
(stated in thousands) is summarized as follows:
Six Months Ended June 30,
1999 1998
------- --------
Revenues
Products Marketing Business $ 48,712 $ 74,264
Crude Gathering System 141,600 174,960
Intrasystem and Other (140) (40,019)
------- -------
Total Revenues $190,172 $209,205
======= =======
Operating Income (Loss)
Products Marketing Business $ (262) $ 662
Crude Gathering System 1,389 (447)
------- -------
Total Operating Income(Loss) $ 1,127 $ 215
======= =======
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Overview
Pride Companies, L.P. is a Delaware limited partnership which
owns and operates a products marketing business ("Products Marketing
Business") and crude oil gathering business ("Crude Gathering
System"). Prior to the mothballing of the refinery on March 22, 1998,
the Partnership also operated a refining business ("Refinery") and
products pipeline business ("Products System").
The following is a discussion of the results of operations of the
Partnership. This discussion should be read in conjunction with the
financial statements included in this report.
Forward Looking Statements
This Form 10-Q contains certain forward looking statements. Such
statements are typically punctuated by words or phrases such as
"anticipate," "estimate," "projects," "should," "may," "management
believes," and words or phrases of similar import. Such statements
are subject to certain risks, uncertainties or assumptions. Should
one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. Among the
key factors that may have a direct bearing on the Partnership's
results of operations and financial 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 and the availability of such products, (ii) the volume of
throughput at the Products Terminals, (iii) the volume of throughput
on and margins from the transportation and resale of crude oil from
the Partnership's Crude Gathering System, (iv) the amount of crude oil
produced in the areas the Partnership gathers, (v) the impact of
current and future laws and governmental regulations affecting the
petroleum industry in general and the Partnership's operations in
particular, (vi) 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 (vii)
fluctuations in crude oil and refined product prices and their impact
on working capital and the borrowing base under the Partnership's
credit agreements. 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 now depend 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, (ii) the volume of throughput at the
Products Terminals, (iii) the volume of throughput on and margins from
the transportation and resale of crude oil from the Partnership's
Crude Gathering System, and (iv) the amount of crude oil produced in
the areas the Partnership gathers. 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 prior products pipeline business
("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 Partnership's operating results depended principally on
(i) the rate of utilization of the Refinery, (ii) the margins between
the prices of its refined petroleum products and the cost of crude
oil, (iii) the volume throughput on the Products System, and (iv) the
volume throughput on and margins from the transportation and resale of
crude oil from its Crude Gathering System.
Margins from the Crude Gathering System are influenced by the
level of competition and the price of crude oil. When prices are
higher, crude oil can generally be resold at higher margins.
Additionally, transportation charges trend upward when higher crude
oil prices result in increased exploration and development.
Conversely, when crude oil prices decrease, exploration and
development decline and margins on the resale of crude oil as well as
transportation charges tend to decrease.
Beginning in April 1998, the Partnership began selling crude oil
to third parties that in the past would have been refined at the
Refinery. The gross margin per barrel from such sales are 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. For the first three months of 1998,
the average Intracompany Premium for crude oil was $1.72.
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.
Second Quarter 1999 Compared to Second Quarter 1998
GENERAL -- Net loss for the second quarter of 1999 was $2.5
million compared to $3.5 million for the second quarter of 1998. Net
loss for the second quarter of 1998 included a negative $1.0 million
lower of cost or market inventory adjustment since the market value of
the crude oil owned by the Partnership was less than its carrying
value at June 30, 1998.
Operating loss was $113,000 for the second quarter of 1999
compared to an operating loss of $1.1 million for the second quarter
of 1998. Operating income, excluding depreciation, for the second
quarter of 1999 was $762,000 compared to an operating loss, excluding
depreciation, of $206,000 for the second quarter of 1998. As
mentioned above, the second quarter of 1998 included a negative $1.0
million lower of cost or market adjustment.
The following table details the operating income (loss);
depreciation; and the operating income (loss), excluding depreciation
(in thousands), for the second quarter of 1999 and 1998.
<PAGE>
<TABLE>
<CAPTION>
Operating
Income
Operating (Loss)
Income Excluding
(Loss) Depreciation Depreciation
--------- ------------ ------------
<S> <C> <C> <C>
Second Quarter 1999
Products Marketing Business $ 197 $ 364 $ 561
Crude Gathering System (310) 511 201
------- ------- --------
Total $ (113) $ 875 $ 762
======= ======= ========
Second Quarter 1998
Products Marketing Business $ (344) $ 346 $ 2
Crude Gathering System (725) 517 (208)
------- ------- --------
Total $(1,069) $ 863 $ (206)
======= ======= ========
</TABLE>
PRODUCTS MARKETING BUSINESS -- Operating income for the Products
Marketing Business increased to $197,000 for the second quarter of
1999 from an operating loss of $344,000 for the second quarter of 1998
which is primarily a result of a decline in operating expenses from
the second quarter of 1998. In the second quarter of 1998, operating
expenses were higher for the Products Marketing Business as the
Partnership transitioned out of the refining business. Depreciation
expense for the Products Marketing Business was $364,000 for the
second quarter of 1999 compared to $346,000 for the second quarter of
1998. Operating income, excluding depreciation, for the Products
Marketing Business was $561,000 for the second quarter of 1999
compared to $2,000 for the second quarter of 1998. During the second
quarter of 1999, the Partnership marketed 13,751 barrels per day
("BPD") of refined products compared to 12,824 BPD for the second
quarter of 1998. The net margin per barrel for the second quarter of
1999 was $0.16 compared to negative $0.29 for the second quarter of
1998.
CRUDE GATHERING SYSTEM -- Operating loss for the Crude
Gathering System was $310,000 for the second quarter of 1999
compared to $725,000 for the same period in 1998. As mentioned
earlier, the second quarter of 1998 for the Crude Gathering Business
included a negative $1.0 million lower of cost or market adjustment
which partially offset $616,000 in higher cost of sales due to hedging
losses in the second quarter of 1999. Depreciation expense for the
Crude Gathering System was $511,000 for the second quarter of 1999
compared to $517,000 for the second quarter of 1998. Operating
income, excluding depreciation, for the Crude Gathering System was
$201,000 for the second quarter of 1999 compared to operating loss,
excluding depreciation, of $208,000 for the second quarter of 1998.
The net margin was negative $0.09 per barrel for the second quarter of
1999 versus negative $0.17 per barrel for the same period in 1998.
The volume of crude oil gathered by the Crude Gathering System
decreased to 37,308 BPD for the second quarter of 1999 from 46,605 BPD
for the second quarter of 1998 due to the elimination of marginal
contracts and lower crude oil production in the field.
First Six Months of 1999 Compared to First Six Months of 1998
GENERAL -- Net loss for the first six months of 1999 was $3.2
million compared to $4.3 million for the first six months of 1998.
Net loss for the first six months of 1999 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 June 30, 1999, whereas, net income for the
first six months of 1998 included a negative $1.0 million 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 June 30,
1998. This was partially offset by $616,000 in higher cost of sales
due to hedging losses in the first six months of 1999.
Operating income was $1.1 million for the first six months of
1999 compared to $215,000 for the first six months of 1998. Operating
income, excluding depreciation, for the first six months of 1999 was
$2.9 million compared to $1.9 million for the first six months of
1998.
The following table details the operating income (loss);
depreciation; and the operating income (loss), excluding depreciation
(in thousands), for the first six months of 1999 and 1998.
<PAGE>
<TABLE>
<CAPTION>
Operating
Income
Operating (Loss)
Income Excluding
(Loss) Depreciation Depreciation
--------- ------------ ------------
<S> <C> <C> <C>
First Six Months of 1999
Products Marketing Business $ (263) $ 723 $ 460
Crude Gathering System 1,390 1,020 2,410
------- ------- --------
Total $ 1,127 $ 1,743 $ 2,870
======= ======= ========
First Six Months of 1998
Products Marketing Business(1) $ 662 $ 714 $ 1,376
Crude Gathering System (447) 999 552
------- ------- --------
Total $ 215 $ 1,713 $ 1,928
======= ======= ========
(1) The Partnership began operating the Products Marketing Business in
the second quarter of 1998. Prior to this, the Partnership operated
the Refinery and Products System.
</TABLE>
PRODUCTS MARKETING BUSINESS -- Operating loss, depreciation
expense, and operating income, excluding depreciation of the Products
Marketing Business was $263,000, $723,000, and $460,000, respectively,
for the first six months of 1999. Operating income of the Products
Marketing Business was $662,000 for the first six 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 $714,000 for the first
six 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 $1.4 million for the first six 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 six months of 1999, the Partnership
marketed 13,768 barrels per day ("BPD") of refined products compared
to 20,703 BPD for the first six months of 1998. The net margin per
barrel for the first six months of 1999 was negative $0.11 compared to
positive $0.18 for the first six months of 1998.
CRUDE GATHERING SYSTEM -- Operating income for the Crude
Gathering System was $1.4 million for the first six months of 1999
compared to an operating loss of $447,000 for the same period in 1998.
Operating income for the first six 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 June
30, 1999, whereas, operating loss for the first six months of 1998 for
the Crude Gathering System included a negative $1.0 million 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 June 30,
1998. The improvement for the first six months of 1999 related to the
lower of cost or market adjustment was partially offset by $616,000 in
higher costs of sales due to hedging losses in the first six months of
1999. Depreciation expense for the Crude Gathering System was $1.0
million for the first six months of 1999 compared to $999,000 for the
first six months of 1998. Operating income, excluding depreciation,
for the Crude Gathering System was $2.4 million for the first six
months of 1999 and $552,000 for the first six months of 1998. The net
margin was $0.20 per barrel for the first six months of 1999 versus
negative $0.05 per barrel for the same period in 1998. The volume of
crude oil gathered by the Crude Gathering System decreased to 38,780
BPD for the first six months of 1999 from 49,376 BPD for the first six
months of 1998 due to the elimination of marginal contracts and lower
crude oil production in the field.
Factors and Trends Affecting Operating Results
A number of factors have affected the Partnership's operating
results, both indirectly and directly, such as environmental
compliance, other regulatory requirements, industry trends, price of
crude oil, inventory prices, and, 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 -- Industry trends and the
price of crude oil will continue to affect the Partnership's business.
In the last three years, the posting price for WTI crude oil has
varied from approximately $8.25 to $25.00 per barrel. The general
level of crude oil prices has a significant effect on the margins in
the crude gathering business. Margins from the Crude Gathering System
are influenced by the level of competition and the price of crude oil.
When prices are higher, crude oil can generally be resold at higher
margins. Additionally, transportation charges trend upward when
higher crude oil prices result in increased exploration and
development. Conversely, when oil prices decrease, exploration and
development decline and margins on the resale of crude oil as well as
transportation charges tend to decrease. 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.
INVENTORY PRICES -- The Partnership utilizes the
last-in/first-out (LIFO) method of determining inventory values. LIFO
minimizes the effect of fluctuations in inventory prices on earnings
by matching current costs with current revenue. At June 30, 1999,
petroleum inventories valued using the LIFO method were less than
current cost determined using the FIFO method by $1.7 million.
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 August 11, 1999, the Partnership announced
the execution of a purchase and sale contract wherein the Partnership
proposes, subject to completion of due diligence and satisfaction of
various closing conditions, to sell its Crude Gathering System assets
to Sun Pipe Line Services Co. ("Sun"), a subsidiary of Sunoco, Inc.
The purchase price is $26.0 million plus the market price of Pride's
crude oil inventory at closing to be reduced by the outstanding
balance of the $6.0 million nonrecourse note (see "-Financial
Condition - Financial Resources and Liquidity") assumed by Sun. The
sale is subject to completion of due diligence beginning on the date
of execution of the contract. Pride expects the transaction to close
on or about October 1, 1999 if conditions to closing are satisfied.
The transaction is expected to result in a taxable gain to Pride
which would result in taxable income being allocated to unitholders.
The proceeds from the sale will be used primarily to reduce
outstanding debt and none of the proceeds will be available for
distributions to unitholders.
<PAGE>
<PAGE>
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
The Partnership receives payments from the United States
Government, major oil companies, and other customers within
approximately 7 to 15 days from shipment in the case of product sales
and by the 20th of the following month in the case of third-party
crude oil sales and exchanges. The Partnership maintains crude
inventory of approximately 10 to 15 days of sales. Effective on the
close of business on September 30, 1998 and extending to December 31,
1999, Equilon has 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. The Crude Gathering System generally pays for crude oil on
the 20th of the month following the month in which it is received and
also can experience a minor lag between the time it pays for and
receives payment for crude oil transactions. Letters of credit are an
integral part of the operations of the Crude Gathering System since
the Partnership takes title to both first purchased barrels and custom
gathered barrels.
Cash flows have been and will continue to be significantly
affected by fluctuations in the cost and volume of crude oil and
refined products held in inventory and the timing of accounts
receivable collections. For the six months ended June 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 product and crude oil prices). For the six months ended June
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 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 $2.4 million as
of June 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. Though no advances had
been drawn under the letter of credit facility at June 30, 1999, the
Partnership did have approximately $39.1 million in outstanding
letters of credit. The Partnership did not have any outstanding
borrowing under the BankBoston Revolver as of June 30, 1999.
The fee on outstanding letters of credit was 2.5% per annum as of
June 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 will bear interest at prime plus 1.75%. The prime rate was
7.75% at June 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"),
$11.0 million ("B Term Loan"), $5.3 million ("C Term Loan") and an
unsecured note of $2.9 million ("Subordinate Note A") as of June 30,
1999.
Effective April 15, 1999, Varde's credit agreement was also
amended. In 1999, cash interest payments on the Varde Revolver (see
below), A Term Loan, B Term Loan, C Term Loan, Subordinate Note A and
Varde's preferred securities are limited to $208,000 per month. Any
excess 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 455,000 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 second quarters
of 1999 and 1998 reflects an accrual of $164,000 and $256,000,
respectively, which is based on the difference between the effective
interest rates and the stated rates.
Effective April 15, 1999, the Partnership had 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 June 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 to Varde
are capped at $2.5 million per annum. To the extent the interest and
distributions on the various Varde securities exceed the cap on cash
payments, the excess will be paid in kind or increase accumulated
arrearages, respectively. As a result of the cash cap, 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. The Partnership has classified $2.7
million of the A Term Loan as current due to the scheduled principal
payment due in the first and second quarters of the year 2000. The
Partnership will not have to make principal payments prior to the
scheduled maturity on the B Term Loan, C Term Loan and Subordinate
Note A except in the case the Partnership receives litigation proceeds
related to the DESC Claim and certain other transactions including
asset sales. See "Legal Proceedings."
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 $5.4
million at June 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. The Partnership has classified $185,000 as current at
June 30, 1999.
As previously mentioned, the cash interest and distribution
payments on the debt and preferred equity held by Varde are limited to
$2.5 million annually. (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. Based on the amendment effective April 15, 1999, agreed
to by the principal creditors, management now believes the Partnership
can maintain compliance with the covenants in the near future.
However, compliance with the covenants into the year 2000 will be
largely dependent on the then current operating condition, including
crude oil prices and wholesale margins for petroleum products.
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 will
be 1.5 cents per gallon lower than the prior contract.
Declines in crude oil and refined product prices have had a
negative impact on the borrowing base under the Partnership's credit
agreement as well as working capital. Though prices recovered
significantly in the first and second quarters of 1999, further
declines could have a material adverse effect on the Partnership. To
mitigate the negative effects crude oil price declines have on the
borrowing base, the Partnership has hedged 250,000 barrels of crude
oil inventory.
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 second 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 second 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.
Though management has and will continue to pursue options
regarding increasing volumes and margins and reducing costs, including
limiting any significant capital expenditures, these improvements, if
achieved, will be gradual and, in many cases, will take sustained
periods of time to implement in order to achieve profitability. As a
result, the Partnership engaged an investment advisor to assist
the Partnership in considering and analyzing various potential
business opportunities involving the Crude Gathering System. Based on
that analysis, the Partnership executed a purchase and sale contract
with Sun involving the Crude Gathering System. The sales price is
$26.0 million plus the market price of Pride's crude oil inventory at
closing to be reduced by the $6.0 million nonrecourse note assumed by
Sun (see "-Results of Operations - Factors and Trends Affecting
Operating Results - Other Factors"). The sale is subject to
completion of due diligence beginning on the date of execution of the
contract. Pride expects the transaction to close on or about October
1, 1999 if conditions to closing are satisfied.
This sale will likely result in taxable gain to the Partnership
which would 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. The proceeds from the sale will be used
primarily to reduce outstanding debt and none of the proceeds will be
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 $392,000 and $662,000 for the
quarter ended June 30, 1999 and the first six months of 1999,
respectively, compared to $517,000 and $1.4 million for the quarter
ended June 30, 1998 and the first six months of 1998, respectively.
Management anticipates spending $315,000 in 1999 for
environmental expenditures which were fully accrued for at December
31, 1998 and capital expenditures for 1999 are budgeted at $1.0
million.
Cash Distributions and Preferred Arrearages
Effective April 15, 1999, the Partnership amended the terms of
its Partnership Agreement and preferred equity securities
retroactively to 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 second quarter of 1999,
the Partnership accumulated arrearages of $422,000 on these preferred
equity securities. Through June 30, 1999, these securities had total
accumulated arrearages of $2.4 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 Cumulative Convertible
Preferred Units ("Series E Preferred Units") which is 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 are both redeemable on December 31, 2002. The Series E
Preferred Units and Series F Preferred Units are 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 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. Distributions are payable on the 5th day of the second month in
each quarter; however, the Partnership may 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 have accumulated arrearages outstanding.
Accordingly, for the second quarter of 1999, the Partnership
accumulated arrearages of $52,000 on the Series E Preferred Units and
Series F Preferred Units. Through June 30, 1999, these securities
had total accumulated arrearages of $294,000. Management believes the
amount in arrears will continue to increase until such time as the
Partnership can restructure its capital structure.
At June 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 98% complete on the remediation phase and expects to complete
software reprogramming and replacement in the third 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 70% of its testing and has implemented 100% of its
remediated systems. Completion of the testing phase for all
significant systems is expected by September 30, 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 $856,000 related to the Year
2000 Issue. As of June 30, 1999, the Partnership had spent $845,000
on the Year 2000 Issue with the rest scheduled to be incurred in the
remainder of 1999. Substantially all of the $856,000 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 third quarter of 1999.
Quantitative and Qualitative Disclosures About Market Risks
In the second quarter of 1999, the Partnership hedged 250,000
barrels or approximately 50% of its crude oil inventory to protect
against declines in the price of crude oil which has an adverse effect
on the borrowing base. During the second quarter of 1999, crude oil
prices increased resulting in hedging losses recognized in cost of
sales of $616,000.
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.
<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
retroactively to 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.
Item 3. Defaults in Senior Securities
Under the terms agreed to on April 15, 1999, payments to Varde
are capped at $2.5 million per annum. To the extent the interest and
distributions on the various Varde securities exceed the cap on cash
payments, the excess will be paid in kind or increase accumulated
arrearages, respectively. As a result of the cash cap, 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 second
quarter of 1999, the Partnership accumulated arrearages of $422,000 on
these preferred equity securities. Through June 30, 1999, these
securities had total accumulated arrearages of $2.4 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 are payable on the 5th day of the second month in each
quarter; however, the Partnership may 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 have accumulated arrearages outstanding. Accordingly,
for the second quarter of 1999, the Partnership accumulated arrearages
of $52,000 on the Series E Preferred Units and Series F Preferred
Units. Through June 30, 1999, these securities had total accumulated
arrearages of $294,000. Management believes the amount in arrears
will continue to increase until such time as the Partnership can
restructure its capital structure.
The Partnership has not historically complied with its financial
and performance covenants included in its various credit facilities
with lenders. Based on the amendment effective April 15, 1999, agreed
to by the principal creditors, management now believes the Partnership
can maintain compliance with the covenants in the near future.
However, compliance with the covenants into the Year 2000 will be
largely dependent on the then current operating conditions, including
crude oil prices and wholesale margins for petroleum products. At
December 31, 1998, the Partnership was not in compliance with certain
financial covenants in its loan agreements including the leverage
ratio, consolidated interest coverage, consolidated operating cash
flow to consolidated debt service, minimum EBITDA and consolidated net
worth financial covenants. Effective April 15, 1999, these past
defaults were waived by the lenders.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
No material changes have occurred related to market risks as
disclosed in the Form 10-K.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
10.1 The Sixth Amendment to the Sixth Restated and Amended Credit
Agreement as of April 15, 1999 among Pride Companies,
L.P. (the "Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc. and Pride Borger, Inc. (collectively, the
"Guarantors"), and Varde Partners, Inc.
10.2 Amended and Restated Certificates of Designation of Series
B, C, D, E and F Cumulative Convertible Preferred Units of
Pride Companies, L.P. pursuant to the Third Amended and
Restated Agreement of Limited Partnership effective as of
April 15, 1999.
10.3 Purchase and Sale Agreement dated August 4, 1999 by and
among Pride Companies, L.P. and Pride SGP, Inc., as Sellers,
and Sun Pipe Line Services Co., as Buyer.
27 Financial Data Schedule for the Second Quarter of 1999.
b. Reports on Form 8-K:
On August 11, 1999, the Partnership announced the execution of a
purchase and sale contract wherein the Partnership proposes to sell
its Crude Gathering Business assets to Sun Pipe Line Services Co., a
subsidiary of Sunoco, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PRIDE COMPANIES, L.P.
(Registrant)
By: Pride Refining, Inc.
as its Managing General Partner
Date: August 16, 1999 /s/ Brad Stephens
Chief Executive Officer
(Signing on behalf of Registrant)
Date: August 16, 1999 /s/ George Percival
Principal Financial Officer
(Signing as Principal Financial
Officer)
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 The Sixth Amendment to the Sixth Restated and Amended Credit
Agreement as of April 15, 1999 among Pride Companies,
L.P. (the "Borrower"), Pride Refining, Inc., Pride SGP,
Inc., Desulfur Partnership, Pride Marketing of Texas
(Cedar Wind), Inc. and Pride Borger, Inc. (collectively, the
"Guarantors"), and Varde Partners, Inc.
10.2 Amended and Restated Certificates of Designation of Series
B, C, D, E and F Cumulative Convertible Preferred Units of
Pride Companies, L.P. pursuant to the Third Amended and
Restated Agreement of Limited Partnership effective as of
April 15, 1999.
10.3 Purchase and Sale Agreement dated August 4, 1999 by and
among Pride Companies, L.P. and Pride SGP, Inc., as Sellers,
and Sun Pipe Line Services Co., as Buyer.
27 Financial Data Schedule for the Second Quarter of 1999.
<PAGE>
EXHIBIT 10.1
SIXTH AMENDMENT TO SIXTH
RESTATED AND AMENDED CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO SIXTH RESTATED AND AMENDED
CREDIT AGREEMENT, dated as of April 15, 1999 (this "Sixth
Amendment"), amends the Sixth Restated and Amended Credit
Agreement dated as of December 30, 1997 (as heretofore amended
and as may be further amended, modified or supplemented from time
to time, the "Credit Agreement") by and 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.,
as Lender (the "Lender"). Capitalized terms used herein but not
otherwise defined herein shall have the meanings assigned thereto
in the Credit Agreement.
WHEREAS, the Borrower, the Guarantors and the Lender
have entered into the Credit Agreement; and
WHEREAS, the parties desire to amend the Credit
Agreement as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 Amendments. Effective on (and subject to
the occurrence of) the Sixth Amendment Effective Date (as defined
in Section 4 below), the Credit Agreement shall be amended as set
forth below:
1.1 Section 1.1 of the Credit Agreement is hereby
amended by amending and restating the following definitions in
their entirety as follows:
"Available Commitment" shall mean, at any time, an
amount equal to the excess, if any, of (a) the amount
of the Revolving Credit Commitment over (b) (i) the
aggregate principal amount of all Revolving Credit Loans
then outstanding plus (ii) the aggregate amount, if
any, that Capital Expenditures exceed the amounts set forth
in Section 6.2(d) hereof for any quarter.
"Consolidated Operating Cash Flow" means, for any
period, the remainder of Consolidated EBITDA for such period
minus the Non-Discretionary Capital Expenditures of the
Borrower and its Subsidiaries for such period, minus the
amounts of all taxes based upon or measured by net income
paid or payable by the Borrower and its Subsidiaries for
such period, plus (but only for any period ending on or
prior to March 31, 2000) the Available Commitment as of the
close of business on the last day of such period.
"Revolving Credit Commitment" shall mean the
obligation of the Lender to make Revolving Credit Loans to
the Borrower hereunder in an aggregate principal amount at
any one time outstanding not to exceed Three Million Dollars
($3,000,000) as such amount may be reduced from time to time
in accordance with the terms of this Agreement.
"Revolving Credit Termination Date" shall mean January
2, 2001.
1.2 Section 1.1 of the Credit Agreement is hereby
further amended by adding the following new definition in the
appropriate alphabetical position:
"Sixth Amendment Effective Date" shall mean April 15,
1999.
1.3 Section 2.3 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
2.3 Revolving Credit Notes. The Revolving Credit
Loans made by the Lender shall be evidenced by a promissory
note of the Borrower, substantially in the form of Exhibit
A-6, with appropriate insertions as to payee, date and
principal amount (a "Revolving Credit Note"), payable to the
order of the Lender and in a principal amount equal to the
lesser of (a) the amount of the Revolving Credit Commitment
and (b) the aggregate unpaid principal amount of all
Revolving Credit Loans made by the Lender. The Revolving
Credit Note shall (x) be dated the Sixth Amendment Effective
Date, (y) be stated to mature on the Revolving Credit
Termination Date and (z) provide for the payment of interest
in accordance with Section 2.6.
1.4 Section 2.6 of the Credit Agreement is hereby
amended by amending and restating subsection (a) thereof in its
entirety to read as follows:
(a) Repayment. Borrower shall repay the outstanding
principal balances of the Loans, together with accrued
interest from time to time outstanding on such outstanding
principal balances, as follows:
(i) all accrued and unpaid interest on the
Term Loans shall be due and payable on the Interest Payment
Date, commencing on January 31, 1998, and continuing on each
Interest Payment Date thereafter until the Maturity Date;
provided, however, that on any date upon which interest
shall be payable hereunder, the Borrower shall pay the
applicable amount of PIK Interest hereunder on (x) the
Series A Term Loan by adding the amount of such interest to
the principal (such amount when so added, "Capitalized
Series A Interest") of the Series A Term Loan (any such
interest so added to the principal of such Series A Term
Loan shall bear interest hereunder as if it had originally
been part of the principal of the Series A Term Loan), (y)
the Series B Term Loans by adding the amount of such
interest to the principal of the Series B Term Loans (and
any such interest so added to the principal of such Series B
Term Loans shall bear interest hereunder as if it had
originally been part of the principal of the Series B Term
Loans) and (z) the Series C Term Loans by adding the amount
of such interest to the principal of the Series C Term Loans
(and any such interest so added to the principal of such
Series C Term Loans shall bear interest hereunder as if it
had originally been part of the principal of the Series C
Term Loans);
(ii) on each Principal Payment Date in each
Year set forth below, the Borrower will pay to the Lender as
a prepayment of the Series A Term Loan the lesser of (x) the
amount set forth below for such date or (y) the amount of
the Series A Term Loan then outstanding:
Principal Payment Date Amount
---------------------- ------
1998 $375,000
1999 $562,500
2000 $625,000
2001 $750,000
2002 $750,000;
provided, that, the Borrower shall defer each 1998 and 1999
amortization payment as each such payment becomes due (all
such amortization payments which are so deferred,
collectively, the "Deferred Amortization"); provided,
further, that upon such deferral by the Borrower, on each
Principal Payment Date in each Year set forth below the
Borrower will pay to the Lender as a prepayment of the
Series A Term Loan the lesser of (x) the amount set forth
below for such date or (y) the amount of the Series A Term
Loan then outstanding:
Principal Payment Date Amount
---------------------- ------
1998 Deferred
1999 Deferred
2000 $1,353,198
2001 $854,651.16
2002 $854,651.16
(iii) on December 31, 1998, the
Borrower will pay to the Lender as a prepayment of the
Series A Term Loan the amount of Capitalized Series A
Interest then outstanding;
(iv) all amounts outstanding on all Term
Loans shall be due and payable on the Maturity Date;
(v) all accrued and unpaid interest on the
Revolving Credit Loans shall be due and payable in arrears
on the last day of each Month during the Commitment Period;
and
(vi) all amounts outstanding on all
Revolving Credit Loans shall be due and payable on the
Revolving Credit Termination Date.
(vii) anything contained in this
Agreement to the contrary notwithstanding, (a) cash payments
of interest on the Revolving Credit Loan and of interest and
principal on the Series A Term Loan may not exceed
$2,500,000 (exclusive of any payments made pursuant to
Section 2.7 hereof) in the aggregate for any fiscal year of
the Borrower; provided, however, that any payments of
interest on the Revolving Credit Loan and Series A Term Loan
in excess of $2,500,000 (exclusive of any payments made
pursuant to Section 2.7 hereof) in any fiscal year shall be
paid as PIK Interest hereunder and (b) all payments of
interest in respect of the Series B Term Loans and the
Series C Term Loans shall be paid as PIK Interest hereunder;
provided, further, however, that the foregoing limitations
contained in subsections (a) and (b) above shall not apply
if (i) the Maximum Amount of Revolving Credit (as defined in
the BankBoston Credit Agreement) under the BankBoston Credit
Agreement has been reduced to $20,000,000 or less and (ii)
the Maximum Amount of Revolving Credit Outstanding (as
defined in the BankBoston Credit Agreement) shall exceed by
at least $2,000,000 the sum of the aggregate principal
amount of loans made under Section 2.1.1 of the BankBoston
Credit Agreement at the time outstanding plus the Letter of
Credit Exposure (as defined in the BankBoston Credit
Agreement) at the time in effect. Any payments of principal
of the Series A Term Loan which are deferred hereunder shall
(a) continue to accrue interest at the applicable Interest
Rate and (b) be paid as otherwise provided in this
Agreement.
1.5 Section 2.7(b) of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:
(b) Excess Cash Flow. (i) Within five Business
Days after the fifteenth day of each Month, Borrower shall
pay to the Lender as a prepayment of Revolving Credit Loans
an amount equal to the lesser of the aggregate amount of all
Revolving Credit Loans then outstanding and the Repayment
Amount;
(ii) On each Principal Payment Date in
1998, the Borrower shall pay to the Lender as a prepayment
of Revolving Credit Loans an amount equal to the excess, if
any, of (a) the amount of the Series A Term Loan due on such
Principal Payment Date the payment of which is deferred
under Section 2.6(a)(ii) over (b) the Available Commitment;
and
(iii) Commencing on the Sixth Amendment
Effective Date, until such time as the Lender shall have
received (a) the sum of $10,000,000 in principal payments on
the Series A Term Loan and (b) all accrued interest
(including, without limitation, all PIK Interest) in respect
of the Loans, within five Business Days after the date
annual financial statements have been (or are required to
have been) furnished by the Borrower to the Lender in
accordance with Section 6.1, commencing with such financial
statements for the fiscal year ended December 31, 1999, the
Borrower shall pay to the Lender as a prepayment of the Term
Loans, to be applied as provided in Section 2.7(f), an
amount equal to 100% of Consolidated Excess Cash Flow from
its most recently completed fiscal year, but only so long as
(a) after giving effect to such payment the Maximum Amount
of Revolving Credit Outstanding (as defined in the
BankBoston Credit Agreement) shall exceed by at least
$2,000,000 the sum of the aggregate principal amount of
loans made under Section 2.1.1 of the BankBoston Credit
Agreement at the time outstanding plus the Letter of Credit
Exposure (as defined in the BankBoston Credit Agreement) at
the time in effect and (b) the aggregate amount of such
payments in for any fiscal year shall not exceed $250,000;
provided, however, that the foregoing limitations contained
in subsections (a) and (b) above shall not apply if (i) the
Maximum Amount of Revolving Credit (as defined in the
BankBoston Credit Agreement) under the BankBoston Credit
Agreement has been reduced to $20,000,000 or less and (ii)
the Maximum Amount of Revolving Credit Outstanding (as
defined in the BankBoston Credit Agreement) shall exceed by
at least $2,000,000 the sum of the aggregate principal
amount of loans made under Section 2.1.1 of the BankBoston
Credit Agreement at the time outstanding plus the Letter of
Credit Exposure (as defined in the BankBoston Credit
Agreement) at the time in effect.
(iv) For purposes of this Section 2.7(b),
Consolidated Excess Cash Flow shall be calculated by the
Borrower no more than 90 days following the end of each fiscal
year.
1.6 Section 6.2(c) of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:
(c) Consolidated Operating Cash Flow to Consolidated
Debt Service. For the period of two consecutive fiscal
quarters of the Borrower ending on June 30, 1999 and for the
period of three consecutive fiscal quarters of the Borrower
ending on September 30, 1999, the Consolidated Operating
Cash Flow shall equal or exceed 90% of Consolidated Debt
Service. For the period of four consecutive fiscal quarters
of the Borrower ending on December 31, 1999, the
Consolidated Operating Cash Flow shall equal or exceed 100%
of Consolidated Debt Service. For each period of four
consecutive fiscal quarters of the Borrower ending on or
after March 31, 2000, the Consolidated Operating Cash Flow
shall equal or exceed 150% of Consolidated Debt Service.
Notwithstanding any other provision of this Agreement, for
the purpose of calculating compliance with this Section
6.2(c), there shall be excluded from Consolidated Debt
Service all interest and principal paid or accrued in
respect of the Indebtedness to Diamond Shamrock Refining and
Marketing Company listed in paragraph 7 of Exhibit 7.3 to
the BankBoston Credit Agreement.
1.7 Section 6.2(d) of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:
(d) Capital Expenditures. The aggregate amount of
Capital Expenditures of the Borrower and its Subsidiaries,
determined on a Consolidated basis, for each fiscal quarter of
Borrower ending on or after March 31, 1999 will not exceed
$333,000 plus the amount by which Capital Expenditures made in
the immediately preceding fiscal quarter were less than $333,000.
1.8 Section 6.2(f) of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:
(f) Minimum Consolidated EBITDA. For each period of
one or more consecutive fiscal quarters of the Borrower
ending on a date during each period specified below, the
Consolidated EBITDA of the Borrower shall equal or exceed
the amount set forth below next to such period.
Period Ending Amount
------------- ------
Fiscal quarter ending March 31, 1999 $1,000,000
Two consecutive fiscal quarters ending
June 30, 1999 $1,000,000
Three consecutive fiscal quarters
ending September 30, 1999 $2,000,000
Fiscal year ending December 31, 1999 $4,000,000
Fiscal quarter ending March 31, 2000 $2,000,000
Two consecutive fiscal quarters ending
June 30, 2000 $4,000,000
Three consecutive fiscal quarters
ending September 30, 2000 $6,000,000
Fiscal year ending December 31, 2000 $8,000,000
1.9 Schedule 2.1 of the Credit Agreement is hereby
amended by deleting the amount "$500,000" contained therein and
inserting in lieu thereof the amount "$600,000".
1.10 Exhibit A to the Credit Agreement is hereby
amended by deleting Exhibit A-3 thereto and inserting a new
Exhibit A-3 in the form of Exhibit A hereto.
1.11 Exhibit A to the Credit Agreement is hereby
further amended by deleting Exhibit A-6 thereto and inserting a
new Exhibit A-6 in the form of Exhibit B hereto.
SECTION 2 Waiver and Consent. Lender agrees to waive
any Default or Event of Default existing or arising prior to the
Sixth Amendment Effective Date under Section 6.2 of the Credit
Agreement and any default or event of default arising or existing
prior to the Sixth Amendment Effective Date under Sections 4.3.2,
6.5.1, 6.5.2, 6.5.3, 6.5.5, 6.5.6 and 6.5.7 of the BankBoston
Credit Agreement which would otherwise result in a Default or
Event of Default under the Credit Agreement. Additionally, from
and after the Sixth Amendment Effective Date, until the Final
Maturity Date (as defined in the BankBoston Credit Agreement),
Lender agrees to waive any Default or Event of Default existing
or arising under Sections 6.2(a), 6.2(b), 6.2(e) and 6.2(g) of
the Amended Credit Agreement.
SECTION 3 Representations and Warranties. The
Borrower and each of the Guarantors represents and warrants to
the Lender that (a) each representation and warranty set forth in
Article V of the Credit Agreement is true and correct in all
material respects (except for any such representations and
warranties which are qualified by their terms by a reference to
materiality, which representations and warranties as so qualified
shall be true and correct in all respects) as of the date of the
execution and delivery of this Sixth Amendment by the Borrower
and the Guarantors (and assuming the effectiveness hereof), with
the same effect as if made on such date (except for any such
representations and warranties which are made with respect to a
specified date, which representations and warranties shall only
be required to be true and correct as of such date); and (b) the
execution and delivery by the Borrower and the Guarantors of this
Sixth Amendment and the performance by the Borrower and the
Guarantors of their respective obligations under the Credit
Agreement, as amended hereby (as so amended, the "Amended Credit
Agreement"), (i) are within the corporate powers of the Borrower
and Guarantors, (ii) have been duly authorized by all necessary
corporate action on the part of the Borrower and the Guarantors,
(iii) have received all necessary approvals and consents from any
governmental authority and (iv) do not and will not contravene or
conflict with, or result in or require the creation or imposition
of any Lien under, any provision or requirements of law or of the
certificate of incorporation or by-laws (or equivalent
organizational or governing document) of the Borrower or any
Guarantor or of any agreement, instrument, order or decree which
is binding upon the Borrower of any Guarantor.
SECTION 4 Effectiveness. The amendments set forth in
Section 1 hereof shall become effective on such date (the "Sixth
Amendment Effective Date") when the Lender shall have received
all of the following:
(i) Counterparts of this Sixth Amendment
executed by a duly authorized officer of the Borrower and each of
the Guarantors.
(ii) Payment of a commitment fee in the
amount of $100,000 which shall be payable in the form of an
additional Series B-2 Term Loan.
(iii) An executed Series B-2 Term Note in
the form of Exhibit A hereto.
(iv) An executed Revolving Credit Note in
the form of Exhibit B hereto.
(v) An opinion of Andrews & Kurth, LLP,
counsel to the Borrower and the Guarantors, substantially in the
form of Attachment I hereto.
(vi) Confirmation that the Borrower has
paid to the Lender all of Lender's out-of pocket costs and expenses in
connection with this Sixth Amendment including, without
limitation, reasonable expenses, fees and charges payable to the
Lender's counsel, Paul, Weiss, Rifkind, Wharton & Garrison.
(vii) All documents the Lender may
reasonably request relating to the existence of the Borrower and the
Guarantors, the corporate authority for and the validity of this
Sixth Amendment, and any other matters relevant hereto, all in
form and substance satisfactory to the Lender.
(viii) Counterparts of the Consent and
Agreement, substantially in the form of Attachment II hereto,
executed by a duly authorized officer of each of the Guarantors.
(ix) A duly executed copy of Amendment No.
5 to the BankBoston Credit Agreement in form and substance
satisfactory to the Lender.
(x) Confirmation that the Borrower has
amended and exchanged the Series B, C and D Units held by Lender in
the form of Attachment III hereto.
SECTION 5 Miscellaneous.
5.1 Continuing Effectiveness, etc. The Credit
Agreement as hereby amended and all other Loan Documents are
hereby ratified and confirmed in all respects. After the Sixth
Amendment Effective Date, all references in the Credit Agreement
and the other Loan Documents to "Credit Agreement", "Agreement"
or similar terms shall refer to the Amended Credit Agreement.
The execution, delivery and effectiveness of this Sixth Amendment
shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Lender under the
Credit Agreement or any other Loan Document nor constitute a
waiver of any provision of the Credit Agreement, the Notes, or
any other Loan Document nor constitute a waiver of any Default or
Event of Default.
5.2 Counterparts. This Sixth Amendment may be
executed in any number of counterparts and by the different
parties on separate counterparts, and each such counterpart shall
be deemed to be an original but all such counterparts shall
together constitute one and the same Sixth Amendment.
5.3 Governing Law. This Sixth Amendment shall be
governed by and construed in accordance with the internal laws of
the State of New York (without reference to the conflicts of laws
provisions thereof).
5.4 Successors and Assigns. This Sixth Amendment
shall be binding upon the Borrower, the Guarantors, the Lender
and their respective permitted successors and assigns, and shall
inure to the benefit of the Borrower, the Guarantors, the Lender
and their respective permitted successors and assigns.
5.5 Further Assurances. Each of the Borrower and
the Guarantors will, promptly upon the request of the Lender,
from time to time execute, acknowledge and deliver, and file and
record, all such agreements, documents, instruments and notices,
and take all such action, as the Lender deems necessary or
advisable to carry out the intent and purposes of this Sixth
Amendment and the Credit Agreement.
5.6 Consent to Dissolution of Desulfur Partnership.
The Lender hereby consents to the dissolution of Desulfur
Partnership.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Sixth Amendment to be duly executed by their respective
authorized officers as of the day and year first above written.
PRIDE COMPANIES, L.P.
By Pride Refining, Inc., its
Managing General Partner
By:____________________________
Name:
Title:
PRIDE REFINING, INC.
By:____________________________
Name:
Title:
PRIDE SGP, INC.
By:____________________________
Name:
Title:
PRIDE BORGER, INC.
By:____________________________
Name:
Title:
PRIDE MARKETING OF TEXAS
(CEDAR WIND), INC.
By:____________________________
Name:
Title:
Varde PARTNERS, INC., as lender
By:____________________________
Name:
Title:
CONSENT AND AGREEMENT
Each of Pride Refining, Inc., Pride SGP, Inc., Pride
Marketing of Texas (Cedar Wind), Inc. and Pride Borger, Inc.
hereby consents to the provisions of this Sixth Amendment and the
transactions contemplated herein, and hereby ratifies and
confirms the respective Third Restated Guaranty Agreements, each
dated as of December 30, 1997, made by it for the benefit of
Lender, and agrees that its obligations and covenants thereunder
are unimpaired hereby and shall remain in full force and effect.
Dated: April 15, 1999
PRIDE REFINING, INC.
By:______________________________
Name:
Title:
PRIDE SGP, INC.
By:______________________________
Name:
Title:
PRIDE MARKETING OF TEXAS (CEDAR
WIND), INC.
By:______________________________
Name:
Title:
PRIDE BORGER, INC.
By:______________________________
Name:
Title:
EXHIBIT A
SERIES B-2
TERM NOTE
$600,000 New York, New York
April 15, 1999
FOR VALUE RECEIVED, the undersigned, PRIDE COMPANIES, L.P.,
a Delaware limited partnership (the "Borrower"), unconditionally
promises to pay to the order of Varde PARTNERS, INC. (the "Lender"),
on the dates and in the manner set forth in sections 2.6(a) and 2.8 of
the Credit Agreement (as defined below), the lesser of (a) the
principal amount of SIX HUNDRED THOUSAND DOLLARS ($600,000) and (b)
the aggregate unpaid principal amount of the Series B-2 Term Loan made
by the Lender to the Borrower pursuant to section 2.1 of the Credit
Agreement. The Borrower further agrees to pay interest on the unpaid
principal amount hereof on the dates and at the applicable rates per
annum as provided in section 2.6(b) of the Credit agreement until any
such amount shall be due and payable (whether at the
stated maturity, by acceleration or otherwise).
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a continuation
thereof which shall be attached hereto and made a part hereof the date
and amount of the Series B-2 Term Loan made pursuant to the Credit
Agreement and the date and amount of each payment or prepayment of
principal thereof. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed; provided,
however, that the failure of the Lender to make any such endorsement
shall not affect the obligations of the Borrower in respect of such
Series B-2 Term Loan.
This Note (a) is the Series B-2 Term Note referred to in the
Sixth Restated and Amended Credit Agreement, dated as of December 30,
1997 (as the same may from time to time be amended, modified or
supplemented, the "Credit Agreement"), among the Borrower, Pride
Refining, Inc., Pride SGP, Inc., Pride Marketing of Texas (Cedar
Wind), Inc., Pride Borger, Inc. and the Lender, (b) is subject to the
provisions of the Credit Agreement and (c) is subject to optional and
mandatory prepayment in whole or in part as provided
in the Credit Agreement. This Note is secured and guaranteed as
provided in the Collateral Documents. Reference is hereby made to the
Collateral Documents for a description of the properties and assets in
which a security interest has been granted, the nature and extent of
the security and the guarantees, the terms and conditions upon which
the security interests and each guarantee were granted and the rights
of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of
Default specified in the Credit Agreement, all amounts then remaining
unpaid on this Note may become, or be declared to be, immediately due
and payable as provided in the Credit Agreement.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
The Borrower hereby waives presentment, demand, protest and
all other notices of any kind.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS
THEREOF).
PRIDE COMPANIES, L.P., a Delaware
limited partnership
By: PRIDE REFINING, INC., a Texas
corporation, Managing General
Partner
By:
Dave Caddell
Vice President
EXHIBIT B
REVOLVING CREDIT NOTE
$3,000,000 New York, New York
April 15, 1999
FOR VALUE RECEIVED, the undersigned, PRIDE COMPANIES, L.P.,
a Delaware limited partnership (the "Borrower"), unconditionally
promises to pay on the Revolving Credit Termination Date (as defined
in the Credit Agreement defined below) to the order of Varde PARTNERS,
INC. (the "Lender"), on the dates and in the manner set forth in
sections 2.6 and 2.8 of the Credit Agreement, the lesser of (a) the
principal amount of THREE MILLION DOLLARS ($3,000,000) and (b) the
aggregate unpaid principal amount of all Revolving Credit Loans made
by the Lender to the Borrower pursuant to section 2.2 of the Credit
Agreement. The Borrower further agrees to pay interest on the unpaid
principal amount hereof on the dates and at the applicable rates per
annum as provided in section 2.6(b) of the Credit Agreement until any
such amount shall be due and payable (whether at the
stated maturity, by acceleration or otherwise).
The holder of this Note is authorized to endorse on the
schedule annexed hereto and made a part hereof or on a continuation
thereof which shall be attached hereto and made a part hereof the date
and amount of each Revolving Credit Loan made pursuant to the Credit
Agreement and the date and amount of each payment or prepayment of
principal thereof. Each such endorsement shall constitute prima facie
evidence of the accuracy of the information endorsed; provided,
however, that the failure of the Lender to make any such endorsement
shall not affect the obligations of the Borrower in respect of such
Revolving Credit Loans.
This Note (a) is the Revolving Credit Note referred to in
the Sixth Restated and Amended Credit Agreement, dated as of December
30, 1997 (as the same may from time to time be amended, modified or
supplemented, the "Credit Agreement"), among the Borrower, Pride
Refining, Inc., Pride SGP, Inc., Pride Marketing of Texas (Cedar
Wind), Inc., Pride Borger, Inc. and the Lender, (b) is subject to the
provisions of the Credit Agreement and (c) is subject to optional and
mandatory prepayment in whole or in part as provided in the Credit
Agreement. This Note is secured and guaranteed as
provided in the Collateral Documents. Reference is hereby made to the
Collateral Documents for a description of the properties and assets in
which a security interest has been granted, the nature and extent of
the security and the guarantees, the terms and conditions upon which
the security interests and each guarantee were granted and the rights
of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of
Default specified in the Credit Agreement, all amounts then remaining
unpaid on this Note may become, or be declared to be, immediately due
and payable as provided in the Credit Agreement.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
The Borrower hereby waives presentment, demand, protest and
all other notices of any kind.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REFERENCE TO THE CONFLICTS OF LAWS PROVISIONS
THEREOF).
PRIDE COMPANIES, L.P., a Delaware
limited partnership
By: PRIDE REFINING, INC., a Texas
corporation, Managing General
Partner
By:
Dave Caddell
Vice President
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS
of
SERIES B CUMULATIVE CONVERTIBLE PREFERRED UNITS
of
PRIDE COMPANIES, L.P.
Pursuant to the Third Amended and Restated Agreement
of Limited Partnership
effective as of April 15, 1999
_____________________
Pride Refining, Inc., a Texas corporation, as Managing
General Partner of Pride Companies, L.P. (the "Company"), certifies
that (i) pursuant to authority contained in the Second Amended and
Restated Agreement of Limited Partnership effective as of December
30, 1997, the Series B Cumulative Convertible Preferred Units of
the Company were duly established and (ii) pursuant to authority
contained in the Third Amended and Restated Agreement of Limited
Partnership effective as of April 15, 1999, the Series B Cumulative
Convertible Preferred Units are hereby amended and restated so that
such series will have the designations, rights, powers,
preferences, qualifications, limitations and restrictions set forth
below:
SERIES B CUMULATIVE CONVERTIBLE PREFERRED UNITS
Section 1. Number of Units and Designation. There is
hereby established a series of preferred limited partnership units
of the Company with the designation "Series B Cumulative
Convertible Preferred Units" (herein referred to as the "Series B
Units"), which shall consist of a maximum of 15,850 Units, with a
Stated Value per Unit of $1,000.00 (the "Stated Value").
Section 2. Definitions. In addition to the definitions
set forth elsewhere herein, the following terms shall have the
meanings indicated:
"$2,000,000 Loan" means indebtedness of the Company to
the Special General Partner evidenced by that certain Promissory
Note dated as of August 13, 1996, made by the Company payable to
the order of the Special General Partner in the original principal
amount of $2,000,000.
"$450,000 Loan" means indebtedness of the Company to the
Special General Partner evidenced by that certain Promissory Note
dated as of August 13, 1996, made by the Company payable to the
order of the Special General Partner in the original principal
amount of $450,000.
"Affiliate" of any Person is a Person that, directly or
indirectly, controls, is controlled by or is under common control
with such Person (and "control" means the power, directly or
indirectly, to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, or to elect a majority of a
Person's Board of Directors or equivalent governing body).
"BankBoston Credit Agreement" means that certain
Revolving Credit and Term Loan Agreement, dated as of December 30,
1997, by and among the Company (as borrower), BankBoston, N.A. (as
a lender and as agent), the guarantors parties thereto and the
lenders from time to time parties thereto, as such agreement may be
amended from time to time.
"Business Day" means any day other than a Saturday,
Sunday or a day on which commercial banks in Dallas, Texas are
required or authorized to close.
"Common Units" means the common limited partnership units
of the Company issued or authorized for issuance pursuant to the
Partnership Agreement.
"Credit Agreement" means the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997, among the Company
(as borrower), the Managing General Partner, the Special General
Partner, Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (as guarantors), and Varde (as
lender), as such agreement may be amended from time to time.
"Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Borrower (or other
specified Person) as liabilities, but in any event including
(without duplication);
(i) borrowed money;
(ii) indebtedness evidenced by notes, debentures or
similar instruments;
(iii) Capitalized Lease Obligations;
(iv) the deferred purchase price of assets, services
or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade
accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(v) mandatory redemption or dividend rights on
capital stock (or other equity);
(vi) reimbursement obligations, whether contingent
or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements (without duplication of
other Indebtedness supported or guaranteed thereby);
(vii) unfunded pension liabilities;
(viii) obligations that are immediately and
directly due and payable out of the proceeds of or production
from property;
(ix) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified
Person), whether or not the liability secured thereby shall
have been assumed; and
(x) all Guarantees in respect of Indebtedness of
others.
The term "Capitalized Lease Obligations" means the amount
of liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board. The term "Capitalized Lease" means any
lease which is required to be capitalized on the balance sheet of
the lessee in accordance with GAAP, including Statement Nos. 13 and
98 of the Financial Accounting Standards Board. The term "Interest
Rate Protection Agreement" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed rates, fixed interest
rates into variable rates or other similar arrangements. The term
"Lien" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the repayment of Indebtedness, whether arising by agreement or
under any statute or law, or otherwise. The term "Guarantee" of
any Person means any contract, agreement or understanding of such
Person pursuant to which such Person guarantees, or in effect
guarantees, any Indebtedness of any other Person in any manner,
whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property
constituting security therefor, (ii) to advance or supply funds (A)
for the purchase or payment of such Indebtedness, or (B) to
maintain net worth or working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness, (iii) to purchase
property, securities or service primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the
primary obligor to make payment of the Indebtedness, or (iv)
otherwise to assure the holder of the Indebtedness of the primary
obligor against loss in respect thereof; except that "Guarantee"
shall not include the endorsement by the Company in the ordinary
course of business of negotiable instruments or documents for
deposit or collection.
"Initial Issuance Date" means the date on which the first
issuance of Series B Units occurs, whether such phrase is used in
reference to Units issued on such date or on any subsequent date.
"Junior Securities" means the Common Units and any other
class or series of equity of the Company ranking junior to the
Series B Units as to distributions or upon liquidation, dissolution
or winding up, and the units thereof.
"Managing General Partner" means the corporation or other
entity designated to serve as managing general partner of the
Company pursuant to the Partnership Agreement.
"Note Purchase Agreement" means that certain Note
Agreement dated August 13, 1996, as amended, providing, among other
things, for the issuance by the Company of the Series A Unsecured
Note.
"Parity Securities" means any class or series of equity
of the Company ranking on a parity with the Series B Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Partnership Agreement" means that certain Third Amended
and Restated Agreement of Limited Partnership of Pride Companies,
L.P., effective as of April 15, 1999, as such agreement may be
amended.
"Person" means an any individual, partnership, joint
venture, corporation, limited liability company, trust,
unincorporated organization or government or any department or
agency thereof.
"Pipeline Lease" means that certain Pipeline Lease
Agreement effective as of March 29, 1990, between the Company, as
lessee, and the Special General Partner, as lessor, as amended by
Amendment No. 1 to Pipeline Lease Agreement and Amendment No. 2 to
Pipeline Lease Agreement, each effective as of March 29, 1990, and
by Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 30, 1997.
"Pride SGP Equity Conversion Agreement" means the amended
and restated Agreement of Pride SGP, dated as of August 13, 1996,
by and between the Special General Partner and the Company,
together with the Subordination Agreement attached thereto.
"Restructuring Agreement" means that certain
Restructuring and Override Agreement, dated as of December 30,
1997, by and among the Company, the Managing General Partner, the
Special General Partner and Varde.
"Senior Securities" means any class or series of equity
of the Company ranking senior to the Series B Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Series A Term Loan" means the term loan in the aggregate
principal amount of $20,000,000 owed by the Company to Varde
pursuant to the Credit Agreement.
"Series A Unsecured Note" means the Convertible Unsecured
Series A Promissory Notes of the Company in the aggregate initial
principal amount of $2,500,000, issued by the Company to Varde
pursuant to the Note Purchase Agreement.
"Series C Units" means the Series C Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Certificate of Designations
dated as of December 30, 1997, relating to such series. Series C
Units are Parity Securities.
"Series D" Units means the Series D Cumulative Preferred
Units of the Company issued in accordance with the Partnership
Agreement and the Certificate of Designations dated as of December
30, 1997, relating to such series. Series D Units are Junior
Securities.
"Series E Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as
contemplated by Section 2.1 of the Pride SGP Equity Conversion
Agreement, upon the conversion of the $2,000,000 Loan. Series E
Units are Junior Securities.
"Series F Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as
contemplated by Section 2.1 of the Pride SGP Equity Conversion
Agreement, upon the conversion of the $450,000 Loan. Series F
Units are Junior Securities.
"SGP Guarantee" means the guarantee by the Special
General Partner of, among other things, (i) the distribution rights
and liquidation preferences of the Series B Units, the Series C
Units and the Series D Units and (ii) the obligations of the
Company to Varde under the Series A Unsecured Note.
"Special General Partner" means Pride SGP, Inc., a Texas
corporation, or any successor in its capacity as special general
partner of the Company.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture, limited
liability company or other business or corporate entity, enterprise
or organization which is directly or indirectly (through one or
more intermediaries) controlled by or owned fifty percent or more
by such person.
"Transfer Agent" means such agent or agents of the
Company as may be designated by the Managing General Partner as the
transfer agent for the Series B Units.
"Units" means any or all or each, as the context may
require, of the Series B Units, the Series C Units, the Series D
Units, the Series E Units and the Series F Units.
"Varde" means Varde Partners, Inc., a Delaware
corporation, and its successors and assigns.
Section 3. Distributions; Allocation of Income.
(a) The Company shall pay to the holders of the Series B Units,
out of the assets of the Company at any time legally available for
the payment of distributions, preferential quarterly distributions
at the times and at the rates provided for in this Section 3. To
the extent not paid currently such preferential distributions shall
accumulate and compound (as described below) on each Unit from and
including the date of original issuance of such Unit to and
including the date on which such Unit shall have been converted
into Common Units or redeemed and the redemption price shall have
been paid in full as contemplated by Section 6 hereof.
(b) To the extent that funds are legally available
therefor, distributions shall be paid quarterly, on and as of the
fifth calendar day of each February, May, August and November
(each, a "Distribution Payment Date"), on each Unit outstanding at
the following rates:
(i) subject to subsection (c) below, during
the three-year period beginning on the Initial Issuance Date
and ending on the date immediately preceding the third
anniversary thereof, at the rate of 6% per annum of the Stated
Value of the Unit;
(ii) during the two-year period beginning on
the third anniversary of the Initial Issuance Date and ending
on the date immediately preceding the fifth anniversary
thereof, at the rate of 12% per annum of the Stated Value of
the Unit, payable in cash only; and
(iii) thereafter, at the rate of 15% per
annum of the Stated Value of the Unit, payable in cash only.
The amount of the distribution payable on each
Distribution Payment Date shall be determined by applying the
applicable rate from and including the date immediately following
the last previous Distribution Payment Date (or from and including
the date of original issuance of the Unit, with respect to the
first distribution period) to and including the Distribution
Payment Date, on the basis of a year of 360 days.
(c) During the three-year period referred to in
subsection (b)(i) above, distributions on the Units shall be
payable currently in cash or may be deferred, at the Company's
option; provided, however, that in case of such deferrals, the
amount of such preferred distributions that will accumulate shall
be determined at the rate of 8% per annum. Notwithstanding the
foregoing or anything else contained herein to the contrary,
however, distributions payable on any Redemption Date (as defined
in Section 6 below) or on any final distribution date relating to
a dissolution, liquidation or winding up of the Company, shall be
payable in cash only and, if the payment date does not occur on a
regular Distribution Payment Date, shall be calculated on the basis
of the actual number of days elapsed including the Redemption Date
or such final distribution date. Distributions payable on the Units
for any period of less than a full quarterly distribution period
shall be computed on the basis of actual days elapsed, excluding
the last preceding Distribution Payment Date and including the last
day of such period, and on the basis of 360 days.
(d) To the extent a preferred distribution is not
paid on a Distribution Payment Date with respect to a Unit, the
amount with respect to which subsequent preferred distributions on
such Unit shall be calculated shall include such unpaid amount and
such unpaid distributions, together with all additional deferred
distributions with respect thereto, shall be payable prior to any
distributions or payments being made with respect to such Units.
Nothing in this subsection (d) or any other provision hereof shall
give the Company any right not to pay any distribution as and to
the extent required by subsection (b) of this Section 3 or to defer
or delay such payment beyond the applicable Distribution Payment
Date.
(e) Distributions payable on each Distribution
Payment Date shall be paid to record holders of the Units as they
appear on the books of the Company at the close of business on the
tenth Business Day immediately preceding the respective
Distribution Payment Date.
(f) Except as otherwise provided in Section 1.1(f)
of the Restructuring Agreement, so long as any Series B Units are
outstanding:
(i) No distribution shall be declared or paid,
or set apart for payment on or in respect of any Junior
Securities, including, without limitation, distributions
payable in cash or other property or in units of any Junior
Security or other securities of the Company.
(ii) No distribution, except as described in
the next succeeding sentence, shall be declared or paid, or
set apart for payment on or in respect of any Parity
Securities, for any period unless full cumulative
distributions on all outstanding Series B Units have been or
contemporaneously are declared and paid for all distribution
periods terminating on or prior to the date set for payment of
such distribution on the Parity Securities. When
distributions are not paid in full, as aforesaid, on the
Series B Units and any Parity Securities, all distributions
declared upon such Parity Securities shall be declared and
paid pro rata with the Series B Units so that the amounts of
distributions per unit declared and paid on the Series B Units
and such Parity Securities shall in all cases bear to each
other the same ratio that unpaid cumulative distributions per
unit on the Series B Units and on such Parity Securities bear
to each other, and shall in all cases be paid to the same
extent in cash, other assets and/or securities of the same
class as the securities on which the respective distributions
are being paid.
(iii) Unless full cumulative distributions
on all outstanding Series B Units have been paid (or
contemporaneously are declared and paid) in cash for all prior
distribution periods (1) no rental payments shall be made to
the Special General Partner pursuant to the Pipeline Lease
unless Varde has received the full amount in cash to which it
is entitled under Section 1.1(f) of the Restructuring
Agreement and (2) the Special General Partner shall not
declare or pay, or set apart for payment, any dividend or
distribution in respect of any of the outstanding securities
of the Special General Partner.
For purposes of this subsection (f), unless expressly
stated otherwise herein, "distribution" shall include, without
limitation, any distribution by the Company of cash, evidences of
indebtedness, securities or other properties or assets of the
Company, or of rights to purchase or otherwise acquire any of the
foregoing, whether or not made out of profits, surplus or other
funds of the Company legally available for the payment of
distributions.
(g) The holders of Series B Units will be allocated
an amount of gross income equal to the amount of any preferred
distributions paid on the Series B Units prior to any allocation of
income to the holders of Junior Securities.
Section 4. Certain Covenants and Restrictions. So long
as any Series B Units are outstanding:
(a) The Company shall not (i) issue, reissue, agree
to issue or authorize the issuance of any Senior Securities or any
Parity Securities or any units or other securities or any options,
warrants, notes, bonds, debentures or other instruments convertible
into, exchangeable for or having rights to purchase any Senior
Securities or any Parity Securities or (ii) reclassify or modify
any Junior Security so that it becomes a Parity Security or Senior
Security.
(b) The Company shall not (i) pay any principal or
interest on, or redeem, purchase or otherwise acquire for any
consideration any Parity Securities or Junior Securities (or pay
any money to a sinking fund or otherwise set apart any money,
property or other consideration for the purchase or redemption of
any Parity Securities or Junior Securities) or (ii) pay, provide or
distribute to the holders of any Parity Securities or Junior
Securities, as such, any money, property, rights or other
consideration, except for distributions to holders of Parity
Securities permitted by Section 3(f)(ii) hereof.
(c) The Company shall not effect any split, reverse
split or any other subdivision or combination of the Common Units
or any other class or series of equity securities of the Company.
(d) Neither the Company nor the Managing General
Partner shall amend, alter or rescind (whether by merger,
consolidation or otherwise) any of the provisions of the
Partnership Agreement, this Certificate of Designations, the
Articles of Corporation, bylaws or other organizational document of
the Managing General Partner or any agreement entered into for the
benefit of holders of Series B Units in any manner so as to affect
adversely any of the preferences, rights or powers of the Series B
Units.
(e) The Company shall not and shall not permit any
of its Subsidiaries to, create, assume, incur, guarantee or
otherwise become or be liable in respect of, or maintain or
otherwise allow to exist, any Indebtedness, except for the
following:
(i) So long as the Credit Agreement is in
effect, the Indebtedness permitted and set forth in
Section 7.1 of the Credit Agreement; and
(ii) If the Credit Agreement is no longer in
effect, the Indebtedness set forth in Section 6.6 of the
BankBoston Credit Agreement (whether or not the BankBoston
Credit Agreement shall then be in effect).
(f) The Company will not, and will not permit any
of its Subsidiaries to, sell, lease, convey, transfer, issue or
otherwise dispose of, in one transaction or in a series of
transactions, whether involving assets or securities, all or a
substantial portion of any Company Business, or any shares or
partnership interests in any Subsidiary (whether such interests are
now or hereafter issued, outstanding or created) except a sale for
fair consideration (as determined by the Board of Directors of the
Managing General Partner) to a purchaser who is not an Affiliate of
the Company, the Managing General Partner or the Special General
Partner, which consideration shall consist solely of cash which is
applied by the Company as provided in subsection (h) of this
Section 4. As used in this subsection, "Company Business" means the
operations and assets of one of the following three primary lines
of business as currently conducted by the Company and its
Subsidiaries on January 1, 1998: (i) crude oil gathering and
exchange, (ii) refining and (iii) transportation and marketing of
refinery products.
(g) All money, property or other consideration
received by the Company or any Subsidiary outside the ordinary
course of business, including but not limited to consideration for
or in connection with the sale, lease, transfer or other
disposition of any assets or properties of the Company (other than
the sale of goods and services in the ordinary course of business),
or any shares or partnership interests in any Subsidiary (whether
such interests are now or hereafter issued, outstanding or created)
but excluding consideration received in connection with (A) the
sale or disposition of any asset of the Company which is sold for
fair consideration not in excess of $25,000 or in the aggregate not
in excess of $250,000 (provided that to the extent consideration
from any such excluded sale or disposition is applied by the
Company in accordance with this Section 4(g), the amount of such
consideration shall not be counted under the $250,000 aggregate
limitation) and (B) except as otherwise provided in the
Restructuring Agreement, Litigation Settlements or Equity
Offerings, shall be applied (or converted into cash and then
applied, if applicable) by the Company (i) first, to the payment of
all amounts outstanding and due under the Credit Agreement and the
BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note;
(iii) then, to the redemption of the outstanding Series B Units in
accordance with Section 6 hereof; provided, that funds applied to
the redemption of Series B Units as provided in clause (iii) shall
be so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company.
(h) Except as otherwise provided in the
Restructuring Agreement, all consideration received by the Company
or any Subsidiary in connection with the resolution (by judgment or
otherwise) or settlement of any judicial, administrative or
arbitral proceeding ("Litigation Settlements") shall be applied (or
converted into cash and then applied, if applicable) by the Company
(i) first, to the payment of all amounts outstanding and due under
the Credit Agreement and the BankBoston Credit Agreement;
(ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the
outstanding Series B Units in accordance with Section 6 hereof;
provided, that funds applied to the redemption of Series B Units as
provided in clause (iii) shall be so applied with respect to the
initial Stated Value of the Units being redeemed and any portion of
the Redemption Price of such Units attributable to adjustments to
Stated Value shall be paid out of other funds of the Company.
(i) Except as provided in the next succeeding
sentence, all proceeds of public or private offerings of equity
securities by the Company ("Equity Offerings") shall consist of
cash and shall be applied (i) first, to the payment of all amounts
outstanding and due under the Credit Agreement and the BankBoston
Credit Agreement; (ii) next, to the payment of all amounts
outstanding and due under the Series A Unsecured Note; (iii) then,
to the redemption of the outstanding Series B Units in accordance
with Section 6 hereof; provided, that funds applied to the
redemption of Series B Units as provided in clause (iii) shall be
so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company. The Company may use up to $4.5
million, in the aggregate, of proceeds of Equity Offerings for
capital expenditures in excess of normal maintenance capital
expenditures if, out of every dollar so applied, no more than 60%
is applied to such excess capital expenditures and at least 40% is
applied in the manner provided in clauses (i), (ii) and (iii) of
this Section 4(i).
(j) [intentionally omitted]
(k) The Company shall not cause or permit the
Pipeline Lease or any other agreement between the Company and any
Affiliate of the Company to be amended, supplemented, replaced or
modified in any manner that would increase the payments required to
be made by the Company thereunder or the costs of compliance by the
Company therewith.
(l) The Company shall deliver to each holder of
Series B Units one (1) copy of each of the following:
(i) Monthly Statements. As soon as
available, and in any event within 30 days after the end of each
calendar month, copies of the consolidated balance sheet of the
Company as of the end of such month, and statements of income and
retained earnings and changes in financial position and cash
flows of the Company for that month and for the portion of the
fiscal year ending with such period, in each case setting
forth in comparative form the figures for the corresponding
period of the preceding fiscal year. Such statements shall be
in reasonable detail, with a certificate of the chief
financial officer of the Managing General Partner certifying
that such statements are true and correct in all material
respects to the best of his knowledge and prepared in
accordance with generally accepted accounting principles
("GAAP"), consistently maintained and applied, subject to
year-end audit adjustments.
(ii) Annual Statements. As soon as
available after each fiscal year end, and in any event within 90
days thereafter, copies of the consolidated balance sheet of the
Company as of the close of such fiscal year and statements of
income and retained earnings and cash flows of the Company for
such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in
reasonable detail and accompanied by an opinion thereon (which
shall be without a "going concern" or like qualification or
exception) of Ernst & Young or of other independent public
accountants of recognized national standing selected by the
Company and satisfactory to the holders of Series B Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series B Units, to the effect that such
consolidated financial statements have been prepared in
accordance with GAAP consistently maintained and applied
(except for changes in which such accountants concur) and that
the examination of such accounts in connection with such
financial statements has been made in accordance with
generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances.
(iii) SEC and Other Reports. Promptly upon
its becoming available, one copy of each financial statement,
report, notice or proxy statement sent by the Company to
equity owners generally and of each regular or periodic
report, registration statement or prospectus filed by the
Company with any securities exchange or the Securities and
Exchange Commission or any successor agency, and of any order
issued by any court or governmental authority in any
proceeding to which the Company is a party.
(iv) Other Information. Such other
information concerning the business, properties or financial
condition of the Company as the holders of Series B Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series B Units shall reasonably request.
For purposes of this Section 4, "proceeds" means gross
amounts received without deduction of any related costs or
expenses, offset of any related losses or other reduction of any
kind, except that "proceeds" of Equity Offerings means gross sales
price less reasonable discounts and commissions of underwriters or
placement agents. Any noncash proceeds or other noncash assets
received by the Company and that are subject to the provisions of
subsection (h) or (i) of this Section 4 shall be converted to cash
by the Company as soon as practicable and applied as provided in
the applicable subsection, and shall not be sold, transferred or
otherwise disposed of by the Company other than for such purpose.
Notwithstanding the foregoing, the Company may allow any promissory
note or similar instrument that is subject to subsection (h) or (i)
of this Section 4 to remain outstanding in accordance with its
terms, provided that all payments received by the Company
thereunder, and the proceed of any sale, transfer or other
disposition thereof, shall be applied as provided in the applicable
subsection of this Section 4.
Compliance by the Company with any covenant contained in
this Section 4 may be waived in writing by the holders of Series B
Units representing 51% or more of the aggregate Stated Value of the
outstanding Series B Units. No such waiver shall be deemed to be
a continuing waiver nor a waiver with respect to any other covenant
of the Company or any other term, condition or provision hereof.
Section 5. Liquidation Preference. (a) In the event of
any liquidation, dissolution or winding up of the Company (in
connection with the bankruptcy or insolvency of the Company or
otherwise), whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or
surplus) shall be made to or set apart for the holders of Common
Units or any other class or series of Junior Securities, the holder
of each Series B Unit shall be entitled to receive in cash an
amount equal to the Stated Value per Unit plus an amount equal to
the aggregate dollar amount of all unpaid preferred distributions
through the date of final distribution to such holders (including
a prorated distribution from the most recent Distribution Payment
Date to such date of final distribution). No payment on account of
any such liquidation, dissolution or winding up of the Company
shall be made to the holders of any class or series of Parity
Securities unless there shall be paid at the same time to the
holders of the Series B Units proportionate amounts in cash
determined ratably in proportion to the full amounts to which the
holders of all outstanding Series B Units and the holders of all
such outstanding Parity Securities are respectively entitled with
respect to such distribution. For purposes of this Section 5,
neither a consolidation or merger of the Company with one or more
partnerships, corporations or other entities nor a sale, lease,
exchange or transfer of all or any part of the Company's assets for
cash, securities or other property shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary if
the surviving entity in any such consolidation, merger, sale,
lease, exchange or transfer assumes in writing all the Company's
obligations under this Certificate of Designations, the Amended and
Restated Registration Rights Agreement referred to in Section 12
hereof, the Pride SGP Equity Conversion Agreement, and the Warrants
to Purchase Common Units, issued by the Company to each holder of
Series B Units or Series C Units.
(b) Subject to the rights of the holders of any
class or series of Parity Securities or Senior Securities, upon any
liquidation, dissolution or winding up of the Company, after
payment shall have been made in full to the holders of Series B
Units, as provided in this Section 5, any class or series of Junior
Securities shall, subject to the respective terms and provisions
(if any) applicable thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of
Series B Units shall not be entitled to share therein.
(c) Written notice of the commencement of any
proceeding for or that may result in any liquidation, dissolution
or winding up of the Company shall be given to holders of Series B
Units in accordance with Section 10(k), but neither the giving of
such notice nor anything in this Section 5 or any other provision
hereof shall relieve the Company of its obligation to obtain
consent from holders of Units as provided in Section 9.
Section 6. Optional and Mandatory Redemption. (a) The
Company may, at the option of the Managing General Partner, redeem
for cash at any time after the Retirement Date, from any source of
funds legally available therefor, in whole or in part, in the
manner provided below any and all of the outstanding Series B Units
at a redemption price per Unit (the "Redemption Price") equal to
the Stated Value per Unit redeemed plus an amount in cash equal to
the aggregate dollar amount of all unpaid preferred distributions
through the Redemption Date (including a prorated distribution from
the most recent Distribution Payment Date to the Redemption Date)
that have not been added to the Stated Value of such Units.
"Redemption Date" means the date fixed by the Managing General
Partner for redemption. "Retirement Date" means the date on which
the Series A Term Loan, the Series B Term Loans, the Series C Term
Loan and the Series A Unsecured Note (each as defined in the Credit
Agreement) are repaid in full.
(b) The Company shall, at the Redemption Price and
in the manner provided in this Section 6, redeem for cash from any
source of funds legally available therefor, all Series B Units
outstanding on the first to occur of:
(i) 180 days after the Maturity Date, as
defined in the Credit Agreement;
(ii) the date that is 30 days after any default
(a "Cross-Default") by the Company in its obligations to make
payments under or with respect to any Indebtedness with an
outstanding principal amount in excess of $500,000; provided,
however, that the Company need not effect such mandatory
redemption because of a Cross-Default if such Cross-Default is
cured prior to the end of such 30-day period to the
satisfaction of the holders of Series B Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series B Units or the right to require the Company to effect
such redemption is waived in writing by the holders of 51% or
more in Stated Value (as adjusted, if applicable) of the
Series B Units; no such waiver shall be deemed to be a
continuing waiver nor a waiver with respect to any other or
subsequent Cross-Default;
(iii) the date that is 30 days after any
failure by the Company to pay in full in cash on any
Distribution Payment Date any distribution payable only in
cash on such Distribution Payment Date; or
(iv) the date that is 30 days after any default
or failure of compliance by the Company with any covenant or
restriction contained in Section 3(f) or Section 4 hereof,
unless such default or failure of compliance is cured prior to
the end of such 30-day period to the satisfaction of the
holders of Series B Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series B Units;
or
(v) the Business Day immediately preceding any
Change in Control of the Company. For this purpose, a "Change
in Control" means (1) a change in the direct or indirect power
to direct or cause the direction of the management and
policies of the Company, the Managing General Partner or the
Special General Partner, whether through the ownership of
voting securities, by contract or otherwise, or to elect a
majority of any of such entities' Boards of Directors or
equivalent governing bodies; (2) any reorganization,
reclassification or change in any outstanding securities of
the Company; (3) the Company's consolidation or merger with or
into another partnership, corporation or other entity; (4) the
sale, lease or other transfer of the property of the Company
as an entirety or substantially as an entirety; (5) the
termination of the SGP Guarantee or of the pledge of all of
the Special General Partner's assets securing its obligations
thereunder, or any event or circumstance as a result of which
the SGP Guarantee or such pledge shall no longer be in full
force and effect; or (6) the redemption, purchase or other
acquisition by the Special General Partner for any
consideration any of the Special General Partner's outstanding
securities (or the payment of any money to a sinking fund or
the setting apart of any money, property or other
consideration for the purchase or redemption of any such
securities) or the payment, provision or distribution to the
holders of any of its outstanding securities, as such, any
money, property, rights or other consideration, other than
ordinary pro rata dividends to all holders of a class of such
outstanding securities; provided, however, that in the case of
clause (2), (3) or (4) of this sentence, any reorganization,
reclassification, change, consolidation, merger, sale or
transfer that has been approved by the holders of Series B
Units representing 51% or more of the aggregate Stated Value
of the then outstanding Series B Units in accordance with
Section 9(b) shall not constitute a Change in Control.
The Managing General Partner shall cause the Redemption
Notice (as defined below) to be mailed sufficiently in advance of
the dates or events specified in this subsection (b) to permit the
redemption to occur on such dates.
If there are insufficient legally available funds for
redemption under this subsection (b), the Company shall redeem such
lesser number of Series B Units (on a pro rata basis from all
holders of Series B Units, in proportion to the number of Units
held), to the extent there are funds legally available therefor,
and shall redeem all or part of the remainder of the Series B Units
as soon as the Company has sufficient funds that are legally
available therefor. If the redemption is delayed because of
insufficient legally available funds, distributions shall continue
to accrue on Series B Units outstanding, and shall be added to and
become a part of the Redemption Price of such Units, until the
Redemption Price, as so adjusted, for such Units is paid in full.
(c) The Company also shall, at the Redemption Price
and in the manner provided in this Section 6, redeem Series B Units
using the funds received from the sources described in Section
4(g), (h) and (i), to the extent provided therein, promptly after
the Company's receipt of such funds.
(d) In connection with any optional or mandatory
redemption of Units, at least 20 days and not more than 60 days
prior to the Redemption Date, written notice (the "Redemption
Notice") shall be sent simultaneously by certified mail, return
receipt requested, and by telecopy to each holder of record of the
Series B Units at the post office address last shown on the records
of the Company for such holder. The Redemption Notice shall state:
(i) whether all or less than all the
outstanding Series B Units are to be redeemed and the total
number of Series B Units being redeemed;
(ii) the number of Series B Units held by
the holder that the Company intends to redeem;
(iii) the Redemption Date and the Redemption
Price;
(iv) that the holder is to surrender to the
Company, in the manner and at the place designated, the
certificate or certificates representing the Series B Units to
be redeemed; and
(v) that an Escrow Account as described in
the following paragraph has been established at a bank specified
in the Redemption Notice.
Notwithstanding the foregoing, a Redemption Notice relating to a
mandatory redemption required by paragraph (ii), (iii) or (iv) of
subsection (b) of this Section 6 shall be mailed at least 15 days
and not more than 30 days prior to the mandatory Redemption Date.
Not later than the date on which a Redemption Notice is
mailed by the Company, the Company shall deposit in an escrow
account (the "Escrow Account") for the pro rata benefit of the
holders of the Units to be redeemed the funds necessary for such
redemption with a bank or trust company having capital and surplus
of at least $500 million and approved in writing by the holders of
Series B Units representing 51% or more of the aggregate Stated
Value of the then outstanding Series B Units (the "Escrow Agent").
Any such funds (i) that represent the Redemption Price of Units
converted into Common Units pursuant to Section 10 prior to the
applicable Redemption Date or (ii) that are unclaimed at the end of
two years after the applicable Redemption Date shall revert to the
general funds of the Company and, upon such reversion, the Escrow
Agent shall, upon demand, pay such funds over to the Company and be
relieved of all responsibility in respect thereof and any holder of
Units entitled to receive any of such funds shall thereafter look
only to the Company for the payment of the Redemption Price. Any
interest on funds included in the Escrow Account shall be for the
account of the Company. The failure to establish the Escrow
Account by the date specified in this paragraph shall cause the
Redemption Notice that required such Escrow Account to have been
established to be ineffective, and the Company shall not have any
right to redeem any Units pursuant to such Redemption Notice. Such
failure shall not relieve the Company of any obligation to effect
a mandatory redemption of Units.
On or before the Redemption Date each holder of Series B
Units shall surrender to the Company the certificate or
certificates representing such Units to be redeemed, in the manner
and at the place designated in the Redemption Notice, and thereupon
the Redemption Price for such Units shall be payable in cash on the
Redemption Date to the Person whose name appears on such
certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the
event that less than all Units represented by any such certificate
are redeemed, a new certificate shall be issued representing the
unredeemed Units.
In the event of a redemption of only a portion of the
then outstanding Series B Units, the Company shall effect such
redemption pro rata according to the number of Units held by each
holder.
Unless the Company defaults in the payment in full of the
Redemption Price, distributions on the Series B Units called for
redemption shall cease to accumulate on the Redemption Date, and
the holders of such Units redeemed shall cease to have any further
rights with respect thereto on the Redemption Date, other than to
receive the Redemption Price without interest.
Holders of all Series B Units shall have the right at any
time from and after the date on which the Company calls any Series
B Units for redemption and prior to the Redemption Date for such
Units to convert all or any part of the outstanding Units held by
them into Common Units at the Conversion Price (as defined in
Section 10), notwithstanding anything herein to the contrary, and
whether or not such holders otherwise would have the right to
effect such conversion at such time pursuant to Section 10.
Section 7. Prohibitions on Issuance. All Units
repurchased, redeemed or otherwise acquired by the Company shall be
retired and canceled and shall not be reissued. No authorized but
unissued Units shall be issued other than as distributions in kind
to the existing holders of Series B Units in accordance with
Section 3 hereof.
Section 8. Ranking. (a) No equity securities of the
Company shall rank senior to the Series B Units with respect to the
payments required or permitted to be made to the holders thereof
pursuant to their respective governing instruments and the payments
required to be made to holders of the Series B Units pursuant
hereto. The Company shall not issue any debt security (except as
permitted by Section 4(e)).
(b) The following equity securities of the Company,
and no others, shall rank on a parity with the Series B Units with
respect to the payments required or permitted to be made to the
holders thereof pursuant to their respective governing instruments
and the payments required to be made to holders of the Series B
Units pursuant hereto: the Series C Units.
(c) Without limiting the definition of "Junior
Securities" contained in Section 2, the following equity securities
of the Company shall rank junior to the Series B Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series B Units
pursuant hereto: the Series D Units, the Series E Units, the Series
F Units and the Common Units.
Section 9. Voting. (a) So long as any Series B Units
remain outstanding, the Company will not, without the affirmative
vote at a meeting, or by written consent with or without a meeting,
of the holders of Series B Units and Series C Units representing
two-thirds or more of the aggregate Stated Value of the then
outstanding Series B Units and Series C Units, voting as one class,
(i) create, authorize, issue or reissue any class or series of
Senior Securities, or any units of any such class or series, or
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series B Units or the
Certificate of Designations of the Series C Units that prescribe
the terms and conditions of the Series B Units or Series C Units;
provided, however, that any proposed amendment, alteration or
rescission of any provision of the Partnership Agreement or of the
Certificate of Designations of the Series B Units or Series C
Units, as contemplated by clause (ii) of this sentence, shall
require the approval of the holders of Series B Units and the
holders of Series C Units representing two-thirds or more of the
aggregate Stated Value of the then outstanding Series B Units and
Series C Units, respectively, each voting as a separate class.
(b) So long as any Series B Units remain
outstanding, the Company will not, without the affirmative vote at
a meeting, or by written consent with or without a meeting, of the
holders of the Series B Units and Series C Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series B Units and Series C Units, voting as one class, (i) create,
authorize, issue or reissue any class or series of Parity
Securities, or any units of any such class or series, including
without limitation any authorized but unissued Series B Units or
Series C Units (other than Series B Units or Series C Units issued
as distributions in kind to the existing holders thereof in
accordance with their respective Certificates of Designations);
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series B Units or the
Certificate of Designations of the Series C Units that set forth
the restrictions and covenants of the Company (including without
limitation restrictions regarding capital expenditures, issuance of
Indebtedness and payment of distributions to holders of Parity
Securities or Junior Securities) that benefit or protect the rights
of holders of the Series B Units or Series C Units; (iii) commence
any voluntary proceeding (under bankruptcy, insolvency or similar
laws or otherwise) for or that may result in the liquidation,
dissolution or winding up of the Company, consent to the entry of
an order for relief in an involuntary proceeding under any federal
or state bankruptcy, insolvency or similar laws or to the
appointment of a receiver, liquidator, assignee, custodian, trustee
or other similar official of the Company or of any substantive part
of its properties, or make an assignment for the benefit of its
creditors or admit in writing its inability to pay its debts
generally as they become due; or (iv) reorganize, reclassify or
change any outstanding securities, consolidate or merge with or
into another partnership, corporation or other entity or sell or
transfer the property of the Company as an entirety or
substantially as an entirety.
(c) [intentionally omitted]
(d) [intentionally omitted]
(e) Except as expressly set forth herein or in the
Partnership Agreement or as required by applicable law, holders of
Series B Units shall not have any right to vote on any question
presented to the holders of voting securities of the Company.
Section 10. Conversion Rights. (a) Each Series B Unit
shall be convertible at the option of the holder thereof into fully
paid Common Units at any time during the Conversion Period. The
number of Common Units deliverable upon conversion of one Series B
Unit shall be determined by dividing the Stated Value of the Series
B Unit by the Conversion Price (as defined below) then in effect.
The "Conversion Period" shall commence on March 31, 1998 and shall
end on the date on which all outstanding Series B Units have been
redeemed and the aggregate Redemption Price has been paid full in
accordance with Section 6 hereof.
(b) Conversion of any Series B Unit may be effected
by the holder thereof by the surrender of the certificate for such
Unit to the Company at the principal office of the Transfer Agent
in the State of Texas or at the office of any successor Transfer
Agent for the Series B Units, or to such other agent or agents of
the Company as may be designated by the Managing General Partner.
If any Series B Units are called for redemption pursuant to a
Redemption Notice in accordance Section 6 hereof, such right of
conversion shall cease and terminate as to the Units called for
redemption at the close of business on the Redemption Date, unless
the Company shall default in the payment of the Redemption Price
(in which event, such conversion right shall remain in effect until
full payment of the Redemption Price has been made) or shall have
failed to establish an Escrow Account as required by Section 6 (in
which event such call for redemption shall be ineffective, as
provided in Section 6, and such conversion right shall be
unaffected by such Redemption Notice).
(c) The price at which holders of Series B Units
may acquire Common Units pursuant to the conversion rights set
forth in this Section 10 (the "Conversion Price") initially shall
be $6.30 per Common Unit, which price has been determined on the
basis of the number of outstanding Common Units, on a fully diluted
basis, as of the Initial Issuance Date, so that if Series B Units
had been convertible and converted into Common Units on such date,
the holders of Series B Units representing an aggregate Stated
Value of $1.0 million would have received 2.0% of such outstanding
Common Units, on a fully diluted basis, as of such date. For this
purpose, the number of outstanding Common Units, on a fully diluted
basis, includes (i) Common Units actually outstanding on the
Initial Issuance Date and (ii) Common Units into which all
convertible securities, convertible debt and other convertible
instruments (including without limitation the Series B Units and
the Series C Units) and all warrants, options or other rights to
acquire any Common Units of the Company issued and outstanding on
the Initial Issuance Date are convertible, exchangeable or
exercisable (notwithstanding that such conversion, exchange or
exercise rights may not have been fully vested on the Initial
Issuance Date). The Conversion Price and Stated Value of the
Units, for purposes of conversion, are subject to adjustment as
provided herein.
(d) The Stated Value of each Series B Unit, for
purposes of conversion, shall be $1,000.00 plus the amount of
accrued and unpaid distributions for all distribution payment
periods ending on or prior to the date such Units are surrendered
to the Company for conversion and for the partial distribution
period beginning on the date immediately following the most recent
Distribution Payment Date through and including the date on which
such Units are surrendered for conversion. Notwithstanding the
foregoing, holders of Series B Units surrendered for conversion
shall have the option to require the Company to make payment in
cash of all such unpaid preferred distributions, in lieu of such
adjustment to the Stated Value, whether or not funds are legally
available therefor and whether or not declared.
(e) As promptly as practicable after the surrender
of Series B Units for conversion, the Company shall issue and
deliver or cause to be issued and delivered to the holder of such
Units certificates representing the number of Common Units into
which such Series B Units have been converted in accordance with
the provisions of this Section 10. Subject to the following
provisions of this Section 10, such conversion shall be deemed to
have been made as of the close of business on the date on which the
Series B Units shall have been surrendered for conversion in the
manner herein provided, so that the rights of the holder of the
Series B Units so surrendered shall cease at such time and the
Person or Persons entitled to receive the Common Units upon
conversion thereof shall be treated for all purposes as having
become the record holder or holders of such Common Units at such
time; provided, however, that any such surrender on any date when
the unit transfer books of the Company are closed shall be deemed
to have been made, and shall be effective to terminate the rights
of the holder or holders of the Series B Units so surrendered for
conversion and to constitute the Person or Persons entitled to
receive such Common Units as the record holder or holders thereof
for all purposes, at the opening of business on the next succeeding
day on which such transfer books are open and such conversion shall
be at the Conversion Price in effect at such time. The Company
will not at any time close its transfer books against the transfer
of any Series B Unit or of any Common Unit issued or issuable upon
the conversion of any Series B Unit in any manner which interferes
with the timely conversion of such Series B Unit.
(f) The Company shall not at any time limit the
number of Common Units that may be issued by the Company or take
any other action that would impair the Company's ability to issue
Common Units sufficient to permit the conversion of all outstanding
Series B Units and the conversion, exchange or exercise of all
other securities and instruments convertible or exchangeable into
or exercisable for Common Units. The Company shall not, by
amendment of its Partnership Agreement or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Section 10 by
the Company or any of the terms of its Partnership Agreement which
are applicable to Common Units issuable upon conversion of the
Series B Units, but will at all times in good faith assist in the
carrying out of all of the provisions of this Section 10 and in the
taking of all such other action as may reasonably be requested by
any holder in order to protect the conversion privilege and other
rights of the Series B Units and of the Common Units issuable upon
conversion of the Series B Units against any impairment.
(g) The Company covenants and agrees that all
Common Units that may be issued upon the exercise of the conversion
rights of Series B Units will, upon issuance, be fully paid,
without any obligations to make additional capital contributions to
the Company, and free from all taxes, liens and charges with
respect to the issue thereof.
(h) The number and kind of securities purchasable
upon the exercise of the conversion rights of the Series B Units
shall be subject to adjustment from time to time upon the happening
of certain events, as follows:
(i) If the Company, at any time while any
of the Series B Units are outstanding, shall subdivide or combine
its Common Units, the Conversion Price shall be proportionately
reduced, in case of subdivision of units, as of the effective
date of such subdivision, or if the Company shall take a
record of holders of its Common Units for the purpose of so
subdividing, as of such record date, whichever is earlier, or
shall be proportionately increased, in the case of a
combination of units, as of the effective date of such
combination or, if the Company shall take a record of holders
of its Common Units for the purpose of so combining, as of
such record date, whichever is earlier; provided, however,
that nothing in this paragraph shall be deemed to permit the
Company to effect any such subdivision or combination in
violation of any other provision, including Section 4(c),
hereof.
(ii) If the Company at any time while any
of the Series B Units are outstanding shall:
(1) Make any distribution of Additional
Common Units (as defined below), the Conversion Price
shall be adjusted, as of the date the Company shall take
a record of the holders of its Common Units for the
purpose of receiving such distribution (or if no such
record is taken, as of the date of such distribution), to
that price determined by multiplying the Conversion Price
in effect immediately prior to such record date (or if no
such record is taken, then immediately prior to such
distribution) by a fraction (i) the numerator of which
shall be the total number of Common Units outstanding
immediately prior to such distribution, and (ii) the
denominator of which shall be the total number of Common
Units outstanding immediately after such distribution
(plus in the event that the Company paid cash for
fractional units, the number of Additional Common Units
which would have been outstanding had the Company issued
fractional units in connection with such distribution);
provided, however, that nothing in this paragraph shall
be deemed to permit the Company to effect any such
distribution in violation of any other provision,
including Section 3(f) or 4(b), hereof; or
(2) Issue any Additional Common Units to
the Special General Partner (regardless of any
consideration received by the Company for such issuance)
or make any payments under the Pipeline Lease in the form
of Additional Common Units, the Conversion Price shall be
adjusted, as of the date of such issuance or payment, to
that price determined by multiplying the Conversion Price
in effect immediately prior to such date by a fraction
(i) the numerator of which shall be the total number of
Common Units outstanding immediately prior to such
issuance or payment, and (ii) the denominator of which
shall be the total number of Common Units outstanding
immediately after such issuance or payment.
(iii) If the Company, at any time while any
of the Series B Units are outstanding and the Fair Market Price
of the Common Units is less than or equal to the Conversion
Price, shall issue any Additional Common Units (other than as
provided in the foregoing paragraphs (i) and (ii) of this
subsection) at a price per unit less than the Conversion Price
or without consideration, then the Conversion Price upon each
such issuance shall be reduced (but never increased) to a
price determined by multiplying the existing Conversion Price
by the following fraction, where O is the number of Common
Units outstanding, on a fully diluted basis, prior to such
issuance; N is the number of Additional Common Units being
issued; P is the amount of consideration received per unit by
the Company in exchange for issuance of such Additional Common
Units; and C is the existing Conversion Price:
O + (N x P divided by C)
------------------------
O + N
(iv) If the Company, at any time while any
of the Series B Units are outstanding and the Fair Market Price
of the Common Units is greater than the Conversion Price, shall
issue any Additional Common Units (other than as provided in
paragraphs (i) and (ii) of this subsection) at a price per
unit that is less than Fair Market Price, then the Conversion
Price upon each such issuance shall be reduced (but never
increased) to a price determined by multiplying the existing
Conversion Price by the following fraction, where O, N and P
have the meanings specified in paragraph (ii) of this
subsection (h) and M is the Fair Market Price:
O + (N x P divided by M)
------------------------
O + N
(v) If the Company at any time while any
of the Series B Units are outstanding shall issue any Common Unit
Equivalents (as defined below) and the price per unit for
which Additional Common Units may be issuable thereafter
pursuant to such Common Unit Equivalents is less than the
Conversion Price, or less than the Fair Market Price but
greater than the Conversion Price, or if, after any such
issuance, the price per unit for which Additional Common Units
may be issuable thereafter is amended and such price as so
amended is less than the Conversion Price, or less than the
Fair Market Price but greater than the Conversion Price, at
the time of such amendment, then the Conversion Price upon
each such issuance or amendment shall be adjusted as provided
in paragraph (ii), (iii) or (iv) of this subsection, as
applicable, as if the underlying Additional Common Units had
been issued directly. The consideration for Additional Common
Units issuable pursuant to any Common Unit Equivalents shall
be the consideration received by the Company for issuing such
Common Unit Equivalents plus the additional consideration
payable to the Company upon the exercise, conversion or
exchange of such Common Unit Equivalents. If the Conversion
Price is adjusted upon the issuance of Common Unit Equivalents
and such Common Unit Equivalents are thereafter canceled
without having been converted or exercised, and without any
Additional Common Units having been issued in respect thereof,
then the Conversion Price shall be readjusted to the
Conversion Price that would have been in effect if such Common
Unit Equivalents had never been issued. No adjustment of the
Conversion Price shall be made under paragraph (ii), (iii) or
(iv) of this subsection (h) upon the issuance of any
Additional Common Units that are issued pursuant to any Common
Unit Equivalents if upon the issuance of such Common Unit
Equivalents adjustments shall previously have been made
pursuant to this paragraph (v) to the same extent as would
have been made under paragraph (ii), (iii) or (iv) if such
Additional Common Units had been issued directly.
(vi) No adjustment shall be made to the
Conversion Price with respect to the issuance of any Additional
Common Units (or any Common Unit Equivalents pursuant to which
such Additional Common Units are issuable) at a price per unit
that is greater than both the Conversion Price and the Fair
Market Price.
(vii) For purposes of making the adjustments
in the Conversion Price as provided in this Section 10(h), the
consideration received by the Company shall be deemed to be
the following: to the extent that any Additional Common Units
or any Common Unit Equivalents shall be issued for cash
consideration, the consideration received by the Company
therefor; if such Additional Common Units or Common Unit
Equivalents are offered by the Company for subscription, the
subscription price; if such Additional Common Units or Common
Unit Equivalents are sold to underwriters or dealers for
public offering, the initial public offering price, in any
such case excluding any amount received for accrued interest
or accrued distributions and without deduction of any
commissions, discounts or expenses paid or incurred by the
Company in connection with the issue thereof; and to the
extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly
provided, the fair market value of such consideration at the
time of such issuance as determined in good faith by the
Managing General Partner of the Company. In the event of the
issuance at any time of any Additional Common Units or Common
Unit Equivalents in payment or satisfaction of any
distribution upon any class or series of units other than
Common Units, the Company shall be deemed to have received for
such Additional Common Units or Common Unit Equivalents
consideration equal to the amount of such distribution so paid
or satisfied; provided, that nothing herein shall be deemed to
permit the Company to issue Common Units for such purpose
under circumstances in which such issuance is not otherwise
permitted. In any case in which the consideration to be
received shall be other than cash, the Managing General
Partner shall notify each holder of Series B Units of its
determination of the fair market value of such consideration
prior to accepting receipt thereof. If, within 10 days of
receipt of such notice, the holders of Series B Units
representing 51% or more of the aggregate Stated Value of
Series B Units then outstanding shall notify the Managing
General Partner in writing of their objection to such
determination, a determination of the fair market value of
such consideration shall be made by an independent investment
banker (with an established national reputation) selected by
the Managing General Partner, with the written approval of the
holders of Series B Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series B Units.
(viii) If any event occurs as to which, in
the good faith judgment of the holders of Series B Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series B Units, the other provisions of this Section
10(h) are not strictly applicable or if strictly applicable would
not fairly protect the conversion rights of the holders of Series
B Units in accordance with the essential intent and principles
of such provisions, then the Managing General Partner shall
appoint a firm of independent public accountants (with an
established national reputation) who are satisfactory to the
holders of Series B Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series B Units
(which may be the Company's regular independent auditors)
which shall give their opinion upon the adjustment, if any, on
a basis consistent with such essential intent and principles,
necessary to preserve, without dilution, the rights of the
holders of Series B Units. Upon receipt of such opinion, the
Managing General Partner shall forthwith make the adjustments
described therein; provided, that no such adjustment shall
have the effect of increasing the Conversion Price as
otherwise determined pursuant to this Section 10.
(ix) The Company may give notice to the holders
that the proceeds of certain Additional Common Units will be
used to redeem all outstanding Series B Units, which notice
shall be given prior to the actual issuance of such Additional
Common Units. If such notice is given and such proceeds are
used for such purpose within 60 days after receipt thereof,
such Additional Common Units shall not be considered in
determining an adjustment to the Conversion Price under this
Section 10(h) with respect to any Series B Units which become
subject to an election to convert after delivery of such
notice.
(i) If at any time the Company shall be a party to
any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all the Company's
assets, liquidation, or recapitalization of the Common Units) in
which the previously outstanding Common Units shall be changed into
or exchanged for different securities of the Company or common
stock or other securities of another corporation or interests in a
noncorporate entity or other property (including cash) or any
combination of any of the foregoing or in which the Common Units
cease to be a publicly traded security either listed on the New
York Stock Exchange or the American Stock Exchange or quoted by the
NASDAQ National Market System or any successor thereto or
comparable system (each such transaction being herein called the
"Transaction," the date of consummation of the Transaction being
herein called the "Consummation Date," the Company (in the case of
a recapitalization of the Common Units or any other such
transaction in which the Company retains substantially all its
assets and survives as a limited partnership) or such other
corporation or entity (in each other case) being herein called the
"Acquiring Company," and the common stock (or equivalent equity
interests) of the Acquiring Company being herein called the
"Acquirer's Common Stock"), then, as a condition of the
consummation of the Transaction, lawful and adequate provisions
shall be made so that the holder of Series B Units, upon the
conversion thereof at any time on or after the Consummation Date
(but subject, in the case of an election pursuant to clause (B) or
(C) below, to the time limitation hereinafter provided for such
election),
(A) shall be entitled to receive, and such
Series B Units shall thereafter be convertible into, in
lieu of the Common Units issuable upon such conversion
prior to the Consummation Date, shares of the Acquirer's
Common Stock, unless the Acquiring Company fails to meet
the requirements set forth in clauses (D), (E), and (F)
below, in which case shares of the common stock of the
corporation or other entity (herein called a "Parent")
which directly or indirectly controls the Acquiring
Company if it meets the requirements set forth in
clauses (D), (E), and (F) below, at a conversion price
per share equal to the lesser of (1) the Conversion Price
in effect immediately prior to the Consummation Date
multiplied by a fraction the numerator of which is the
market price per share (determined in the same manner as
provided in the definition of Fair Market Price) of the
Acquirer's Common Stock or the Parent's common stock or
equivalent equity security, as the case may be,
immediately prior to the Consummation Date and the
denominator of which is the Fair Market Price immediately
prior to the Consummation Date, or (2) the market price
per share (as so determined) of the Acquirer's Common
Stock or the Parent's common stock or equivalent equity
security, as the case may be, immediately prior to the
Consummation Date (subject in each case to adjustments
from and after the Consummation Date as nearly equivalent
as possible to the adjustments provided for in this
Section 10),
or at the election of the holder of Series B Units pursuant to
notice given to the Company on or before the later of (1) the 30th
day following the Consummation Date, and (2) the 60th day following
the date of delivery or mailing to such holder of the last proxy
statement relating to the vote on the Transaction by the holders of
the Common Units,
(B) shall be entitled to receive, and such
Series B Units shall thereafter be convertible into, in
lieu of the Common Units issuable upon such conversion
prior to the Consummation Date, the highest amount of
securities or other property to which such holder would
actually have been entitled as a holder of Common Units
upon the consummation of the Transaction if such holder
had converted such holder's Series B Units immediately
prior thereto (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to the
adjustments provided for in this Section 10), provided
that if a purchase, tender or exchange offer shall have
been made to and accepted by the holders of more than 50%
of the outstanding Common Units, and if the holder of
Series B Units so designates in such notice given to the
Company, the holder of Series B Units shall be entitled
to receive in lieu thereof, the highest amount of
securities or other property to which such holder would
actually have been entitled as a holder of Common Units
if such holder had converted the Series B Units prior to
the expiration of such purchase, tender or exchange offer
and accepted such offer (subject to adjustments from and
after the consummation of such purchase, tender or
exchange offer as nearly equivalent as possible to the
adjustments provided for in this Section 10),
or, if neither the Acquiring Company nor the Parent meets the
requirements set forth in clauses (D), (E), and (F) below, at the
election of the holder of Series B Units pursuant to notice given
to the Company on or before the later of (1) the 30th day following
the Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the
Common Units,
(C) shall be entitled to receive, within 15
days after such election, in full satisfaction of the
conversion rights afforded to such holder under this
Section 10, an amount in cash equal to the fair market
value of such conversion rights as of the Consummation
Date, as determined by an independent investment banker
(with an established national reputation as a valuer of
equity securities) selected by the Managing General
Partner, with the written approval of the holders of
Series B Units representing 51% or more of the aggregate
Stated Value of the then outstanding Series B Units, such
fair market value to be determined with regard to all
material relevant factors (including without limitation
the holder's right to receive the consideration described
in paragraphs (A) and (B) above, including the provisos
thereto, if applicable) but without regard to the effects
on such value of the Transaction.
The Company agrees to obtain, and deliver to each holder of Series
B Units a copy of, the determination of the independent investment
banker (selected and approved as provided above) necessary for the
valuation under clause (C) above within 15 days after the
Consummation Date of any Transaction to which clause (C) is
applicable.
The requirements referred to above in the case of the
Acquiring Company or its Parent are that immediately after the
Consummation Date:
(D) it is a solvent corporation organized
under the laws of any state of the United States of
America having its common stock (or equivalent equity
security, if not a corporation) listed on the New York
Stock Exchange or the American Stock Exchange or quoted
by the NASDAQ National Market System or any successor
thereto or comparable system, and such common stock (or
equivalent equity security) continues to meet such
requirements for such listing or quotation;
(E) it is required to file, and in each of its
three fiscal years immediately preceding the Consummation
Date has filed, reports with the Securities and Exchange
Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(F) in the case of the Parent, such Parent is
required to include the Acquiring Company in the
consolidated financial statements contained in the
Parent's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission and is not itself
included in the consolidated financial statements of any
other Person (other than its consolidated subsidiaries).
Notwithstanding anything contained herein to the contrary, the
Company shall not effect any Transaction unless prior to the
consummation thereof each corporation or entity (other than the
Company) which may be required to deliver any securities or other
property upon the conversion of Series B Units, the surrender of
Series B Units, or the satisfaction of conversion rights as
provided herein shall assume, by written instrument delivered to
each holder of Series B Units, the obligation to deliver to such
holder such securities or other property to which, in accordance
with the foregoing provisions, such holder may be entitled, and
such corporation or entity shall have similarly delivered to each
holder of Series B Units an opinion of counsel for such corporation
or entity, satisfactory to the holders of Series B Units
representing not less than 51% of the aggregate Stated Value of the
then outstanding Series B Units, which opinion shall state that
Series B Units, including, without limitation, the conversion
provisions applicable to Series B Units, shall thereafter continue
in full force and effect and shall be enforceable against such
corporation or entity in accordance with the terms hereof, together
with such other matters as such holder may reasonably request.
Notwithstanding any of the foregoing provisions of this
subsection (i), in connection with any Transaction, each holder of
Series B Units, at its election, pursuant to notice given to the
Company on or before the later of (1) the 30th day following the
Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the
Common Units, shall be entitled to receive, and such Series B Units
shall thereafter be convertible into, in lieu of the Common Units
issuable upon such conversion prior to the Consummation Date, an
amount in cash equal to the aggregate Stated Value of such Series
B Units plus the amount of accrued and unpaid distributions thereon
for all distribution payment periods ending on or prior to the date
on which such cash payment is received by the holder and for the
partial distribution period beginning on the date immediately
following the most recent Distribution Payment Date through and
including the date of such receipt.
(j) Upon the occurrence of any event requiring an
adjustment of the Conversion Price, then and in each such case the
Company shall promptly deliver to each holder of Series B Units an
officer's certificate stating the Conversion Price resulting from
such adjustment and the increase or decrease, if any, in the number
of Common Units issuable upon conversion of each Series B Unit,
setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. If, within 10 days
of receipt of any such officer's certificate, the holders of Series
B Units representing not less than 51% of the aggregate Stated
Value of the then outstanding Series B Units shall notify the
Managing General Partner in writing of their objection to such
calculations, then, within 30 days after receipt of such notice
from such holders, the Company will obtain and deliver to each
holder of Series B Units the opinion of its regular independent
auditors or another firm of independent public accountants of
recognized national standing selected by the Managing General
Partner who are satisfactory to the holders of Series B Units
representing not less than 51% of the aggregate Stated Value of the
outstanding Series B Units, which opinion shall confirm the
statements and calculations in such officer's certificate. It is
understood and agreed that the independent public accountants
rendering any such opinion shall be entitled expressly to assume in
such opinion the accuracy of any determination of Fair Market
Price, or of the fair market value of conversion rights, made by an
independent investment banker in accordance with this Section 10.
(k) If at any time (i) the Company shall commence
any Rights Offering (as defined in Section 11); (ii) there shall be
any capital reorganization or reclassification of the Common Units,
or consolidation or merger of the Company with, or sale of all or
substantially all its assets to, another partnership, corporation
or other entity; (iii) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company; or (iv)
there shall be any other Transaction, then, in any one or more of
such cases, the Company shall give to all holders of Series B Units
(a) at least 30 days prior to any event referred to in clause (i),
(ii) or (iii) above, and within five business days after it has
knowledge of any pending Transaction, written notice of the date on
which the books of the Company shall close or a record shall be
taken for such distribution or Rights Offering or for determining
rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, or Transaction and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, winding-up, or Transaction known to the
Company, at least 30 days prior written notice of the date (or, if
not then known, a reasonable approximation thereof by the Company)
when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such
distribution or Rights Offering, the date on which the holders of
Common Units shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the
date on which the holders of Common Units shall be entitled to
exchange their Common Units for securities or other property
deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up,
or Transaction, as the case may be. Such notice shall also state
that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act
of 1933, as amended, or to a favorable vote of security holders, if
either is required.
(l) No fractional Common Units shall be issued in
connection with any conversion hereunder, but in lieu of such
fractional Common Units, the Company shall make a cash payment
therefor upon the basis of the Conversion Price then in effect.
(m) For purposes of this Section 10, the following
definitions shall apply:
(i) "Additional Common Units" shall mean all
Common Units of the Company issued or to be issued by the
Company after the Initial Issuance Date, except Common Units
which have been or may be issued upon conversion of the Series
B Units, the Series C Units and the other convertible
securities, convertible instruments, warrants, options and
rights outstanding on the Initial Issuance Date referred to in
subsection (c) of this Section 10.
(ii) "Common Unit Equivalent" shall mean any
convertible security or any warrant, option or other right to
subscribe for or purchase any Additional Common Units or any
such convertible security. The term "convertible security"
means any evidence of indebtedness, limited partnership unit
or other security that is convertible into or exchangeable for
Additional Common Units.
(iii) "Common Units" shall be deemed to include
the Common Units and any other Junior Securities the issuance of
which would have any dilutive effect on the value of the
Common Units issuable upon conversion of the Series B Units.
(iv) For purposes of any computation under this
Section 10, the "Fair Market Price" per Common Unit on any
date shall be deemed to be (1) the average of the daily last
reported sale prices of the Common Units for the 20
consecutive Business Days commencing 25 Business Days before
such date, as reported on the principal national securities
exchange on which the Common Units are then listed, or if the
Common Units are not then listed on a national securities
exchange, the average of the daily last reported sale prices
for such Business Days on the NASDAQ National Market System or
in the over-the-counter market as reported by NASDAQ, (2) if
last sale prices are not reported for the Common Units, the
average of the daily closing bid and asked prices on such
Business Days as so reported or (3) if no last sale prices or
bid and asked prices are publicly reported, the Fair Market
Price of a Common Unit shall be determined by an independent
investment banker (with an established national reputation as
a valuer of equity securities) selected by the Managing
General Partner, with the written approval of the holders of
Series B Units representing not less than 51% of the aggregate
Stated Value of the then outstanding Series B Units.
Section 11. Rights Offerings. (a) If the Company, at
any time while any of the Series B Units are outstanding, shall
distribute pro rata to holders of Common Units any warrants or
other rights ("Rights") to purchase Additional Common Units (a
"Rights Offering"), the holder of each Series B Unit shall receive
the number of Rights that such holder would have been entitled to
receive in connection with the Rights Offering if the holder had
converted the Series B Unit into Common Units in accordance with
Section 10, at the then current Conversion Price and Stated Value,
immediately prior to the record date for distribution of the Rights
(or if no record date is established, prior to the date on which
the Rights Offering otherwise commences). Holders of Series B
Units shall receive Rights as provided in the preceding sentence
whether or not such holders are at such time entitled to convert
their Series B Units into Common Units pursuant to Section 10.
Holders of Series B Units shall have the right to exercise such
Rights (including any step-up or over-subscription privileges) as
fully as any other recipient thereof, without the necessity of
converting any Series B Units into Common Units.
(b) Subject to compliance with subparagraph (a) ,
the distribution of Common Units pursuant to any Rights Offering
shall not trigger any adjustment of the Conversion Price pursuant
to the terms of Section 10(h) hereof.
(c) The Company shall not commence or conduct more
than one Rights Offering in any 12-month period nor more than two
Rights Offerings within the four-year period following the
consummation of the Stage 1 Closing, as defined in the
Restructuring Agreement. The exercise price of any Rights (as
initially distributed or subsequently amended) shall not be less
than 66 2/3% of the Conversion Price in effect at the time of
distribution of such Rights. The Company shall not, while any
Series B Units are outstanding, commence or conduct Rights
Offerings that result in, or are likely to result in, aggregate
cash proceeds to the Company from all such Rights Offerings in
excess of $7.5 million. The Company shall provide reports to the
holders of Series B Units on a regular basis for the duration of
the period during which Rights may be exercised, but in any event
no less frequently than weekly, setting forth the number of Rights
exercised during the periods covered by such reports and
cumulatively from the date of commencement of the Rights Offering
(separately identifying Rights that have been exercised by the
Company or its Affiliates).
(d) If any Rights distributed by the Company are
transferable, the Company shall have an assignable right of first
refusal to purchase Rights proposed to be sold, assigned,
transferred or otherwise disposed of ("transferred") by a holder of
Series B Units in certain circumstances, as follows:
(i) The Company's right of first refusal
provided herein shall be applicable only with respect to proposed
transfers of Rights by Varde, which is the initial holder of
Series B Units, and shall not be applicable with respect to
proposed transfers of Rights by Varde to any of its respective
Affiliates. In the event of a transfer to such an Affiliate,
the Affiliate shall receive and hold the Rights subject to the
terms and provisions of this section 11(d).
(ii) If Varde desires to transfer all or any part
of its Rights, other than to an Affiliate, Varde shall give
written notice to the Managing General Partner of its
intention to transfer all or a specified part of its Rights
(which notice shall set forth in reasonable detail the terms
and provisions of the proposed transfer) and shall by such
notice offer such Rights for sale to the Company at the
aggregate purchase price offered by a bona fide third party
purchaser. The Company, at its option within 20 days after
delivery of such notice of intention, shall have the right to
purchase all, but not less than all, of the Rights being
offered at the specified price and shall give written notice
to Varde within such 20-day period of the exercise of its
right to purchase all such Rights.
(iii) If the Company does not elect to purchase
all the Rights proposed to be transferred by Varde, Varde shall
then be free to transfer the Rights to the third party, at the
price previously specified to the Managing General Partner, at
any time within 90 days after the expiration of the 20-day
period referred to in paragraph (ii) above. If such transfer
is not completed within that 90-day period, the Rights will
again be subject to the terms and provisions of this
Subsection (d).
(iv) If the Company elects to purchase all the
Rights proposed to be transferred by Varde, Varde shall,
within 10 days after receipt of written notice from the
Managing General Partner of the exercise by the Company of its
right to purchase, deliver the certificate or certificates
representing the Rights to be sold at the principal place of
business of the Managing General Partner, duly endorsed for
transfer or accompanied by appropriate transfer documents.
The Company shall, simultaneously with the delivery of the
Rights to the principal place of business of the Managing
General Partner, pay to Varde in cash at such principal place
of business the specified price of the Rights being purchased.
(v) Any attempted transfer of Rights without
compliance with the terms of this subsection (d) shall be
invalid and of no effect, and the Company shall have the right
to compel the holder or the purported transferee to transfer
and deliver the same to the Company in accordance herewith, in
which event the price payable by the Company for such Rights
shall be the price paid or that was to have been paid by the
purported transferee.
(e) The Company and the Managing General Partner
will use their reasonable best efforts to cause an active trading
market to be established and maintained for any Rights distributed
by it and to engage an independent investment banker (with an
established national reputation) to serve as a "standby"
underwriter to support any Rights Offering by agreeing to purchase
from the Company any Common Units offered in the Rights Offering
and not subscribed for.
Section 12. Registration Rights and Transfer
Restrictions. Holders of Series B Units have certain registration
rights with respect to Common Units issued upon the exercise of
Series B Units, and the transfer of such Common Units is subject to
certain restrictions, all as set forth in that certain Amended and
Restated Registration Rights Agreement dated as of December 30,
1997, by and between the Company and Varde.
Section 13. Record Holders. The Company and the
Transfer Agent may deem and treat the record holder of any Units as
the true and lawful owner thereof for all purposes.
Section 14. Notices. Except as otherwise expressly
provided herein, all notices required or permitted to be given
hereunder shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt of such
notice or three Business Days after the mailing of such notice if
sent by registered or certified mail, return receipt requested,
with postage prepaid, addressed: (a) if to the Company, to the
offices of the Managing General Partner at 1209 N. 4th, Abilene,
Texas 79601 (Attention: Brad Stephens), fax no. (915) 676-8792, or
other agent of the Company designated as permitted hereby; or (b)
if to any holder of the Series B Units, to such holder at the
address of such holder as listed in the record books of the Company
(which shall include the records of the Transfer Agent), or to such
other address as the Company or holder, as the case may be, shall
have designated by notice similarly given. As of the Initial
Issuance Date, Varde's address for notice is:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
Section 15. Successors and Transferees. The provisions
applicable to Series B Units shall bind and inure to the benefit of
and be enforceable by the Company, the respective successors to the
Company and by any holder of Series B Units.
IN WITNESS WHEREOF, this Certificate has been executed by
the Managing General Partner, on behalf of the Company, by its
Managing General Partner as of the 15th day of April, 1999 but
effective for all purposes as of January 1, 1998.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By:______________________________
Name: Dave Caddell
Title: Vice President
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS
of
SERIES C CUMULATIVE CONVERTIBLE PREFERRED UNITS
of
PRIDE COMPANIES, L.P.
Pursuant to the Third Amended and Restated Agreement
of Limited Partnership
effective as of April 15, 1999
_____________________
Pride Refining, Inc., a Texas corporation, as Managing
General Partner of Pride Companies, L.P. (the "Company"), certifies
that (i) pursuant to authority contained in the Second Amended and
Restated Agreement of Limited Partnership effective as of
December 30, 1997, the Series C Cumulative Convertible Preferred
Units of the Company were duly established, and (ii) pursuant to
authority contained in the Third Amended and Restated Agreement of
Limited Partnership effective as of April 15, 1999, the Series C
Cumulative Convertible Preferred Units are being amended and
restated so that such series will have the designations, rights,
powers, preferences, qualifications, limitations and restrictions
set forth below:
SERIES C CUMULATIVE CONVERTIBLE PREFERRED UNITS
Section 1. Number of Units and Designation. There is
hereby established a series of preferred limited partnership units
of the Company with the designation "Series C Cumulative
Convertible Preferred Units" (herein referred to as the "Series C
Units"), which shall consist of a maximum of 15,000 Units, with a
Stated Value per Unit of $1,000.00 (the "Stated Value").
Section 2. Definitions. In addition to the
definitions set forth elsewhere herein, the following terms shall
have the meanings indicated:
"$2,000,000 Loan" means indebtedness of the Company to
the Special General Partner evidenced by that certain Promissory
Note dated as of August 13, 1996, made by the Company payable to
the order of the Special General Partner in the original principal
amount of $2,000,000.
"$450,000 Loan" means indebtedness of the Company to the
Special General Partner evidenced by that certain Promissory Note
dated as of August 13, 1996, made by the Company payable to the
order of the Special General Partner in the original principal
amount of $450,000.
"Affiliate" of any Person is a Person that, directly or
indirectly, controls, is controlled by or is under common control
with such Person (and "control" means the power, directly or
indirectly, to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, or to elect a majority of a
Person's Board of Directors or equivalent governing body).
"BankBoston Credit Agreement" means that certain
Revolving Credit and Term Loan Agreement, dated as of December 30,
1997, by and among the Company (as borrower), BankBoston, N.A. (as
a lender and as agent), the guarantors parties thereto and the
lenders from time to time parties thereto, as such agreement may be
amended from time to time.
"Business Day" means any day other than a Saturday,
Sunday or a day on which commercial banks in Dallas, Texas are
required or authorized to close.
"Common Units" means the common limited partnership units
of the Company issued or authorized for issuance pursuant to the
Partnership Agreement.
"Credit Agreement" means the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997, among the Company
(as borrower), the Managing General Partner, the Special General
Partner, Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (as guarantors), and Varde (as
lender), as such agreement may be amended from time to time.
"Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Borrower (or other
specified Person) as liabilities, but in any event including
(without duplication);
(i) borrowed money;
(ii) indebtedness evidenced by notes, debentures or
similar instruments;
(iii) Capitalized Lease Obligations;
(iv) the deferred purchase price of assets, services
or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade
accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(v) mandatory redemption or dividend rights on
capital stock (or other equity);
(vi) reimbursement obligations, whether contingent
or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements (without duplication of
other Indebtedness supported or guaranteed thereby);
(vii) unfunded pension liabilities;
(viii) obligations that are immediately and
directly due and payable out of the proceeds of or production
from property;
(ix) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified
Person), whether or not the liability secured thereby shall
have been assumed; and
(x) all Guarantees in respect of Indebtedness of
others.
The term "Capitalized Lease Obligations" means the amount
of liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board. The term "Capitalized Lease" means any
lease which is required to be capitalized on the balance sheet of
the lessee in accordance with GAAP, including Statement Nos. 13 and
98 of the Financial Accounting Standards Board. The term "Interest
Rate Protection Agreement" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed rates, fixed interest
rates into variable rates or other similar arrangements. The term
"Lien" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the repayment of Indebtedness, whether arising by agreement or
under any statute or law, or otherwise. The term "Guarantee" of
any Person means any contract, agreement or understanding of such
Person pursuant to which such Person guarantees, or in effect
guarantees, any Indebtedness of any other Person in any manner,
whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property
constituting security therefor, (ii) to advance or supply funds (A)
for the purchase or payment of such Indebtedness, or (B) to
maintain net worth or working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness, (iii) to purchase
property, securities or service primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the
primary obligor to make payment of the Indebtedness, or (iv)
otherwise to assure the holder of the Indebtedness of the primary
obligor against loss in respect thereof; except that "Guarantee"
shall not include the endorsement by the Company in the ordinary
course of business of negotiable instruments or documents for
deposit or collection.
"Initial Issuance Date" means the date on which the first
issuance of Series C Units occurs, whether such phrase is used in
reference to Units issued on such date or on any subsequent date.
"Junior Securities" means the Common Units and any other
class or series of equity of the Company ranking junior to the
Series C Units as to distributions or upon liquidation, dissolution
or winding up, and the units thereof.
"Managing General Partner" means the corporation or other
entity designated to serve as managing general partner of the
Company pursuant to the Partnership Agreement.
"Note Purchase Agreement" means that certain Note
Agreement dated August 13, 1996, as amended, providing, among other
things, for the issuance by the Company of the Series A Unsecured
Note.
"Parity Securities" means any class or series of equity
of the Company ranking on a parity with the Series C Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Partnership Agreement" means that certain Third Amended
and Restated Agreement of Limited Partnership of Pride Companies,
L.P., effective as of April 15, 1999, as such agreement may be
amended.
"Person" means an any individual, partnership, joint
venture, corporation, limited liability company, trust,
unincorporated organization or government or any department or
agency thereof.
"Pipeline Lease" means that certain Pipeline Lease
Agreement effective as of March 29, 1990, between the Company, as
lessee, and the Special General Partner, as lessor, as amended by
Amendment No. 1 to Pipeline Lease Agreement and Amendment No. 2 to
Pipeline Lease Agreement, each effective as of March 29, 1990, and
by Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 30, 1997.
"Pride SGP Equity Conversion Agreement" means the amended
and restated Agreement of Pride SGP, dated as of August 13, 1996,
by and between the Special General Partner and the Company,
together with the Subordination Agreement attached thereto.
"Restructuring Agreement" means that certain
Restructuring and Override Agreement, dated as of December 30,
1997, by and among the Company, the Managing General Partner, the
Special General Partner and Varde.
"Senior Securities" means any class or series of equity
of the Company ranking senior to the Series C Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Series A Term Loan" means the term loan in the aggregate
principal amount of $20,000,000 owed by the Company to Varde
pursuant to the Credit Agreement.
"Series A Unsecured Note" means the Convertible Unsecured
Series A Promissory Notes of the Company in the aggregate initial
principal amount of $2,500,000, issued by the Company to Varde
pursuant to the Note Purchase Agreement.
"Series B Units" means the Series B Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Certificate of Designations
dated as of December 30, 1997, relating to such series. Series B
Units are Parity Securities.
"Series D" Units means the Series D Cumulative Preferred
Units of the Company issued in accordance with the Partnership
Agreement and the Certificate of Designations dated as of December
30, 1997, relating to such series. Series D Units are Junior
Securities.
"Series E Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as
contemplated by Section 2.1 of the Pride SGP Equity Conversion
Agreement, upon the conversion of the $2,000,000 Loan. Series E
Units are Junior Securities.
"Series F Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as contemplated
by Section 2.1 of the Pride SGP Equity Conversion Agreement, upon the
conversion of the $450,000 Loan. Series F Units are Junior
Securities.
"SGP Guarantee" means the guarantee by the Special
General Partner of, among other things, (i) the distribution rights
and liquidation preferences of the Series B Units, the Series C
Units and the Series D Units and (ii) the obligations of the
Company to Varde under the Series A Unsecured Note.
"Special General Partner" means Pride SGP, Inc., a Texas
corporation, or any successor in its capacity as special general
partner of the Company.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture, limited
liability company or other business or corporate entity, enterprise
or organization which is directly or indirectly (through one or
more intermediaries) controlled by or owned fifty percent or more
by such person.
"Transfer Agent" means such agent or agents of the
Company as may be designated by the Managing General Partner as the
transfer agent for the Series C Units.
"Units" means all or any or each, as the context may
require, of the Series B Units, the Series C Units, the Series D
Units, the Series E Units and the Series F Units.
"Varde" means Varde Partners, Inc., a Delaware
corporation, and its successors and assigns.
Section 3. Distributions; Allocation of Income.
(a) The Company shall pay to the holders of the Series C Units,
out of the assets of the Company at any time legally available for
the payment of distributions, preferential quarterly distributions
at the times and at the rates provided for in this Section 3. To
the extent not paid currently, such preferential distributions
shall accumulate and compound (as described below) on each Unit
from and including the date of original issuance of such Unit to
and including the date on which such Unit shall have been converted
into Common Units or redeemed and the redemption price shall have
been paid in full as contemplated by Section 6 hereof.
(b) To the extent that funds are legally available
therefor, distributions shall be paid quarterly, on and as of the
fifth calendar day of each February, May, August and November
(each, a "Distribution Payment Date"), on each Unit outstanding at
the following rates:
(i) subject to subsection (c) below, during the
three-year period beginning on the Initial Issuance Date and
ending on the date immediately preceding the third anniversary
thereof, at the rate of 6% per annum of the Stated Value of
the Unit;
(ii) during the two-year period beginning on
the third anniversary of the Initial Issuance Date and ending
on the date immediately preceding the fifth anniversary
thereof, at the rate of 12% per annum of the Stated Value of
the Unit, payable in cash only; and
(iii) thereafter, at the rate of 15% per
annum of the Stated Value of the Unit, payable in cash only.
The amount of the distribution payable on each
Distribution Payment Date shall be determined by applying the
applicable rate from and including the date immediately following
the last previous Distribution Payment Date (or from and including
the date of original issuance of the Unit, with respect to the
first distribution period) to and including the Distribution
Payment Date, on the basis of a year of 360 days.
(c) During the three-year period referred to in
subsection (b)(i) above, distributions on the Units shall be
payable currently in cash or may be deferred, at the Company's
option; provided, however, that in case of such deferrals, the
amount of such preferred distributions that will accumulate shall
be determined at the rate of 8% per annum. Notwithstanding the
foregoing or anything else contained herein to the contrary,
however, distributions payable on any Redemption Date (as defined
in Section 6 below) or on any final distribution date relating to
a dissolution, liquidation or winding up of the Company, shall be
payable in cash only and, if the payment date does not occur on a
regular Distribution Payment Date, shall be calculated on the basis
of the actual number of days elapsed including the Redemption Date
or such final distribution date. Distributions payable on the
Units for any period of less than a full quarterly distribution
period shall be computed on the basis of actual days elapsed,
excluding the last preceding Distribution Payment Date and
including the last day of such period, and on the basis of 360
days.
(d) To the extent a preferred distribution is not
paid on a Distribution Payment Date, with respect to a Unit, the
amount with respect to which subsequent preferred distributions on
such Unit shall be calculated shall include such unpaid amount and
such unpaid distributions, together with all additional deferred
distributions with respect thereto, shall be payable prior to any
distributions or payments being made with respect to such Units.
Nothing in this subsection (d) or any other provision hereof shall
give the Company any right not to pay any distribution as and to
the extent required by subsection (b) of this Section 3 or to defer
or delay such payment beyond the applicable Distribution Payment
Date.
(e) Distributions payable on each Distribution
Payment Date shall be paid to record holders of the Units as they
appear on the books of the Company at the close of business on the
tenth Business Day immediately preceding the respective
Distribution Payment Date.
(f) Except as otherwise provided in Section 1.1(f)
of the Restructuring Agreement, so long as any Series C Units are
outstanding:
(i) No distribution shall be declared or paid,
or set apart for payment on or in respect of any Junior
Securities, including, without limitation, distributions
payable in cash or other property or in units of any Junior
Security or other securities of the Company.
(ii) No distribution, except as described in
the next succeeding sentence, shall be declared or paid, or
set apart for payment on or in respect of any Parity
Securities, for any period unless full cumulative
distributions on all outstanding Series C Units have been or
contemporaneously are declared and paid for all distribution
periods terminating on or prior to the date set for payment of
such distribution on the Parity Securities. When
distributions are not paid in full, as aforesaid, on the
Series C Units and any Parity Securities, all distributions
declared upon such Parity Securities shall be declared and
paid pro rata with the Series C Units so that the amounts of
distributions per unit declared and paid on the Series C Units
and such Parity Securities shall in all cases bear to each
other the same ratio that unpaid cumulative distributions per
unit on the Series C Units and on such Parity Securities bear
to each other, and shall in all cases be paid to the same
extent in cash, other assets and/or securities of the same
class as the securities on which the respective distributions
are being paid.
(iii) Unless full cumulative distributions
on all outstanding Series C Units have been paid (or
contemporaneously are declared and paid) in cash for all prior
distribution periods (1) no rental payments shall be made to
the Special General Partner pursuant to the Pipeline Lease
unless Varde has received the full amount in cash to which it
is entitled under Section 1.1(f) of the Restructuring
Agreement and (2) the Special General Partner shall not
declare or pay, or set apart for payment, any dividend or
distribution in respect of any of the outstanding securities
of the Special General Partner.
For purposes of this subsection (f), unless expressly
stated otherwise herein, "distribution" shall include, without
limitation, any distribution by the Company of cash, evidences of
indebtedness, securities or other properties or assets of the
Company, or of rights to purchase or otherwise acquire any of the
foregoing, whether or not made out of profits, surplus or other
funds of the Company legally available for the payment of
distributions.
(g) The holders of the Series C Units will be
allocated an amount of gross income equal to the amount of any
preferred distributions paid on the Series C Units prior
to any allocation of income to the holders of Junior Securities.
Section 4. Certain Covenants and Restrictions. So
long as any Series C Units are outstanding:
(a) The Company shall not (i) issue, reissue, agree
to issue or authorize the issuance of any Senior Securities or any
Parity Securities, or any units or other securities or any options,
warrants, notes, bonds, debentures or other instruments convertible
into, exchangeable for or having rights to purchase any Senior
Securities or any Parity Securities or (ii) reclassify or modify
any Junior Security so that it becomes a Parity Security or Senior
Security.
(b) The Company shall not (i) pay any principal or
interest on, or redeem, purchase or otherwise acquire for any
consideration any Parity Securities or Junior Securities (or pay
any money to a sinking fund or otherwise set apart any money,
property or other consideration for the purchase or redemption of
any Parity Securities or Junior Securities) or (ii) pay, provide or
distribute to the holders of any Parity Securities or Junior
Securities, as such, any money, property, rights or other
consideration, except for distributions to holders of Parity
Securities permitted by Section 3(f)(ii) hereof.
(c) The Company shall not effect any split, reverse
split or any other subdivision or combination of the Common Units
or any other class or series of equity securities of the Company.
(d) Neither the Company nor the Managing General
Partner shall amend, alter or rescind (whether by merger,
consolidation or otherwise) any of the provisions of the
Partnership Agreement, this Certificate of Designations, the
Articles of Corporation, bylaws or other organizational document of
the Managing General Partner or any agreement entered into for the
benefit of holders of Series C Units in any manner so as to affect
adversely any of the preferences, rights or powers of the Series C
Units.
(e) The Company shall not and shall not permit any
of its Subsidiaries to, create, assume, incur, guarantee or
otherwise become or be liable in respect of, or maintain or
otherwise allow to exist, any Indebtedness, except for the
following:
(i) So long as the Credit Agreement is in
effect, the Indebtedness permitted and set forth in
Section 7.1 of the Credit Agreement;
(ii) If the Credit Agreement is no longer in
effect, the Indebtedness set forth in Section 6.6 of the
BankBoston Credit Agreement (whether or not the BankBoston
Credit Agreement shall then be in effect).
(f) The Company will not, and will not permit any
of its Subsidiaries to, sell, lease, convey, transfer, issue or
otherwise dispose of, in one transaction or in a series of
transactions, whether involving assets or securities, all or a
substantial portion of any Company Business, or any shares or
partnership interests in any Subsidiary (whether such interests are
now or hereafter issued, outstanding or created) except a sale for
fair consideration (as determined by the Board of Directors of the
Managing General Partner) to a purchaser who is not an Affiliate of
the Company, the Managing General Partner or the Special General
Partner, which consideration shall consist solely of cash which is
applied by the Company as provided in subsection (h) of this
Section 4. As used in this subsection, "Company Business" means the
operations and assets of one of the following three primary lines
of business as currently conducted by the Company and its
Subsidiaries on January 1, 1998: (i) crude oil gathering and
exchange, (ii) refining and (iii) transportation and marketing of
refinery products.
(g) All money, property or other consideration
received by the Company or any Subsidiary outside the ordinary
course of business, including but not limited to consideration for
or in connection with the sale, lease, transfer or other
disposition of any assets or properties of the Company (other than
the sale of goods and services in the ordinary course of business),
or any shares or partnership interests in any Subsidiary (whether
such interests are now or hereafter issued, outstanding or created)
but excluding consideration received in connection with (A) the
sale or disposition of any asset of the Company which is sold for
fair consideration not in excess of $25,000 or in the aggregate not
in excess of $250,000 (provided that to the extent consideration
from any such excluded sale or disposition is applied by the
Company in accordance with this Section 4(g), the amount of such
consideration shall not be counted under the $250,000 aggregate
limitation) and (B) except as otherwise provided in the
Restructuring Agreement, Litigation Settlements or Equity
Offerings, shall be applied (or converted into cash and then
applied, if applicable) by the Company (i) first, to the payment of
all amounts outstanding and due under the Credit Agreement and the
BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note;
(iii) then, to the redemption of the outstanding Series C Units in
accordance with Section 6 hereof; provided, that funds applied to
the redemption of Series C Units as provided in clause (iii) shall
be so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company.
(h) Except as otherwise provided in the
Restructuring Agreement, all consideration received by the Company
or any Subsidiary in connection with the resolution (by judgment or
otherwise) or settlement of any judicial, administrative or
arbitral proceeding ("Litigation Settlements") shall be applied (or
converted into cash and then applied, if applicable) by the Company
(i) first, to the payment of all amounts outstanding and due under
the Credit Agreement and the BankBoston Credit Agreement;
(ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the
outstanding Series C Units in accordance with Section 6 hereof;
provided, that funds applied to the redemption of Series C Units as
provided in clause (iii) shall be so applied with respect to the
initial Stated Value of the Units being redeemed and any portion of
the Redemption Price of such Units attributable to adjustments to
Stated Value shall be paid out of other funds of the Company.
(i) Except as provided in the next succeeding
sentence, all proceeds of public or private offerings of equity
securities by the Company ("Equity Offerings") shall consist of
cash and shall be applied (i) first, to the payment of all amounts
outstanding and due under the Credit Agreement and the BankBoston
Credit Agreement; (ii) next, to the payment of all amounts
outstanding and due under the Series A Unsecured Note; (iii) then,
to the redemption of the outstanding Series C Units in accordance
with Section 6 hereof; provided, that funds applied to the
redemption of Series C Units as provided in clause (iii) shall be
so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company. The Company may use up to $4.5
million, in the aggregate, of proceeds of Equity Offerings for
capital expenditures in excess of normal maintenance capital
expenditures if, out of every dollar so applied, no more than 60%
is applied to such excess capital expenditures and at least 40% is
applied in the manner provided in clauses (i), (ii) and (iii) of
this Section 4(i).
(j) [intentionally omitted]
(k) The Company shall not cause or permit the
Pipeline Lease or any other agreement between the Company and any
Affiliate of the Company to be amended, supplemented, replaced or
modified in any manner that would increase the payments required to
be made by the Company thereunder or the costs of compliance by the
Company therewith.
(l) The Company shall deliver to each holder of
Series C Units one (1) copy of each of the following:
(i) Monthly Statements. As soon as available,
and in any event within 30 days after the end of each calendar
month, copies of the consolidated balance sheet of the Company
as of the end of such month, and statements of income and
retained earnings and changes in financial position and cash
flows of the Company for that month and for the portion of the
fiscal year ending with such period, in each case setting
forth in comparative form the figures for the corresponding
period of the preceding fiscal year. Such statements shall be
in reasonable detail, with a certificate of the chief
financial officer of the Managing General Partner certifying
that such statements are true and correct in all material
respects to the best of his knowledge and prepared in
accordance with generally accepted accounting principles
("GAAP"), consistently maintained and applied, subject to
year-end audit adjustments.
(ii) Annual Statements. As soon as available
after each fiscal year end, and in any event within 90 days
thereafter, copies of the consolidated balance sheet of the
Company as of the close of such fiscal year and statements of
income and retained earnings and cash flows of the Company for
such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in
reasonable detail and accompanied by an opinion thereon (which
shall be without a "going concern" or like qualification or
exception) of Ernst & Young or of other independent public
accountants of recognized national standing selected by the
Company and satisfactory to the holders of Series C Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series C Units, to the effect that such
consolidated financial statements have been prepared in
accordance with GAAP consistently maintained and applied
(except for changes in which such accountants concur) and that
the examination of such accounts in connection with such
financial statements has been made in accordance with
generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances.
(iii) SEC and Other Reports. Promptly upon
its becoming available, one copy of each financial statement,
report, notice or proxy statement sent by the Company to
equity owners generally and of each regular or periodic
report, registration statement or prospectus filed by the
Company with any securities exchange or the Securities and
Exchange Commission or any successor agency, and of any order
issued by any court or governmental authority in any
proceeding to which the Company is a party.
(iv) Other Information. Such other information
concerning the business, properties or financial condition of
the Company as the holders of Series C Units representing 51%
or more of the aggregate Stated Value of the outstanding
Series C Units shall reasonably request.
For purposes of this Section 4, "proceeds" means gross
amounts received without deduction of any related costs or
expenses, offset of any related losses or other reduction of any
kind, except that "proceeds" of Equity Offerings means gross sales
price less reasonable discounts and commissions of underwriters or
placement agents. Any noncash proceeds or other noncash assets
received by the Company and that are subject to the provisions of
subsection (h) or (i) of this Section 4 shall be converted to cash
by the Company as soon as practicable and applied as provided in
the applicable subsection, and shall not be sold, transferred or
otherwise disposed of by the Company other than for such purpose.
Notwithstanding the foregoing, the Company may allow any promissory
note or similar instrument that is subject to subsection (h) or (i)
of this Section 4 to remain outstanding in accordance with its
terms, provided that all payments received by the Company
thereunder, and the proceed of any sale, transfer or other
disposition thereof, shall be applied as provided in the applicable
subsection of this Section 4.
Compliance by the Company with any covenant contained in
this Section 4 may be waived in writing by the holders of Series C
Units representing 51% or more of the aggregate Stated Value of the
outstanding Series C Units. No such waiver shall be deemed to be
a continuing waiver nor a waiver with respect to any other covenant
of the Company or any other term, condition or provision hereof.
Section 5. Liquidation Preference. (a) In the event
of any liquidation, dissolution or winding up of the Company (in
connection with the bankruptcy or insolvency of the Company or
otherwise), whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or
surplus) shall be made to or set apart for the holders of Common
Units or any other class or series of Junior Securities, the holder
of each Series C Unit shall be entitled to receive in cash an
amount equal to the Stated Value per Unit plus an amount equal to
the aggregate dollar amount of all unpaid preferred distributions
through the date of final distribution to such holders (including
a prorated distribution from the most recent Distribution Payment
Date to such date of final distribution). No payment on account of
any such liquidation, dissolution or winding up of the Company
shall be made to the holders of any class or series of Parity
Securities unless there shall be paid at the same time to the
holders of the Series C Units proportionate amounts in cash
determined ratably in proportion to the full amounts to which the
holders of all outstanding Series C Units and the holders of all
such outstanding Parity Securities are respectively entitled with
respect to such distribution. For purposes of this Section 5,
neither a consolidation or merger of the Company with one or more
partnerships, corporations or other entities nor a sale, lease,
exchange or transfer of all or any part of the Company's assets for
cash, securities or other property shall be deemed to be a
liquidation, dissolution or winding up, voluntary or involuntary if
the surviving entity in any such consolidation, merger, sale,
lease, exchange or transfer assumes in writing all the Company's
obligations under this Certificate of Designations, the Amended and
Restated Registration Rights Agreement referred to in Section 12
hereof, the Pride SGP Equity Conversion Agreement, and the Warrants
to Purchase Common Units, issued by the Company to each holder of
Series B Units or Series C Units.
(b) Subject to the rights of the holders of any
class or series of Parity Securities or Senior Securities, upon any
liquidation, dissolution or winding up of the Company, after
payment shall have been made in full to the holders of Series C
Units, as provided in this Section 5, any class or series of Junior
Securities shall, subject to the respective terms and provisions
(if any) applicable thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of
Series C Units shall not be entitled to share therein.
(c) Written notice of the commencement of any
proceeding for or that may result in any liquidation, dissolution
or winding up of the Company shall be given to holders of Series C
Units in accordance with Section 10(k), but neither the giving of
such notice nor anything in this Section 5 or any other provision
hereof shall relieve the Company of its obligation to obtain
consent from holders of Units as provided in Section 9.
Section 6. Optional and Mandatory Redemption. (a)
The Company may, at the option of the Managing General Partner,
redeem for cash at any time after the Retirement Date, from any
source of funds legally available therefor, in whole or in part, in
the manner provided below any and all of the outstanding Series C
Units at a redemption price per Unit (the "Redemption Price") equal
to the Stated Value per Unit redeemed plus an amount in cash equal
to the aggregate dollar amount of all unpaid preferred
distributions through the Redemption Date (including a prorated
distribution from the most recent Distribution Payment Date to the
Redemption Date) that have not been added to the Stated Value of
such Units. "Redemption Date" means the date fixed by the Managing
General Partner for redemption. "Retirement Date" means the date
on which the Series A Term Loan, the Series B Term Loans, the
Series C Term Loan and the Series A Unsecured Note (each as defined
in the Credit Agreement) are repaid in full.
(b) The Company shall, at the Redemption Price and
in the manner provided in this Section 6, redeem for cash from any
source of funds legally available therefor, all Series C Units
outstanding on the first to occur of:
(i) 180 days after the Maturity Date, as
defined in the Credit Agreement;
(ii) the date that is 30 days after any default
(a "Cross-Default") by the Company in its obligations to make
payments under or with respect to any Indebtedness with an
outstanding principal amount in excess of $500,000; provided,
however, that the Company need not effect such mandatory
redemption because of a Cross-Default if such Cross-Default is
cured prior to the end of such 30-day period to the
satisfaction of the holders of Series C Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series C Units or the right to require the Company to effect
such redemption is waived in writing by the holders of 51% or
more in Stated Value (as adjusted, if applicable) of the
Series C Units; no such waiver shall be deemed to be a
continuing waiver nor a waiver with respect to any other or
subsequent Cross-Default;
(iii) the date that is 30 days after any
failure by the Company to pay in full in cash on any
Distribution Payment Date any distribution payable only in
cash on such Distribution Payment Date; or
(iv) the date that is 30 days after any default
or failure of compliance by the Company with any covenant or
restriction contained in Section 3(f) or Section 4 hereof,
unless such default or failure of compliance is cured prior to
the end of such 30-day period to the satisfaction of the
holders of Series C Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series C Units;
or
(v) the Business Day immediately preceding any
Change in Control of the Company. For this purpose, a "Change
in Control" means (1) a change in the direct or indirect power
to direct or cause the direction of the management and
policies of the Company, the Managing General Partner or the
Special General Partner, whether through the ownership of
voting securities, by contract or otherwise, or to elect a
majority of any of such entities' Boards of Directors or
equivalent governing bodies; (2) any reorganization,
reclassification or change in any outstanding securities of
the Company; (3) the Company's consolidation or merger with or
into another partnership, corporation or other entity; (4) the
sale, lease or other transfer of the property of the Company
as an entirety or substantially as an entirety; (5) the
termination of the SGP Guarantee or of the pledge of all of
the Special General Partner's assets securing its obligations
thereunder, or any event or circumstance as a result of which
the SGP Guarantee or such pledge shall no longer be in full
force and effect; or (6) the redemption, purchase or other
acquisition by the Special General Partner for any
consideration any of the Special General Partner's outstanding
securities (or the payment of any money to a sinking fund or
the setting apart of any money, property or other
consideration for the purchase or redemption of any such
securities) or the payment, provision or distribution to the
holders of any of its outstanding securities, as such, any
money, property, rights or other consideration, other than
ordinary pro rata dividends to all holders of a class of such
outstanding securities; provided, however, that in the case of
clause (2), (3) or (4) of this sentence, any reorganization,
reclassification, change, consolidation, merger, sale or
transfer that has been approved by the holders of Series C
Units representing 51% or more of the aggregate Stated Value
of the then outstanding Series C Units in accordance with
Section 9(b) shall not constitute a Change in Control.
The Managing General Partner shall cause the Redemption
Notice (as defined below) to be mailed sufficiently in advance of
the dates or events specified in this subsection (b) to permit the
redemption to occur on such dates.
If there are insufficient legally available funds for
redemption under this subsection (b), the Company shall redeem such
lesser number of Series C Units (on a pro rata basis from all
holders of Series C Units, in proportion to the number of Units
held), to the extent there are funds legally available therefor,
and shall redeem all or part of the remainder of the Series C Units
as soon as the Company has sufficient funds that are legally
available therefor. If the redemption is delayed because of
insufficient legally available funds, distributions shall continue
to accrue on Series C Units outstanding, and shall be added to and
become a part of the Redemption Price of such Units, until the
Redemption Price, as so adjusted, for such Units is paid in full.
(c) The Company also shall, at the Redemption Price
and in the manner provided in this Section 6, redeem Series C Units
using the funds received from the sources described in Section
4(g), (h) and (i), to the extent provided therein, promptly after
the Company's receipt of such funds.
(d) In connection with any optional or mandatory
redemption of Units, at least 20 days and not more than 60 days
prior to the Redemption Date, written notice (the "Redemption
Notice") shall be sent simultaneously by certified mail, return
receipt requested, and by telecopy to each holder of record of the
Series C Units at the post office address last shown on the records
of the Company for such holder. The Redemption Notice shall state:
(i) whether all or less than all the
outstanding Series C Units are to be redeemed and the total
number of Series C Units being redeemed;
(ii) the number of Series C Units held by the
holder that the Company intends to redeem;
(iii) the Redemption Date and the Redemption
Price;
(iv) that the holder is to surrender to the
Company, in the manner and at the place designated, the
certificate or certificates representing the Series C Units to
be redeemed; and
(v) that an Escrow Account as described in the
following paragraph has been established at a bank specified
in the Redemption Notice.
Notwithstanding the foregoing, a Redemption Notice relating to a
mandatory redemption required by paragraph (ii), (iii) or (iv) of
subsection (b) of this Section 6 shall be mailed at least 15 days
and not more than 30 days prior to the mandatory Redemption Date.
Not later than the date on which a Redemption Notice is
mailed by the Company, the Company shall deposit in an escrow
account (the "Escrow Account") for the pro rata benefit of the
holders of the Units to be redeemed the funds necessary for such
redemption with a bank or trust company having capital and surplus
of at least $500 million and approved in writing by the holders of
Series C Units representing 51% or more of the aggregate Stated
Value of the then outstanding Series C Units (the "Escrow Agent").
Any such funds (i) that represent the Redemption Price of Units
converted into Common Units pursuant to Section 10 prior to the
applicable Redemption Date or (ii) that are unclaimed at the end of
two years after the applicable Redemption Date shall revert to the
general funds of the Company and, upon such reversion, the Escrow
Agent shall, upon demand, pay such funds over to the Company and be
relieved of all responsibility in respect thereof and any holder of
Units entitled to receive any of such funds shall thereafter look
only to the Company for the payment of the Redemption Price. Any
interest on funds included in the Escrow Account shall be for the
account of the Company. The failure to establish the Escrow
Account by the date specified in this paragraph shall cause the
Redemption Notice that required such Escrow Account to have been
established to be ineffective, and the Company shall not have any
right to redeem any Units pursuant to such Redemption Notice. Such
failure shall not relieve the Company of any obligation to effect
a mandatory redemption of Units.
On or before the Redemption Date each holder of Series C
Units shall surrender to the Company the certificate or
certificates representing such Units to be redeemed, in the manner
and at the place designated in the Redemption Notice, and thereupon
the Redemption Price for such Units shall be payable in cash on the
Redemption Date to the Person whose name appears on such
certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the
event that less than all Units represented by any such certificate
are redeemed, a new certificate shall be issued representing the
unredeemed Units.
In the event of a redemption of only a portion of the
then outstanding Series C Units, the Company shall effect such
redemption pro rata according to the number of Units held by each
holder.
Unless the Company defaults in the payment in full of the
Redemption Price, distributions on the Series C Units called for
redemption shall cease to accumulate on the Redemption Date, and
the holders of such Units redeemed shall cease to have any further
rights with respect thereto on the Redemption Date, other than to
receive the Redemption Price without interest.
Holders of all Series C Units shall have the right at any
time from and after the date on which the Company calls any Series
C Units for redemption and prior to the Redemption Date for such
Units to convert all or any part of the outstanding Units held by
them into Common Units at the Conversion Price (as defined in
Section 10), notwithstanding anything herein to the contrary, and
whether or not such holders otherwise would have the right to
effect such conversion at such time pursuant to Section 10.
Section 7. Prohibitions on Issuance. All Units
repurchased, redeemed or otherwise acquired by the Company shall be
retired and canceled and shall not be reissued. No authorized but
unissued Units shall be issued other than as distributions in kind
to the existing holders of Series C Units in accordance with
Section 3 hereof.
Section 8. Ranking. (a) No equity securities of the
Company shall rank senior to the Series C Units with respect to the
payments required or permitted to be made to the holders thereof
pursuant to their respective governing instruments and the payments
required to be made to holders of the Series C Units pursuant
hereto. The Company shall not issue any debt security (except as
permitted by Section 4(e)).
(b) The following equity securities of the Company,
and no others, shall rank on a parity with the Series C Units with
respect to the payments required or permitted to be made to the
holders thereof pursuant to their respective governing instruments
and the payments required to be made to holders of the Series C
Units pursuant hereto: the Series B Units.
(c) Without limiting the definition of "Junior
Securities" contained in Section 2, the following equity securities
of the Company shall rank junior to the Series C Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series C Units
pursuant hereto: the Series D Units, the Series E Units, the Series
F Units and the Common Units.
Section 9. Voting. (a) So long as any Series C Units
remain outstanding, the Company will not, without the affirmative
vote at a meeting, or by written consent with or without a meeting,
of the holders of Series B Units and Series C Units representing
two-thirds or more of the aggregate Stated Value of the then
outstanding Series B Units and Series C Units, voting as one class,
(i) create, authorize, issue or reissue any class or series of
Senior Securities, or any units of any such class or series, or
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series B Units or the
Certificate of Designations of the Series C Units that prescribe
the terms and conditions of the Series B Units or Series C Units;
provided, however, that any proposed amendment, alteration or
rescission of any provision of the Partnership Agreement or of the
Certificate of Designations of the Series B Units or Series C
Units, as contemplated by clause (ii) of this sentence, shall
require the approval of the holders of Series B Units and the
holders of Series C Units representing two-thirds or more of the
aggregate Stated Value of the then outstanding Series B Units and
Series C Units, respectively, each voting as a separate class.
(b) So long as any Series C Units remain
outstanding, the Company will not, without the affirmative vote at
a meeting, or by written consent with or without a meeting, of the
holders of the Series B Units and Series C Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series B Units and Series C Units, voting as one class, (i) create,
authorize, issue or reissue any class or series of Parity
Securities, or any units of any such class or series, including
without limitation any authorized but unissued Series B Units or
Series C Units (other than Series B Units or Series C Units issued
as distributions in kind to the existing holders thereof in
accordance with their respective Certificates of Designations);
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series B Units or the
Certificate of Designations of the Series C Units that set forth
the restrictions and covenants of the Company (including without
limitation restrictions regarding capital expenditures, issuance of
Indebtedness and payment of distributions to holders of Parity
Securities or Junior Securities) that benefit or protect the rights
of holders of the Series B Units or Series C Units; (iii) commence
any voluntary proceeding (under bankruptcy, insolvency or similar
laws or otherwise) for or that may result in the liquidation,
dissolution or winding up of the Company, consent to the entry of
an order for relief in an involuntary proceeding under any federal
or state bankruptcy, insolvency or similar laws or to the
appointment of a receiver, liquidator, assignee, custodian, trustee
or other similar official of the Company or of any substantive part
of its properties, or make an assignment for the benefit of its
creditors or admit in writing its inability to pay its debts
generally as they become due; or (iv) reorganize, reclassify or
change any outstanding securities, consolidate or merge with or
into another partnership, corporation or other entity or sell or
transfer the property of the Company as an entirety or
substantially as an entirety.
(c) [intentionally omitted]
(d) [intentionally omitted]
(e) Except as expressly set forth herein or in the
Partnership Agreement or as required by applicable law, holders of
Series C Units shall not have any right to vote on any question
presented to the holders of voting securities of the Company.
Section 10. Conversion Rights. (a) Each Series C
Unit shall be convertible at the option of the holder thereof into
fully paid Common Units at any time during the Conversion Period.
The number of Common Units deliverable upon conversion of one
Series C Unit shall be determined by dividing the Stated Value of
the Series C Unit by the Conversion Price (as defined below) then
in effect. The "Conversion Period" shall commence on March 31,
1998 and shall end on the date on which all outstanding Series C
Units have been redeemed and the aggregate Redemption Price has
been paid full in accordance with Section 6 hereof.
(b) Conversion of any Series C Unit may be effected
by the holder thereof by the surrender of the certificate for such
Unit to the Company at the principal office of the Transfer Agent
in the State of Texas or at the office of any successor Transfer
Agent for the Series C Units, or to such other agent or agents of
the Company as may be designated by the Managing General Partner.
If any Series C Units are called for redemption pursuant to a
Redemption Notice in accordance Section 6 hereof, such right of
conversion shall cease and terminate as to the Units called for
redemption at the close of business on the Redemption Date, unless
the Company shall default in the payment of the Redemption Price
(in which event, such conversion right shall remain in effect until
full payment of the Redemption Price has been made) or shall have
failed to establish an Escrow Account as required by Section 6 (in
which event such call for redemption shall be ineffective, as
provided in Section 6, and such conversion right shall be
unaffected by such Redemption Notice).
(c) The price at which holders of Series C Units
may acquire Common Units pursuant to the conversion rights set
forth in this Section 10 (the "Conversion Price") initially shall
be $6.30 per Common Unit, which price has been determined on the
basis of the number of outstanding Common Units, on a fully diluted
basis, as of the Initial Issuance Date, so that if Series C Units
had been convertible and converted into Common Units on such date,
the holders of Series C Units representing an aggregate Stated
Value of $1.0 million would have received 2.0% of such outstanding
Common Units, on a fully diluted basis, as of such date. For this
purpose, the number of outstanding Common Units, on a fully diluted
basis, includes (i) Common Units actually outstanding on the
Initial Issuance Date and (ii) Common Units into which all
convertible securities, convertible debt and other convertible
instruments (including without limitation the Series B Units and
the Series C Units) and all warrants, options or other rights to
acquire any Common Units of the Company issued and outstanding on
the Initial Issuance Date are convertible, exchangeable or
exercisable (notwithstanding that such conversion, exchange or
exercise rights may not have been fully vested on the Initial
Issuance Date). The Conversion Price and Stated Value of the
Units, for purposes of conversion, are subject to adjustment as
provided herein.
(d) The Stated Value of each Series C Unit, for
purposes of conversion, shall be $1,000.00 plus the amount of
accrued and unpaid distributions for all distribution payment
periods ending on or prior to the date such Units are surrendered
to the Company for conversion and for the partial distribution
period beginning on the date immediately following the most recent
Distribution Payment Date through and including the date on which
such Units are surrendered for conversion. Notwithstanding the
foregoing, holders of Series C Units surrendered for conversion
shall have the option to require the Company to make payment in
cash of all such unpaid preferred distributions, in lieu of such
adjustment to the Stated Value, whether or not funds are legally
available therefor and whether or not declared.
(e) As promptly as practicable after the surrender
of Series C Units for conversion, the Company shall issue and
deliver or cause to be issued and delivered to the holder of such
Units certificates representing the number of Common Units into
which such Series C Units have been converted in accordance with
the provisions of this Section 10. Subject to the following
provisions of this Section 10, such conversion shall be deemed to
have been made as of the close of business on the date on which the
Series C Units shall have been surrendered for conversion in the
manner herein provided, so that the rights of the holder of the
Series C Units so surrendered shall cease at such time and the
Person or Persons entitled to receive the Common Units upon
conversion thereof shall be treated for all purposes as having
become the record holder or holders of such Common Units at such
time; provided, however, that any such surrender on any date when
the unit transfer books of the Company are closed shall be deemed
to have been made, and shall be effective to terminate the rights
of the holder or holders of the Series C Units so surrendered for
conversion and to constitute the Person or Persons entitled to
receive such Common Units as the record holder or holders thereof
for all purposes, at the opening of business on the next succeeding
day on which such transfer books are open and such conversion shall
be at the Conversion Price in effect at such time. The Company
will not at any time close its transfer books against the transfer
of any Series C Unit or of any Common Unit issued or issuable upon
the conversion of any Series C Unit in any manner which interferes
with the timely conversion of such Series C Unit.
(f) The Company shall not at any time limit the
number of Common Units that may be issued by the Company or take
any other action that would impair the Company's ability to issue
Common Units sufficient to permit the conversion of all outstanding
Series C Units and the conversion, exchange or exercise of all
other securities and instruments convertible or exchangeable into
or exercisable for Common Units. The Company shall not, by
amendment of its Partnership Agreement or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Section 10 by
the Company or any of the terms of its Partnership Agreement which
are applicable to Common Units issuable upon conversion of the
Series C Units, but will at all times in good faith assist in the
carrying out of all of the provisions of this Section 10 and in the
taking of all such other action as may reasonably be requested by
any holder in order to protect the conversion privilege and other
rights of the Series C Units and of the Common Units issuable upon
conversion of the Series C Units against any impairment.
(g) The Company covenants and agrees that all
Common Units that may be issued upon the exercise of the conversion
rights of Series C Units will, upon issuance, be fully paid,
without any obligations to make additional capital contributions to
the Company, and free from all taxes, liens and charges with
respect to the issue thereof.
(h) The number and kind of securities purchasable
upon the exercise of the conversion rights of the Series C Units
shall be subject to adjustment from time to time upon the happening
of certain events, as follows:
(i) If the Company, at any time while any of
the Series C Units are outstanding, shall subdivide or combine
its Common Units, the Conversion Price shall be
proportionately reduced, in case of subdivision of units, as
of the effective date of such subdivision, or if the Company
shall take a record of holders of its Common Units for the
purpose of so subdividing, as of such record date, whichever
is earlier, or shall be proportionately increased, in the case
of a combination of units, as of the effective date of such
combination or, if the Company shall take a record of holders
of its Common Units for the purpose of so combining, as of
such record date, whichever is earlier; provided, however,
that nothing in this paragraph shall be deemed to permit the
Company to effect any such subdivision or combination in
violation of any other provision, including Section 4(c),
hereof.
(ii) If the Company at any time while any of
the Series C Units are outstanding shall:
(1) Make any distribution of Additional
Common Units (as defined below), the Conversion Price
shall be adjusted, as of the date the Company shall take
a record of the holders of its Common Units for the
purpose of receiving such distribution (or if no such
record is taken, as of the date of such distribution), to
that price determined by multiplying the Conversion Price
in effect immediately prior to such record date (or if no
such record is taken, then immediately prior to such
distribution) by a fraction (i) the numerator of which
shall be the total number of Common Units outstanding
immediately prior to such distribution, and (ii) the
denominator of which shall be the total number of Common
Units outstanding immediately after such distribution
(plus in the event that the Company paid cash for
fractional units, the number of Additional Common Units
which would have been outstanding had the Company issued
fractional units in connection with such distribution);
provided, however, that nothing in this paragraph shall
be deemed to permit the Company to effect any such
distribution in violation of any other provision,
including Section 3(f) or 4(b), hereof; or
(2) Issue any Additional Common Units to
the Special General Partner (regardless of any
consideration received by the Company for such issuance)
or make any payments under the Pipeline Lease in the form
of Additional Common Units, the Conversion Price shall be
adjusted, as of the date of such issuance or payment, to
that price determined by multiplying the Conversion Price
in effect immediately prior to such date by a fraction
(i) the numerator of which shall be the total number of
Common Units outstanding immediately prior to such
issuance or payment, and (ii) the denominator of which
shall be the total number of Common Units outstanding
immediately after such issuance or payment.
(iii) If the Company, at any time while any
of the Series C Units are outstanding and the Fair Market
Price of the Common Units is less than or equal to the
Conversion Price, shall issue any Additional Common Units
(other than as provided in the foregoing paragraphs (i) and
(ii) of this subsection) at a price per unit less than the
Conversion Price or without consideration, then the Conversion
Price upon each such issuance shall be reduced (but never
increased) to a price determined by multiplying the existing
Conversion Price by the following fraction, where O is the
number of Common Units outstanding, on a fully diluted basis,
prior to such issuance; N is the number of Additional Common
Units being issued; P is the amount of consideration received
per unit by the Company in exchange for issuance of such
Additional Common Units; and C is the existing Conversion
Price:
O + (N x P divided by C)
------------------------
O + N
(iv) If the Company, at any time while any of
the Series C Units are outstanding and the Fair Market Price
of the Common Units is greater than the Conversion Price,
shall issue any Additional Common Units (other than as
provided in paragraphs (i) and (ii) of this subsection) at a
price per unit that is less than Fair Market Price, then the
Conversion Price upon each such issuance shall be reduced
(but never increased) to a price determined by multiplying the
existing Conversion Price by the following fraction, where O,
N and P have the meanings specified in paragraph (ii) of this
subsection (h) and M is the Fair Market Price:
O + (N x P divided by M)
------------------------
O + N
(v) If the Company at any time while any of
the Series C Units are outstanding shall issue any Common Unit
Equivalents (as defined below) and the price per unit for
which Additional Common Units may be issuable thereafter
pursuant to such Common Unit Equivalents is less than the
Conversion Price, or less than the Fair Market Price but
greater than the Conversion Price, or if, after any such
issuance, the price per unit for which Additional Common Units
may be issuable thereafter is amended and such price as so
amended is less than the Conversion Price, or less than the
Fair Market Price but greater than the Conversion Price, at
the time of such amendment, then the Conversion Price upon
each such issuance or amendment shall be adjusted as provided
in paragraph (ii), (iii) or (iv) of this subsection, as
applicable, as if the underlying Additional Common Units had
been issued directly. The consideration for Additional Common
Units issuable pursuant to any Common Unit Equivalents shall
be the consideration received by the Company for issuing such
Common Unit Equivalents plus the additional consideration
payable to the Company upon the exercise, conversion or
exchange of such Common Unit Equivalents. If the Conversion
Price is adjusted upon the issuance of Common Unit Equivalents
and such Common Unit Equivalents are thereafter canceled
without having been converted or exercised, and without any
Additional Common Units having been issued in respect thereof,
then the Conversion Price shall be readjusted to the
Conversion Price that would have been in effect if such Common
Unit Equivalents had never been issued. No adjustment of the
Conversion Price shall be made under paragraph (ii), (iii) or
(iv) of this subsection (h) upon the issuance of any
Additional Common Units that are issued pursuant to any Common
Unit Equivalents if upon the issuance of such Common Unit
Equivalents adjustments shall previously have been made
pursuant to this paragraph (v) to the same extent as would
have been made under paragraph (ii), (iii) or (iv) if such
Additional Common Units had been issued directly.
(vi) No adjustment shall be made to the
Conversion Price with respect to the issuance of any
Additional Common Units (or any Common Unit Equivalents
pursuant to which such Additional Common Units are issuable)
at a price per unit that is greater than both the Conversion
Price and the Fair Market Price.
(vii) For purposes of making the adjustments in the
Conversion Price as provided in this Section 10(h), the
consideration received by the Company shall be deemed to be
the following: to the extent that any Additional Common Units
or any Common Unit Equivalents shall be issued for cash
consideration, the consideration received by the Company
therefor; if such Additional Common Units or Common Unit
Equivalents are offered by the Company for subscription, the
subscription price; if such Additional Common Units or Common
Unit Equivalents are sold to underwriters or dealers for
public offering, the initial public offering price, in any
such case excluding any amount received for accrued interest
or accrued distributions and without deduction of any
commissions, discounts or expenses paid or incurred by the
Company in connection with the issue thereof; and to the
extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly
provided, the fair market value of such consideration at the
time of such issuance as determined in good faith by the
Managing General Partner of the Company. In the event of the
issuance at any time of any Additional Common Units or Common
Unit Equivalents in payment or satisfaction of any
distribution upon any class or series of units other than
Common Units, the Company shall be deemed to have received for
such Additional Common Units or Common Unit Equivalents
consideration equal to the amount of such distribution so paid
or satisfied; provided, that nothing herein shall be deemed to
permit the Company to issue Common Units for such purpose
under circumstances in which such issuance is not otherwise
permitted. In any case in which the consideration to be
received shall be other than cash, the Managing General
Partner shall notify each holder of Series C Units of its
determination of the fair market value of such consideration
prior to accepting receipt thereof. If, within 10 days of
receipt of such notice, the holders of Series C Units
representing 51% or more of the aggregate Stated Value of
Series C Units then outstanding shall notify the Managing
General Partner in writing of their objection to such
determination, a determination of the fair market value of
such consideration shall be made by an independent investment
banker (with an established national reputation) selected by
the Managing General Partner, with the written approval of the
holders of Series C Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series C Units.
(viii) If any event occurs as to which, in the
good faith judgment of the holders of Series C Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series C Units, the other provisions of this
Section 10(h) are not strictly applicable or if strictly
applicable would not fairly protect the conversion rights of
the holders of Series C Units in accordance with the essential
intent and principles of such provisions, then the Managing
General Partner shall appoint a firm of independent public
accountants (with an established national reputation) who are
satisfactory to the holders of Series C Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series C Units (which may be the Company's regular independent
auditors) which shall give their opinion upon the adjustment,
if any, on a basis consistent with such essential intent and
principles, necessary to preserve, without dilution, the
rights of the holders of Series C Units. Upon receipt of such
opinion, the Managing General Partner shall forthwith make the
adjustments described therein; provided, that no such
adjustment shall have the effect of increasing the Conversion
Price as otherwise determined pursuant to this Section 10.
(ix) The Company may give notice to the holders
that the proceeds of certain Additional Common Units will be
used to redeem all outstanding Series C Units, which notice
shall be given prior to the actual issuance of such Additional
Common Units. If such notice is given and such proceeds are
used for such purpose within 60 days after receipt thereof,
such Additional Common Units shall not be considered in
determining an adjustment to the Conversion Price under this
Section 10(h) with respect to any Series C Units which become
subject to an election to convert after delivery of such
notice.
(i) If at any time the Company shall be a party to
any transaction (including, without limitation, a merger,
consolidation, sale of all or substantially all the Company's
assets, liquidation, or recapitalization of the Common Units) in
which the previously outstanding Common Units shall be changed into
or exchanged for different securities of the Company or common
stock or other securities of another corporation or interests in a
noncorporate entity or other property (including cash) or any
combination of any of the foregoing or in which the Common Units
cease to be a publicly traded security either listed on the New
York Stock Exchange or the American Stock Exchange or quoted by the
NASDAQ National Market System or any successor thereto or
comparable system (each such transaction being herein called the
"Transaction,"the date of consummation of the Transaction being
herein called the "Consummation Date,"the Company (in the case of
a recapitalization of the Common Units or any other such
transaction in which the Company retains substantially all its
assets and survives as a limited partnership) or such other
corporation or entity (in each other case) being herein called the
"Acquiring Company,"and the common stock (or equivalent equity
interests) of the Acquiring Company being herein called the
"Acquirer's Common Stock"), then, as a condition of the
consummation of the Transaction, lawful and adequate provisions
shall be made so that the holder of Series C Units, upon the
conversion thereof at any time on or after the Consummation Date
(but subject, in the case of an election pursuant to clause (B) or
(C) below, to the time limitation hereinafter provided for such
election),
(A) shall be entitled to receive, and such
Series C Units shall thereafter be convertible into, in
lieu of the Common Units issuable upon such conversion
prior to the Consummation Date, shares of the Acquirer's
Common Stock, unless the Acquiring Company fails to meet
the requirements set forth in clauses (D), (E), and (F)
below, in which case shares of the common stock of the
corporation or other entity (herein called a "Parent")
which directly or indirectly controls the Acquiring
Company if it meets the requirements set forth in
clauses (D), (E), and (F) below, at a conversion price
per share equal to the lesser of (1) the Conversion Price
in effect immediately prior to the Consummation Date
multiplied by a fraction the numerator of which is the
market price per share (determined in the same manner as
provided in the definition of Fair Market Price) of the
Acquirer's Common Stock or the Parent's common stock or
equivalent equity security, as the case may be,
immediately prior to the Consummation Date and the
denominator of which is the Fair Market Price immediately
prior to the Consummation Date, or (2) the market price
per share (as so determined) of the Acquirer's Common
Stock or the Parent's common stock or equivalent equity
security, as the case may be, immediately prior to the
Consummation Date (subject in each case to adjustments
from and after the Consummation Date as nearly equivalent
as possible to the adjustments provided for in this
Section 10),
or at the election of the holder of Series C Units pursuant to
notice given to the Company on or before the later of (1) the 30th
day following the Consummation Date, and (2) the 60th day following
the date of delivery or mailing to such holder of the last proxy
statement relating to the vote on the Transaction by the holders of
the Common Units,
(B) shall be entitled to receive, and such
Series C Units shall thereafter be convertible into, in
lieu of the Common Units issuable upon such conversion
prior to the Consummation Date, the highest amount of
securities or other property to which such holder would
actually have been entitled as a holder of Common Units
upon the consummation of the Transaction if such holder
had converted such holder's Series C Units immediately
prior thereto (subject to adjustments from and after the
Consummation Date as nearly equivalent as possible to the
adjustments provided for in this Section 10), provided
that if a purchase, tender or exchange offer shall have
been made to and accepted by the holders of more than 50%
of the outstanding Common Units, and if the holder of
Series C Units so designates in such notice given to the
Company, the holder of Series C Units shall be entitled
to receive in lieu thereof, the highest amount of
securities or other property to which such holder would
actually have been entitled as a holder of Common Units
if such holder had converted the Series C Units prior to
the expiration of such purchase, tender or exchange offer
and accepted such offer (subject to adjustments from and
after the consummation of such purchase, tender or
exchange offer as nearly equivalent as possible to the
adjustments provided for in this Section 10),
or, if neither the Acquiring Company nor the Parent meets the
requirements set forth in clauses (D), (E), and (F) below, at the
election of the holder of Series C Units pursuant to notice given
to the Company on or before the later of (1) the 30th day following
the Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the
Common Units,
(C) shall be entitled to receive, within 15
days after such election, in full satisfaction of the
conversion rights afforded to such holder under this
Section 10, an amount in cash equal to the fair market
value of such conversion rights as of the Consummation
Date, as determined by an independent investment banker
(with an established national reputation as a valuer of
equity securities) selected by the Managing General
Partner, with the written approval of the holders of
Series C Units representing 51% or more of the aggregate
Stated Value of the then outstanding Series C Units, such
fair market value to be determined with regard to all
material relevant factors (including without limitation
the holder's right to receive the consideration described
in paragraphs (A) and (B) above, including the provisos
thereto, if applicable) but without regard to the effects
on such value of the Transaction.
The Company agrees to obtain, and deliver to each holder of Series
C Units a copy of, the determination of the independent investment
banker (selected and approved as provided above) necessary for the
valuation under clause (C) above within 15 days after the
Consummation Date of any Transaction to which clause (C) is
applicable.
The requirements referred to above in the case of the
Acquiring Company or its Parent are that immediately after the
Consummation Date:
(D) it is a solvent corporation organized
under the laws of any state of the United States of
America having its common stock (or equivalent equity
security, if not a corporation) listed on the New York
Stock Exchange or the American Stock Exchange or quoted
by the NASDAQ National Market System or any successor
thereto or comparable system, and such common stock (or
equivalent equity security) continues to meet such
requirements for such listing or quotation;
(E) it is required to file, and in each of its
three fiscal years immediately preceding the Consummation
Date has filed, reports with the Securities and Exchange
Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(F) in the case of the Parent, such Parent is
required to include the Acquiring Company in the
consolidated financial statements contained in the
Parent's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission and is not itself
included in the consolidated financial statements of any
other Person (other than its consolidated subsidiaries).
Notwithstanding anything contained herein to the contrary, the
Company shall not effect any Transaction unless prior to the
consummation thereof each corporation or entity (other than the
Company) which may be required to deliver any securities or other
property upon the conversion of Series C Units, the surrender of
Series C Units, or the satisfaction of conversion rights as
provided herein shall assume, by written instrument delivered to
each holder of Series C Units, the obligation to deliver to such
holder such securities or other property to which, in accordance
with the foregoing provisions, such holder may be entitled, and
such corporation or entity shall have similarly delivered to each
holder of Series C Units an opinion of counsel for such corporation
or entity, satisfactory to the holders of Series C Units
representing not less than 51% of the aggregate Stated Value of the
then outstanding Series C Units, which opinion shall state that
Series C Units, including, without limitation, the conversion
provisions applicable to Series C Units, shall thereafter continue
in full force and effect and shall be enforceable against such
corporation or entity in accordance with the terms hereof, together
with such other matters as such holder may reasonably request.
Notwithstanding any of the foregoing provisions of this
subsection (i), in connection with any Transaction, each holder of
Series C Units, at its election, pursuant to notice given to the
Company on or before the later of (1) the 30th day following the
Consummation Date, and (2) the 60th day following the date of
delivery or mailing to such holder of the last proxy statement
relating to the vote on the Transaction by the holders of the
Common Units, shall be entitled to receive, and such Series C Units
shall thereafter be convertible into, in lieu of the Common Units
issuable upon such conversion prior to the Consummation Date, an
amount in cash equal to the aggregate Stated Value of such Series
C Units plus the amount of accrued and unpaid distributions thereon
for all distribution payment periods ending on or prior to the date
on which such cash payment is received by the holder and for the
partial distribution period beginning on the date immediately
following the most recent Distribution Payment Date through and
including the date of such receipt.
(j) Upon the occurrence of any event requiring an
adjustment of the Conversion Price, then and in each such case the
Company shall promptly deliver to each holder of Series C Units an
officer's certificate stating the Conversion Price resulting from
such adjustment and the increase or decrease, if any, in the number
of Common Units issuable upon conversion of each Series C Unit,
setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. If, within 10 days
of receipt of any such officer's certificate, the holders of Series
C Units representing not less than 51% of the aggregate Stated
Value of the then outstanding Series C Units shall notify the
Managing General Partner in writing of their objection to such
calculations, then, within 30 days after receipt of such notice
from such holders, the Company will obtain and deliver to each
holder of Series C Units the opinion of its regular independent
auditors or another firm of independent public accountants of
recognized national standing selected by the Managing General
Partner who are satisfactory to the holders of Series C Units
representing not less than 51% of the aggregate Stated Value of the
outstanding Series C Units, which opinion shall confirm the
statements and calculations in such officer's certificate. It is
understood and agreed that the independent public accountants
rendering any such opinion shall be entitled expressly to assume in
such opinion the accuracy of any determination of Fair Market
Price, or of the fair market value of conversion rights, made by an
independent investment banker in accordance with this Section 10.
(k) If at any time (i) the Company shall commence
any Rights Offering (as defined in Section 11); (ii) there shall be
any capital reorganization or reclassification of the Common Units,
or consolidation or merger of the Company with, or sale of all or
substantially all its assets to, another partnership, corporation
or other entity; (iii) there shall be a voluntary or involuntary
dissolution, liquidation, or winding-up of the Company; or (iv)
there shall be any other Transaction, then, in any one or more of
such cases, the Company shall give to all holders of Series C Units
(a) at least 30 days prior to any event referred to in clause (i),
(ii) or (iii) above, and within five business days after it has
knowledge of any pending Transaction, written notice of the date on
which the books of the Company shall close or a record shall be
taken for such distribution or Rights Offering or for determining
rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, winding-up, or Transaction and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, winding-up, or Transaction known to the
Company, at least 30 days prior written notice of the date (or, if
not then known, a reasonable approximation thereof by the Company)
when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such
distribution or Rights Offering, the date on which the holders of
Common Units shall be entitled thereto, and such notice in
accordance with the foregoing clause (b) shall also specify the
date on which the holders of Common Units shall be entitled to
exchange their Common Units for securities or other property
deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up,
or Transaction, as the case may be. Such notice shall also state
that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act
of 1933, as amended, or to a favorable vote of security holders, if
either is required.
(l) No fractional Common Units shall be issued in
connection with any conversion hereunder, but in lieu of such
fractional Common Units, the Company shall make a cash payment
therefor upon the basis of the Conversion Price then in effect.
(m) For purposes of this Section 10, the following
definitions shall apply:
(i) "Additional Common Units" shall mean all
Common Units of the Company issued or to be issued by the
Company after the Initial Issuance Date, except Common Units
which have been or may be issued upon conversion of the Series
B Units, the Series C Units and the other convertible
securities, convertible instruments, warrants, options and
rights outstanding on the Initial Issuance Date referred to in
subsection (c) of this Section 10.
(ii) "Common Unit Equivalent" shall mean any
convertible security or any warrant, option or other right to
subscribe for or purchase any Additional Common Units or any
such convertible security. The term "convertible security"
means any evidence of indebtedness, limited partnership unit
or other security that is convertible into or exchangeable for
Additional Common Units.
(iii) "Common Units" shall be deemed to
include the Common Units and any other Junior Securities the
issuance of which would have any dilutive effect on the value of
the Common Units issuable upon conversion of the Series C Units.
(iv) For purposes of any computation under this
Section 10, the "Fair Market Price" per Common Unit on any
date shall be deemed to be (1) the average of the daily last
reported sale prices of the Common Units for the 20
consecutive Business Days commencing 25 Business Days before
such date, as reported on the principal national securities
exchange on which the Common Units are then listed, or if the
Common Units are not then listed on a national securities
exchange, the average of the daily last reported sale prices
for such Business Days on the NASDAQ National Market System or
in the over-the-counter market as reported by NASDAQ, (2) if
last sale prices are not reported for the Common Units, the
average of the daily closing bid and asked prices on such
Business Days as so reported or (3) if no last sale prices or
bid and asked prices are publicly reported, the Fair Market
Price of a Common Unit shall be determined by an independent
investment banker (with an established national reputation as
a valuer of equity securities) selected by the Managing
General Partner, with the written approval of the holders of
Series C Units representing not less than 51% of the aggregate
Stated Value of the then outstanding Series C Units.
Section 11. Rights Offerings. (a) If the Company, at
any time while any of the Series C Units are outstanding, shall
distribute pro rata to holders of Common Units any warrants or
other rights ("Rights") to purchase Additional Common Units (a
"Rights Offering"), the holder of each Series C Unit shall receive
the number of Rights that such holder would have been entitled to
receive in connection with the Rights Offering if the holder had
converted the Series C Unit into Common Units in accordance with
Section 10, at the then current Conversion Price and Stated Value,
immediately prior to the record date for distribution of the Rights
(or if no record date is established, prior to the date on which
the Rights Offering otherwise commences). Holders of Series C
Units shall receive Rights as provided in the preceding sentence
whether or not such holders are at such time entitled to convert
their Series C Units into Common Units pursuant to Section 10.
Holders of Series C Units shall have the right to exercise such
Rights (including any step-up or over-subscription privileges) as
fully as any other recipient thereof, without the necessity of
converting any Series C Units into Common Units.
(b) Subject to compliance with subparagraph (a) ,
the distribution of Common Units pursuant to any Rights Offering
shall not trigger any adjustment of the Conversion Price pursuant
to the terms of Section 10(h) hereof.
(c) The Company shall not commence or conduct more
than one Rights Offering in any 12-month period nor more than two
Rights Offerings within the four-year period following the
consummation of the Stage 1 Closing, as defined in the
Restructuring Agreement. The exercise price of any Rights (as
initially distributed or subsequently amended) shall not be less
than 66 2/3% of the Conversion Price in effect at the time of
distribution of such Rights. The Company shall not, while any
Series C Units are outstanding, commence or conduct Rights
Offerings that result in, or are likely to result in, aggregate
cash proceeds to the Company from all such Rights Offerings in
excess of $7.5 million. The Company shall provide reports to the
holders of Series C Units on a regular basis for the duration of
the period during which Rights may be exercised, but in any event
no less frequently than weekly, setting forth the number of Rights
exercised during the periods covered by such reports and
cumulatively from the date of commencement of the Rights Offering
(separately identifying Rights that have been exercised by the
Company or its Affiliates).
(d) If any Rights distributed by the Company are
transferable, the Company shall have an assignable right of first
refusal to purchase Rights proposed to be sold, assigned,
transferred or otherwise disposed of ("transferred") by a holder of
Series C Units in certain circumstances, as follows:
(i) The Company's right of first refusal
provided herein shall be applicable only with respect to
proposed transfers of Rights by Varde, which is the initial
holder of Series C Units, and shall not be applicable with
respect to proposed transfers of Rights by Varde to any of its
respective Affiliates. In the event of a transfer to such an
Affiliate, the Affiliate shall receive and hold the Rights
subject to the terms and provisions of this section 11(d).
(ii) If Varde desires to transfer all or any
part of its Rights, other than to an Affiliate, Varde shall
give written notice to the Managing General Partner of its
intention to transfer all or a specified part of its Rights
(which notice shall set forth in reasonable detail the terms
and provisions of the proposed transfer) and shall by such
notice offer such Rights for sale to the Company at the
aggregate purchase price offered by a bona fide third party
purchaser. The Company, at its option within 20 days after
delivery of such notice of intention, shall have the right to
purchase all, but not less than all, of the Rights being
offered at the specified price and shall give written notice
to Varde within such 20-day period of the exercise of its
right to purchase all such Rights.
(iii) If the Company does not elect to
purchase all the Rights proposed to be transferred by Varde,
Varde shall then be free to transfer the Rights to the third
party, at the price previously specified to the Managing
General Partner, at any time within 90 days after the
expiration of the 20-day period referred to in paragraph
(ii) above. If such transfer is not completed within that 90-day
period, the Rights will again be subject to the terms and
provisions of this Subsection (d).
(iv) If the Company elects to purchase all the
Rights proposed to be transferred by Varde, Varde shall,
within 10 days after receipt of written notice from the
Managing General Partner of the exercise by the Company of its
right to purchase, deliver the certificate or certificates
representing the Rights to be sold at the principal place of
business of the Managing General Partner, duly endorsed for
transfer or accompanied by appropriate transfer documents.
The Company shall, simultaneously with the delivery of the
Rights to the principal place of business of the Managing
General Partner, pay to Varde in cash at such principal place
of business the specified price of the Rights being purchased.
(v) Any attempted transfer of Rights without
compliance with the terms of this subsection (d) shall be
invalid and of no effect, and the Company shall have the right
to compel the holder or the purported transferee to transfer
and deliver the same to the Company in accordance herewith, in
which event the price payable by the Company for such Rights
shall be the price paid or that was to have been paid by the
purported transferee.
(e) The Company and the Managing General Partner
will use their reasonable best efforts to cause an active trading
market to be established and maintained for any Rights distributed
by it and to engage an independent investment banker (with an
established national reputation) to serve as a "standby"
underwriter to support any Rights Offering by agreeing to purchase
from the Company any Common Units offered in the Rights Offering
and not subscribed for.
Section 12. Registration Rights and Transfer
Restrictions. Holders of Series C Units have certain registration
rights with respect to Common Units issued upon the exercise of
Series C Units, and the transfer of such Common Units is subject to
certain restrictions, all as set forth in that certain Amended and
Restated Registration Rights Agreement dated as of December 30,
1997, by and between the Company and Varde.
Section 13. Record Holders. The Company and the
Transfer Agent may deem and treat the record holder of any Units as
the true and lawful owner thereof for all purposes.
Section 14. Notices. Except as otherwise expressly
provided herein, all notices required or permitted to be given
hereunder shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt of such
notice or three Business Days after the mailing of such notice if
sent by registered or certified mail, return receipt requested,
with postage prepaid, addressed: (a) if to the Company, to the
offices of the Managing General Partner at 1209 N. 4th, Abilene,
Texas 79601 (Attention: Brad Stephens), fax no. (915) 676-8792, or
other agent of the Company designated as permitted hereby; or (b)
if to any holder of the Series C Units, to such holder at the
address of such holder as listed in the record books of the Company
(which shall include the records of the Transfer Agent), or to such
other address as the Company or holder, as the case may be, shall
have designated by notice similarly given. As of the Initial
Issuance Date, Varde's address for notice is:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
Section 15. Successors and Transferees. The
provisions applicable to Series C Units shall bind and inure to the
benefit of and be enforceable by the Company, the respective
successors to the Company and by any holder of Series C Units.
IN WITNESS WHEREOF, this Certificate has been executed by
the Managing General Partner, on behalf of the Company, by its
Managing General Partner as of the 15th day of April, 1999 but
effective for all purposes as of January 1, 1998.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By:
Name: Dave Caddell
Title: Vice President
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS
of
SERIES D CUMULATIVE PREFERRED UNITS
of
PRIDE COMPANIES, L.P.
Pursuant to the Third Amended and Restated Agreement
of Limited Partnership
effective as of April 15, 1999
_____________________
Pride Refining, Inc., a Texas corporation, as Managing
General Partner of Pride Companies, L.P. (the "Company"), certifies
that (i) pursuant to authority contained in the Second Amended and
Restated Agreement of Limited Partnership effective as of
December 30, 1997, the Series D Cumulative Preferred Units of the
Company were duly established, and (ii) pursuant to authority
contained in the Third Amended and Restated Agreement of Limited
Partnership effective as of April 15, 1999, the Series D Cumulative
Preferred Units are hereby amended and restated so that such series
will have the designations, rights, powers, preferences,
qualifications, limitations and restrictions set forth below:
SERIES D CUMULATIVE PREFERRED UNITS
Section 1. Number of Units and Designation. There is
hereby established a series of preferred limited partnership units
of the Company with the designation "Series D Cumulative Preferred
Units" (herein referred to as the "Series D Units"), which shall
consist of a maximum of 10,000 Units, with a Stated Value per Unit
of $1,000.00 (the "Stated Value").
Section 2. Definitions. In addition to the definitions
set forth elsewhere herein, the following terms shall have the
meanings indicated:
"$2,000,000 Loan" means indebtedness of the Company to
the Special General Partner evidenced by that certain Promissory
Note dated as of August 13, 1996, made by the Company payable to
the order of the Special General Partner in the original principal
amount of $2,000,000.
"$450,000 Loan" means indebtedness of the Company to the
Special General Partner evidenced by that certain Promissory Note
dated as of August 13, 1996, made by the Company payable to the
order of the Special General Partner in the original principal
amount of $450,000.
"Affiliate" of any Person is a Person that, directly or
indirectly, controls, is controlled by or is under common control
with such Person (and "control" means the power, directly or
indirectly, to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, or to elect a majority of a
Person's Board of Directors or equivalent governing body).
"BankBoston Credit Agreement" means that certain
Revolving Credit and Term Loan Agreement, dated as of December 30,
1997, by and among the Company (as borrower), BankBoston, N.A. (as
a lender and as agent), the guarantors parties thereto and the
lenders from time to time parties thereto, as such agreement may be
amended from time to time.
"Business Day" means any day other than a Saturday,
Sunday or a day on which commercial banks in Dallas, Texas are
required or authorized to close.
"Common Units" means the common limited partnership units
of the Company issued or authorized for issuance pursuant to the
Partnership Agreement.
"Credit Agreement" means the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997, among the Company
(as borrower), the Managing General Partner, the Special General
Partner, Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (as guarantors), and Varde (as
lender), as such agreement may be amended from time to time.
"Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Borrower (or other
specified Person) as liabilities, but in any event including
(without duplication);
(i) borrowed money;
(ii) indebtedness evidenced by notes, debentures or
similar instruments;
(iii) Capitalized Lease Obligations;
(iv) the deferred purchase price of assets, services
or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade
accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(v) mandatory redemption or dividend rights on
capital stock (or other equity);
(vi) reimbursement obligations, whether contingent
or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements (without duplication of
other Indebtedness supported or guaranteed thereby);
(vii) unfunded pension liabilities;
(viii) obligations that are immediately and
directly due and payable out of the proceeds of or production
from property;
(ix) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified
Person), whether or not the liability secured thereby shall
have been assumed; and
(x) all Guarantees in respect of Indebtedness of
others.
The term "Capitalized Lease Obligations" means the amount
of liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board. The term "Capitalized Lease" means any
lease which is required to be capitalized on the balance sheet of
the lessee in accordance with GAAP, including Statement Nos. 13 and
98 of the Financial Accounting Standards Board. The term "Interest
Rate Protection Agreement" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed rates, fixed interest
rates into variable rates or other similar arrangements. The term
"Lien" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the repayment of Indebtedness, whether arising by agreement or
under any statute or law, or otherwise. The term "Guarantee" of
any Person means any contract, agreement or understanding of such
Person pursuant to which such Person guarantees, or in effect
guarantees, any Indebtedness of any other Person in any manner,
whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property
constituting security therefor, (ii) to advance or supply funds (A)
for the purchase or payment of such Indebtedness, or (B) to
maintain net worth or working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness, (iii) to purchase
property, securities or service primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the
primary obligor to make payment of the Indebtedness, or (iv)
otherwise to assure the holder of the Indebtedness of the primary
obligor against loss in respect thereof; except that "Guarantee"
shall not include the endorsement by the Company in the ordinary
course of business of negotiable instruments or documents for
deposit or collection.
"Initial Issuance Date" means the date on which the first
issuance of Series D Units occurs, whether such phrase is used in
reference to Units issued on such date or on any subsequent date.
"Junior Securities" means the Common Units and any other
class or series of equity of the Company ranking junior to the
Series D Units as to distributions or upon liquidation, dissolution
or winding up, and the units thereof.
"Managing General Partner" means the corporation or other
entity designated to serve as managing general partner of the
Company pursuant to the Partnership Agreement.
"Note Purchase Agreement" means that certain Note
Agreement dated August 13, 1996, as amended, providing, among other
things, for the issuance by the Company of the Series A Unsecured
Note.
"Parity Securities" means any class or series of equity
of the Company ranking on a parity with the Series D Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Partnership Agreement" means that certain Third Amended
and Restated Agreement of Limited Partnership of Pride Companies,
L.P., effective as of April 15, 1999, as such agreement may be
amended.
"Person" means an any individual, partnership, joint
venture, corporation, limited liability company, trust,
unincorporated organization or government or any department or
agency thereof.
"Pipeline Lease" means that certain Pipeline Lease
Agreement effective as of March 29, 1990, between the Company, as
lessee, and the Special General Partner, as lessor, as amended by
Amendment No. 1 to Pipeline Lease Agreement and Amendment No. 2 to
Pipeline Lease Agreement, each effective as of March 29, 1990, and
by Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 30, 1997.
"Pride SGP Equity Conversion Agreement" means the amended
and restated Agreement of Pride SGP, dated as of August 13, 1996,
by and between the Special General Partner and the Company,
together with the Subordination Agreement attached thereto.
"Restructuring Agreement" means that certain
Restructuring and Override Agreement, dated as of December 30,
1997, by and among the Company, the Managing General Partner, the
Special General Partner and Varde.
"Senior Securities" means any class or series of equity
of the Company ranking senior to the Series D Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Series A Term Loan" means the term loan in the aggregate
principal amount of $20,000,000 owed by the Company to Varde
pursuant to the Credit Agreement.
"Series A Unsecured Note" means the Convertible Unsecured
Series A Promissory Notes of the Company in the aggregate initial
principal amount of $2,500,000, issued by the Company to Varde
pursuant to the Note Purchase Agreement.
"Series B Units" means the Series B Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Certificate of Designations
dated as of December 30, 1997, relating to such series. Series B
Units are Senior Securities.
"Series C" Units means the Series C Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Certificate of Designations
dated as of December 30, 1997, relating to such series. Series C
Units are Senior Securities.
"Series E Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as
contemplated by Section 2.1 of the Pride SGP Equity Conversion
Agreement, upon the conversion of the $2,000,000 Loan. Series E
Units are Junior Securities.
"Series F Units" means the subordinate preferred limited
partnership units of the Company issued or issuable, as
contemplated by Section 2.1 of the Pride SGP Equity Conversion
Agreement, upon the conversion of the $450,000 Loan. Series F
Units are Junior Securities.
"SGP Guarantee" means the guarantee by the Special
General Partner of, among other things, (i) the distribution rights
and liquidation preferences of the Series B Units, the Series C
Units and the Series D Units and (ii) the obligations of the
Company to Varde under the Series A Unsecured Note.
"Special General Partner" means Pride SGP, Inc., a Texas
corporation, or any successor in its capacity as special general
partner of the Company.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture, limited
liability company or other business or corporate entity, enterprise
or organization which is directly or indirectly (through one or
more intermediaries) controlled by or owned fifty percent or more
by such person.
"Transfer Agent" means such agent or agents of the
Company as may be designated by the Managing General Partner as the
transfer agent for the Series D Units.
"Units" means all or any or each, as the context may
require, of the Series B Units, the Series C Units, the Series D
Units, the Series E Units and the Series F Units.
"Varde" means Varde Partners, Inc., a Delaware
corporation, and its successors and assigns.
Section 3. Distributions; Allocation of Income (a) The
Company shall pay to the holders of the Series D Units, out of the
assets of the Company at any time legally available for the payment
of distributions, preferential quarterly distributions at the times
and at the rates provided for in this Section 3. To the extent not
paid currently, such preferred distributions shall accumulate and
compound (as described below) on each Unit from and including the
date of original issuance of such Unit to and including the date on
which such Unit shall have been redeemed and the redemption price
shall have been paid in full as contemplated by Section 6 hereof.
(b) To the extent that funds are legally available
therefor, distributions shall be paid quarterly, on and as of the
fifth calendar day of each February, May, August and November
(each, a "Distribution Payment Date"), on each Unit outstanding at
the following rates:
(i) subject to subsection (c) below, during
the three-year period beginning on the Initial Issuance Date
and ending on the date immediately preceding the third
anniversary thereof, at the rate of 11% per annum of the
Stated Value of the Unit, if paid in cash;
(ii) during the two-year period beginning on
the third anniversary of the Initial Issuance Date and ending
on the date immediately preceding the fifth anniversary
thereof, at the rate of 13% per annum of the Stated Value of
the Unit, payable in cash only; and
(iii) thereafter, at the rate of 15% per
annum of the Stated Value of the Unit, payable in cash only.
The amount of the distribution payable on each
Distribution Payment Date shall be determined by applying the
applicable rate from and including the date immediately following
the last previous Distribution Payment Date (or from and including
the date of original issuance of the Unit, with respect to the
first distribution period) to and including the Distribution
Payment Date, on the basis of a year of 360 days.
(c) During the three-year period referred to in
subsection (b)(i) above, distributions on the Units shall be
payable currently in cash or may be deferred, at the Company's
option; provided, however in the case of such deferrals, the amount
of such deferred distribution that will accumulate shall be
determined the rate of 13% per annum. Notwithstanding the
foregoing or anything else contained herein to the contrary,
however, distributions payable on any Redemption Date (as defined
in Section 6 below) or on any final distribution date relating to
a dissolution, liquidation or winding up of the Company, shall be
payable in cash only and, if the payment date does not occur on a
regular Distribution Payment Date, shall be calculated on the basis
of the actual number of days elapsed including the Redemption Date
or such final distribution date. Distributions payable on the Units
for any period of less than a full quarterly distribution period
shall be computed on the basis of actual days elapsed, excluding
the last preceding Distribution Payment Date and including the last
day of such period, and on the basis of 360 days.
(d) To the extent a preferred distribution is not
paid on a Distribution Payment Date with respect to a Unit, the
amount with respect to which subsequent preferred distributions on
such Unit shall be calculated shall include such unpaid amount and
such unpaid distributions, together with all additional deferred
distributions with respect thereto, shall be payable prior to any
distributions or payment being made with regard to such Units.
Nothing in this subsection (d) or any other provision hereof shall
give the Company any right not to pay any distribution as and to
the extent required by subsection (b) of this Section 3 or to defer
or delay such payment beyond the applicable Distribution Payment
Date.
(e) Distributions payable on each Distribution
Payment Date shall be paid to record holders of the Units as they
appear on the books of the Company at the close of business on the
tenth Business Day immediately preceding the respective
Distribution Payment Date.
(f) Except as otherwise provided in Section 1.1(f)
of the Restructuring Agreement, so long as any Series D Units are
outstanding:
(i) No distribution shall be declared or paid,
or set apart for payment on or in respect of any Junior
Securities, including, without limitation, distributions
payable in cash or other property or in units of any Junior
Security or other securities of the Company.
(ii) No distribution, except as described in
the next succeeding sentence, shall be declared or paid, or
set apart for payment on or in respect of any Parity
Securities, for any period unless full cumulative
distributions on all outstanding Series D Units have been or
contemporaneously are declared and paid for all distribution
periods terminating on or prior to the date set for payment of
such distribution on the Parity Securities. When
distributions are not paid in full, as aforesaid, on the
Series D Units and any Parity Securities, all distributions
declared upon such Parity Securities shall be declared and
paid pro rata with the Series D Units so that the amounts of
distributions per unit declared and paid on the Series D Units
and such Parity Securities shall in all cases bear to each
other the same ratio that unpaid cumulative distributions per
unit on the Series D Units and on such Parity Securities bear
to each other, and shall in all cases be paid to the same
extent in cash, other assets and/or securities of the same
class as the securities on which the respective distributions
are being paid.
(iii) Unless full cumulative distributions on all
outstanding Series D Units have been paid (or contemporaneously
are declared and paid) in cash for all prior distribution periods
(1) no rental payments shall be made to the Special General
Partner pursuant to the Pipeline Lease unless Varde has received
the full amount in cash to which it is entitled under Section
1.1(f) of the Restructuring Agreement and (2) the Special General
Partner shall not declare or pay, or set apart for payment,
any dividend or distribution in respect of any of the
outstanding securities of the Special General Partner.
For purposes of this subsection (f), unless expressly
stated otherwise herein, "distribution" shall include, without
limitation, any distribution by the Company of cash, evidences of
indebtedness, securities or other properties or assets of the
Company, or of rights to purchase or otherwise acquire any of the
foregoing, whether or not made out of profits, surplus or other
funds of the Company legally available for the payment of
distributions.
(g) The holders of Series D Units will be allocated
an amount of gross income equal to the amount of and preferred
distributions paid on the Series D Units prior to any allocation of
income to the holders of Junior Securities.
Section 4. Certain Covenants and Restrictions. So long as
any Series D Units are outstanding:
(a) The Company shall not (i) issue, reissue, agree to
issue or authorize the issuance of any Senior Securities or any
Parity Securities or any units or other securities or any options,
warrants, notes, bonds, debentures or other instruments convertible
into, exchangeable for or having rights to purchase any Senior
Securities or any Parity Securities or (ii) reclassify or modify
any Junior Security so that it becomes a Parity Security or Senior
Security.
(b) The Company shall not (i) pay any principal or
interest on, or redeem, purchase or otherwise acquire for any
consideration any Parity Securities or Junior Securities (or pay
any money to a sinking fund or otherwise set apart any money,
property or other consideration for the purchase or redemption of
any Parity Securities or Junior Securities) or (ii) pay, provide or
distribute to the holders of any Parity Securities or Junior
Securities, as such, any money, property, rights or other
consideration, except for distributions to holders of Parity
Securities permitted by Section 3(f)(ii) hereof.
(c) The Company shall not effect any split, reverse
split or any other subdivision or combination of the Common Units
or any other class or series of equity securities of the Company.
(d) Neither the Company nor the Managing General Partner
shall amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, this
Certificate of Designations, the Articles of Corporation, bylaws or
other organizational document of the Managing General Partner or
any agreement entered into for the benefit of holders of Series D
Units in any manner so as to affect adversely any of the
preferences, rights or powers of the Series D Units.
(e) The Company shall not and shall not permit any of
its Subsidiaries to, create, assume, incur, guarantee or otherwise
become or be liable in respect of, or maintain or otherwise allow
to exist, any Indebtedness, except for the following:
(i) So long as the Credit Agreement is in effect, the
Indebtedness permitted and set forth in Section 7.1 of the
Credit Agreement;
(ii) If the Credit Agreement is no longer in effect, the
Indebtedness set forth in Section 6.6 of the BankBoston Credit
Agreement (whether or not the BankBoston Credit Agreement
shall then be in effect).
(f) The Company will not, and will not permit any of its
Subsidiaries to, sell, lease, convey, transfer, issue or otherwise
dispose of, in one transaction or in a series of transactions,
whether involving assets or securities, all or a substantial
portion of any Company Business, or any shares or partnership
interests in any Subsidiary (whether such interests are now or
hereafter issued, outstanding or created) except a sale for fair
consideration (as determined by the Board of Directors of the
Managing General Partner) to a purchaser who is not an Affiliate of
the Company, the Managing General Partner or the Special General
Partner, which consideration shall consist solely of cash which is
applied by the Company as provided in subsection (h) of this
Section 4. As used in this subsection, "Company Business" means the
operations and assets of one of the following three primary lines
of business as currently conducted by the Company and its
Subsidiaries on January 1, 1998: (i) crude oil gathering and
exchange, (ii) refining and (iii) transportation and marketing of
refinery products.
(g) All money, property or other consideration received
by the Company or any Subsidiary outside the ordinary course of
business, including but not limited to consideration for or in
connection with the sale, lease, transfer or other disposition of
any assets or properties of the Company (other than the sale of
goods and services in the ordinary course of business), or any
shares or partnership interests in any Subsidiary (whether such
interests are now or hereafter issued, outstanding or created) but
excluding consideration received in connection with (A) the sale or
disposition of any asset of the Company which is sold for fair
consideration not in excess of $25,000 or in the aggregate not in
excess of $250,000 (provided that to the extent consideration from
any such excluded sale or disposition is applied by the Company in
accordance with this Section 4(g), the amount of such consideration
shall not be counted under the $250,000 aggregate limitation) and
(B) except as otherwise provided in the Restructuring Agreement,
Litigation Settlements or Equity Offerings, shall be applied (or
converted into cash and then applied, if applicable) by the Company
(i) first, to the payment of all amounts outstanding and due under
the Credit Agreement and the BankBoston Credit Agreement;
(ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the
outstanding Series B Units and Series C Units in accordance with
their respective Certificate of Designations; (iv) then, to the
redemption of the outstanding Series D Units in accordance with
Section 6 hereof; provided, that funds applied to the redemption of
the Series B Units, the Series C Units and the Series D Units as
provided in clauses (iii) and (iv) shall be so applied with respect
to the initial Stated Value of the Units being redeemed and any
portion of the Redemption Price of such Units attributable to
adjustments to Stated Value shall be paid out of other funds of the
Company.
(h) Except as otherwise provided in the Restructuring
Agreement, all consideration received by the Company or any
Subsidiary in connection with the resolution (by judgment or
otherwise) or settlement of any judicial, administrative or
arbitral proceeding ("Litigation Settlements") shall be applied (or
converted into cash and then applied, if applicable) by the Company
(i) first, to the payment of all amounts outstanding and due under
the Credit Agreement and the BankBoston Credit Agreement;
(ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the
outstanding Series B Units and Series C Units in accordance with
their respective Certificate of Designations; (iv) then, to the
redemption of the outstanding Series D Units in accordance with
Section 6 hereof; provided, that funds applied to the redemption of
the Series B Units, the Series C Units and the Series D Units as
provided in clauses (iii) and (iv) shall be so applied with respect
to the initial Stated Value of the Units being redeemed and any
portion of the Redemption Price of such Units attributable to
adjustments to Stated Value shall be paid out of other funds of the
Company.
(i) Except as provided in the next succeeding sentence,
all proceeds of public or private offerings of equity securities by
the Company ("Equity Offerings") shall consist of cash and shall be
applied (i) first, to the payment of all amounts outstanding and
due under the Credit Agreement and the BankBoston Credit Agreement;
(ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the
outstanding Series B Units and Series C Units in accordance with
their respective Certificate of Designations; (iv) then, to the
redemption of the outstanding Series D Units in accordance with
Section 6 hereof; provided, that funds applied to the redemption of
the Series B Units, the Series C Units and the Series D Units as
provided in clauses (iii) and (iv) shall be so applied with respect
to the initial Stated Value of the Units being redeemed and any
portion of the Redemption Price of such Units attributable to
adjustments to Stated Value shall be paid out of other funds of the
Company The Company may use up to $4.5 million, in the aggregate,
of proceeds of Equity Offerings for capital expenditures in excess
of normal maintenance capital expenditures if, out of every dollar
so applied, no more than 60% is applied to such excess capital
expenditures and at least 40% is applied in the manner provided in
clauses (i), (ii) and (iii) of this Section 4(i).
(j) [intentionally omitted]
(k) The Company shall not cause or permit the Pipeline
Lease or any other agreement between the Company and any Affiliate
of the Company to be amended, supplemented, replaced or modified in
any manner that would increase the payments required to be made by
the Company thereunder or the costs of compliance by the Company
therewith.
(l) The Company shall deliver to each holder of Series
D Units one (1) copy of each of the following:
1. Monthly Statements. As soon as available, and in any
event within 30 days after the end of each calendar month, copies
of the consolidated balance sheet of the Company as of the end of
such month, and statements of income and retained earnings and
changes in financial position and cash flows of the Company for
that month and for the portion of the fiscal year ending with such
period, in each case setting forth in comparative form the figures
for the corresponding period of the preceding fiscal year. Such
statements shall be in reasonable detail, with a certificate of the
chief financial officer of the Managing General Partner certifying
that such statements are true and correct in all material respects
to the best of his knowledge and prepared in accordance with
generally accepted accounting principles ("GAAP"), consistently
maintained and applied, subject to year-end audit adjustments.
2. Annual Statements. As soon as available after each
fiscal year end, and in any event within 90 days thereafter, copies
of the consolidated balance sheet of the Company as of the close of
such fiscal year and statements of income and retained earnings and
cash flows of the Company for such fiscal year, in each case
setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and accompanied by an opinion
thereon (which shall be without a "going concern" or like
qualification or exception) of Ernst & Young or of other
independent public accountants of recognized national standing
selected by the Company and satisfactory to the holders of Series
D Units representing 51% or more of the aggregate Stated Value of
the outstanding Series D Units, to the effect that such
consolidated financial statements have been prepared in accordance
with GAAP consistently maintained and applied (except for changes
in which such accountants concur) and that the examination of such
accounts in connection with such financial statements has been made
in accordance with generally accepted auditing standards and,
accordingly, includes such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances.
3. SEC and Other Reports. Promptly upon its becoming
available, one copy of each financial statement, report, notice or
proxy statement sent by the Company to equity owners generally and
of each regular or periodic report, registration statement or
prospectus filed by the Company with any securities exchange or the
Securities and Exchange Commission or any successor agency, and of
any order issued by any court or governmental authority in any
proceeding to which the Company is a party.
4. Other Information. Such other information concerning the
business, properties or financial condition of the Company as the
holders of Series D Units representing 51% or more of the aggregate
Stated Value of the outstanding Series D Units shall reasonably
request.
For purposes of this Section 4, "proceeds" means gross
amounts received without deduction of any related costs or
expenses, offset of any related losses or other reduction of any
kind, except that "proceeds" of Equity Offerings means gross sales
price less reasonable discounts and commissions of underwriters or
placement agents. Any noncash proceeds or other noncash assets
received by the Company and that are subject to the provisions of
subsection (h) or (i) of this Section 4 shall be converted to cash
by the Company as soon as practicable and applied as provided in
the applicable subsection, and shall not be sold, transferred or
otherwise disposed of by the Company other than for such purpose.
Notwithstanding the foregoing, the Company may allow any promissory
note or similar instrument that is subject to subsection (h) or (i)
of this Section 4 to remain outstanding in accordance with its
terms, provided that all payments received by the Company
thereunder, and the proceed of any sale, transfer or other
disposition thereof, shall be applied as provided in the applicable
subsection of this Section 4.
Compliance by the Company with any covenant contained in
this Section 4 may be waived in writing by the holders of Series D
Units representing 51% or more of the aggregate Stated Value of the
outstanding Series D Units. No such waiver shall be deemed to be
a continuing waiver nor a waiver with respect to any other covenant
of the Company or any other term, condition or provision hereof.
Section 5. Liquidation Preference. (a) In the event of
any liquidation, dissolution or winding up of the Company (in
connection with the bankruptcy or insolvency of the Company or
otherwise), whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or
surplus) shall be made to or set apart for the holders of Common
Units or any other class or series of Junior Securities, the holder
of each Series D Unit shall be entitled to receive in cash an
amount equal to the Stated Value per Unit plus an amount equal to
the aggregate dollar amount of all unpaid preferred distributions
through the date of final distribution to such holders (including
a prorated distribution from the most recent Distribution Payment
Date to such date of final distribution). No payment on account of
any such liquidation, dissolution or winding up of the Company
shall be made to the holders of any class or series of Parity
Securities unless there shall be paid at the same time to the
holders of the Series D Units proportionate amounts in cash
determined ratably in proportion to the full amounts to which the
holders of all outstanding Series D Units and the holders of all
such outstanding Parity Securities are respectively entitled with
respect to such distribution. Subject to the rights of the holders
of any class or series of Parity Securities or Senior Securities,
for purposes of this Section 5, neither a consolidation or merger
of the Company with one or more partnerships, corporations or other
entities nor a sale, lease, exchange or transfer of all or any part
of the Company's assets for cash, securities or other property
shall be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary if the surviving entity in any such
consolidation, merger, sale, lease, exchange or transfer assumes in
writing all the Company's obligations under this Certificate of
Designations, the Amended and Restated Registration Rights
Agreement, dated as of December 30, 1997, by and between the
Company and Varde and the Pride SGP Equity Conversion Agreement,
and the Warrants to Purchase Common Units, issued by the Company to
each holder of Series B Units or Series C Units.
(b) Subject to the rights of the holders of any class or
series of Parity Securities or Senior Securities, upon any
liquidation, dissolution or winding up of the Company, after
payment shall have been made in full to the holders of Series D
Units, as provided in this Section 5, any class or series of Junior
Securities shall, subject to the respective terms and provisions
(if any) applicable thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of
Series D Units shall not be entitled to share therein.
(c) At least 30 days prior to written notice of the
commencement of any proceeding for or that may result in any
liquidation, dissolution or winding up of the Company shall be
given to holders of Series D Units, but neither the giving of such
notice nor anything in this Section 5 or any other provision hereof
shall relieve the Company of its obligation to obtain consent from
holders of Units as provided in Section 9.
Section 6. Optional and Mandatory Redemption. (a) The
Company may, at the option of the Managing General Partner, redeem
for cash at any time after the Retirement Date, from any source of
funds legally available therefor, in whole or in part, in the
manner provided below any and all of the outstanding Series D Units
at a redemption price per Unit (the "Redemption Price") equal to
the Stated Value per Unit redeemed plus an amount in cash equal to
the aggregate dollar amount of all unpaid preferred distributions
through the Redemption Date (including a prorated distribution from
the most recent Distribution Payment Date to the Redemption Date)
that have not been added to the Stated Value of such Units.
"Redemption Date" means the date fixed by the Managing General
Partner for redemption. "Retirement Date" means the date on which
the Series A Term Loan, the Series B Term Loans, the Series C Term
Loan and the Series A Unsecured Note (each as defined in the Credit
Agreement) are repaid in full.
(b) The Company shall, at the Redemption Price and
in the manner provided in this Section 6, redeem for cash from any
source of funds legally available therefor, all Series D Units
outstanding on the first to occur of:
(i) 180 days after the Maturity Date, as
defined in the Credit Agreement;
(ii) the date that is 30 days after any default
(a "Cross-Default") by the Company in its obligations to make
payments under or with respect to any Indebtedness with an
outstanding principal amount in excess of $500,000; provided,
however, that the Company need not effect such mandatory
redemption because of a Cross-Default if such Cross-Default is
cured prior to the end of such 30-day period to the
satisfaction of the holders of Series D Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series D Units or the right to require the Company to effect
such redemption is waived in writing by the holders of 51% or
more in Stated Value (as adjusted, if applicable) of the
Series D Units; no such waiver shall be deemed to be a
continuing waiver nor a waiver with respect to any other or
subsequent Cross-Default;
(iii) the date that is 30 days after any
failure by the Company to pay in full in cash on any
Distribution Payment Date any distribution payable only in
cash on such Distribution Payment Date; or
(iv) the date that is 30 days after any default
or failure of compliance by the Company with any covenant or
restriction contained in Section 3(f) or Section 4 hereof,
unless such default or failure of compliance is cured prior to
the end of such 30-day period to the satisfaction of the
holders of Series D Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series D Units;
or
(v) the Business Day immediately preceding any
Change in Control of the Company. For this purpose, a "Change
in Control" means (1) a change in the direct or indirect power
to direct or cause the direction of the management and
policies of the Company, the Managing General Partner or the
Special General Partner, whether through the ownership of
voting securities, by contract or otherwise, or to elect a
majority of any of such entities' Boards of Directors or
equivalent governing bodies; (2) any reorganization,
reclassification or change in any outstanding securities of
the Company; (3) the Company's consolidation or merger with or
into another partnership, corporation or other entity; (4) the
sale, lease or other transfer of the property of the Company
as an entirety or substantially as an entirety; (5) the
termination of the SGP Guarantee or of the pledge of all of
the Special General Partner's assets securing its obligations
thereunder, or any event or circumstance as a result of which
the SGP Guarantee or such pledge shall no longer be in full
force and effect; or (6) the redemption, purchase or other
acquisition by the Special General Partner for any
consideration any of the Special General Partner's outstanding
securities (or the payment of any money to a sinking fund or
the setting apart of any money, property or other
consideration for the purchase or redemption of any such
securities) or the payment, provision or distribution to the
holders of any of its outstanding securities, as such, any
money, property, rights or other consideration, other than
ordinary pro rata dividends to all holders of a class of such
outstanding securities; provided, however, that in the case of
clause (2), (3) or (4) of this sentence, any reorganization,
reclassification, change, consolidation, merger, sale or
transfer that has been approved by the holders of Series D
Units representing 51% or more of the aggregate Stated Value
of the then outstanding Series D Units in accordance with
Section 9(b) shall not constitute a Change in Control.
The Managing General Partner shall cause the Redemption
Notice (as defined below) to be mailed sufficiently in advance of
the dates or events specified in this subsection (b) to permit the
redemption to occur on such dates.
If there are insufficient legally available funds for
redemption under this subsection (b), the Company shall redeem such
lesser number of Series D Units (on a pro rata basis from all
holders of Series D Units, in proportion to the number of Units
held), to the extent there are funds legally available therefor,
and shall redeem all or part of the remainder of the Series D Units
as soon as the Company has sufficient funds that are legally
available therefor. If the redemption is delayed because of
insufficient legally available funds, distributions shall continue
to accrue on Series D Units outstanding, and shall be added to and
become a part of the Redemption Price of such Units, until the
Redemption Price, as so adjusted, for such Units is paid in full.
(c) The Company also shall, at the Redemption Price
and in the manner provided in this Section 6, redeem Series D Units
using the funds received from the sources described in Section
4(g), (h) and (i), to the extent provided therein, promptly after
the Company's receipt of such funds.
(d) In connection with any optional or mandatory
redemption of Units, at least 20 days and not more than 60 days
prior to the Redemption Date, written notice (the "Redemption
Notice") shall be sent simultaneously by certified mail, return
receipt requested, and by telecopy to each holder of record of the
Series D Units at the post office address last shown on the records
of the Company for such holder. The Redemption Notice shall state:
(i) whether all or less than all the outstanding Series
D Units are to be redeemed and the total number of Series D
Units being redeemed;
(ii) the number of Series D Units held by the holder
that the Company intends to redeem;
(iii) the Redemption Date and the Redemption Price;
(iv) that the holder is to surrender to the Company, in
the manner and at the place designated, the certificate or
certificates representing the Series D Units to be redeemed;
and
(v) that an Escrow Account as described in the
following paragraph has been established at a bank specified
in the Redemption Notice.
Notwithstanding the foregoing, a Redemption Notice relating to a
mandatory redemption required by paragraph (ii), (iii) or (iv) of
subsection (b) of this Section 6 shall be mailed at least 15 days
and not more than 30 days prior to the mandatory Redemption Date.
Not later than the date on which a Redemption Notice is
mailed by the Company, the Company shall deposit in an escrow
account (the "Escrow Account") for the pro rata benefit of the
holders of the Units to be redeemed the funds necessary for such
redemption with a bank or trust company having capital and surplus
of at least $500 million and approved in writing by the holders of
Series D Units representing 51% or more of the aggregate Stated
Value of the then outstanding Series D Units (the "Escrow Agent").
Any such funds that are unclaimed at the end of two years after the
applicable Redemption Date shall revert to the general funds of the
Company and, upon such reversion, the Escrow Agent shall, upon
demand, pay such funds over to the Company and be relieved of all
responsibility in respect thereof and any holder of Units entitled
to receive any of such funds shall thereafter look only to the
Company for the payment of the Redemption Price. Any interest on
funds included in the Escrow Account shall be for the account of
the Company. The failure to establish the Escrow Account by the
date specified in this paragraph shall cause the Redemption Notice
that required such Escrow Account to have been established to be
ineffective, and the Company shall not have any right to redeem any
Units pursuant to such Redemption Notice. Such failure shall not
relieve the Company of any obligation to effect a mandatory
redemption of Units.
On or before the Redemption Date each holder of Series D
Units shall surrender to the Company the certificate or
certificates representing such Units to be redeemed, in the manner
and at the place designated in the Redemption Notice, and thereupon
the Redemption Price for such Units shall be payable in cash on the
Redemption Date to the Person whose name appears on such
certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the
event that less than all Units represented by any such certificate
are redeemed, a new certificate shall be issued representing the
unredeemed Units.
In the event of a redemption of only a portion of the
then outstanding Series D Units, the Company shall effect such
redemption pro rata according to the number of Units held by each
holder.
Unless the Company defaults in the payment in full of the
Redemption Price, distributions on the Series D Units called for
redemption shall cease to accumulate on the Redemption Date, and
the holders of such Units redeemed shall cease to have any further
rights with respect thereto on the Redemption Date, other than to
receive the Redemption Price without interest.
Section 7. Prohibitions on Issuance. All Units
repurchased, redeemed or otherwise acquired by the Company shall be
retired and canceled and shall not be reissued. No authorized but
unissued Units shall be issued other than as distributions in kind
to the existing holders of Series D Units in accordance with
Section 3 hereof.
Section 8. Ranking. (a) The following equity securities
of the Company shall rank senior to the Series D Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series D Units
pursuant hereto: the Series B Units and the Series C Units. The
Company shall not issue any debt security (except as permitted by
Section 4(e)).
(b) No equity securities of the Company shall rank
on a parity with the Series D Units with respect to the payments
required or permitted to be made to the holders thereof pursuant to
their respective governing instruments and the payments required to
be made to holders of the Series D Units pursuant hereto.
(c) Without limiting the definition of "Junior
Securities" contained in Section 2, the following equity securities
of the Company shall rank junior to the Series D Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series D Units
pursuant hereto: the Series E Units, the Series F Units and the
Common Units.
9. Voting. (a) So long as any Series D Units remain
outstanding, the Company will not, without the affirmative vote at
a meeting, or by written consent with or without a meeting, of the
holders of Series D Units representing two-thirds or more of the
aggregate Stated Value of the then outstanding Series D Units, (i)
create, authorize, issue or reissue any class or series of Senior
Securities, or any units of any such class or series, or (ii)
amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series D Units that prescribe
the terms and conditions of the Series D Units; provided, however,
that any proposed amendment, alteration or rescission of any
provision of the Partnership Agreement or of the Certificate of
Designations of the Series D Units, as contemplated by clause (ii)
of this sentence, shall require the approval of the holders of
Series D Units representing two-thirds or more of the aggregate
Stated Value of the then outstanding Series D Units.
(b) So long as any Series D Units remain
outstanding, the Company will not, without the affirmative vote at
a meeting, or by written consent with or without a meeting, of the
holders of the Series D Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series D Units, (i)
create, authorize, issue or reissue any class or series of Parity
Securities, or any units of any such class or series, including
without limitation any authorized but unissued Series D Units
(other than Series D Units issued as distributions in kind to the
existing holders thereof in accordance with its Certificate of
Designations); (ii) amend, alter or rescind (whether by merger,
consolidation or otherwise) any of the provisions of the
Partnership Agreement, the Certificate of Designations of the
Series D Units that set forth the restrictions and covenants of the
Company (including without limitation restrictions regarding
capital expenditures, issuance of Indebtedness and payment of
distributions to holders of Parity Securities or Junior Securities)
that benefit or protect the rights of holders of the Series D
Units; (iii) commence any voluntary proceeding (under bankruptcy,
insolvency or similar laws or otherwise) for or that may result in
the liquidation, dissolution or winding up of the Company, consent
to the entry of an order for relief in an involuntary proceeding
under any federal or state bankruptcy, insolvency or similar laws
or to the appointment of a receiver, liquidator, assignee,
custodian, trustee or other similar official of the Company or of
any substantive part of its properties, or make an assignment for
the benefit of its creditors or admit in writing its inability to
pay its debts generally as they become due; or (iv) reorganize,
reclassify or change any outstanding securities, consolidate or
merge with or into another partnership, corporation or other
entity or sell or transfer the property of the Company as an
entirety or substantially as an entirety.
(c) [intentionally omitted]
(d) [intentionally omitted]
(e) Except as expressly set forth herein or in the
Partnership Agreement or as required by applicable law, holders of
Series D Units shall not have any right to vote on any question
presented to the holders of voting securities of the Company.
Section 10. [intentionally omitted]
Section 11. [intentionally omitted]
Section 12. [intentionally omitted]
Section 13. Record Holders. The Company and the Transfer
Agent may deem and treat the record holder of any Units as the true
and lawful owner thereof for all purposes.
Section 14. Notices. Except as otherwise expressly
provided herein, all notices required or permitted to be given
hereunder shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt of such
notice or three Business Days after the mailing of such notice if
sent by registered or certified mail, return receipt requested,
with postage prepaid, addressed: (a) if to the Company, to the
offices of the Managing General Partner at 1209 N. 4th, Abilene,
Texas 79601 (Attention: Brad Stephens), fax no. (915) 676-8792, or
other agent of the Company designated as permitted hereby; or (b)
if to any holder of the Series C Units, to such holder at the
address of such holder as listed in the record books of the Company
(which shall include the records of the Transfer Agent), or to such
other address as the Company or holder, as the case may be, shall
have designated by notice similarly given. As of the Initial
Issuance Date, Varde's address for notice is:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
Section 15. Successors and Transferees. The provisions
applicable to Series D Units shall bind and inure to the benefit of
and be enforceable by the Company, the respective successors to the
Company and by any holder of Series D Units.
IN WITNESS WHEREOF, this Certificate has been executed by
the Managing General Partner, on behalf of the Company, by its
Managing General Partner as of the 15th day of April, 1999
effective for all purposes on January 1, 1998.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By: ________________________________
Name: Dave Caddell
Title: Vice President
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS
of
SERIES E CUMULATIVE PREFERRED UNITS
of
PRIDE COMPANIES, L.P.
Pursuant to the Third Amended and Restated Agreement
of Limited Partnership
effective as of April 15, 1999
_____________________
Pride Refining, Inc., a Texas corporation, as Managing
General Partner of Pride Companies, L.P. (the "Company"), certifies
that (i) pursuant to authority contained in the Second Amended and
Restated Agreement of Limited Partnership effective as of
December 30, 1997, the Series E Cumulative Preferred Units of the
Company were duly established, and (ii) pursuant to authority
contained in the Third Amended and Restated Agreement of Limited
Partnership effective as of April 15, 1999, the Series E Cumulative
Preferred Units are hereby amended and restated so that such series
will have the designations, rights, powers, preferences,
qualifications, limitations and restrictions set forth below:
SERIES E CUMULATIVE PREFERRED UNITS
Section 1. Number of Units and Designation. There is
hereby established a series of preferred limited partnership units
of the Company with the designation "Series E Cumulative Preferred
Units" (herein referred to as the "Series E Units"), which shall
consist of a maximum of 2,000 Units, with a Stated Value per Unit
of $1,000.00 (the "Stated Value").
Section 2. Definitions. In addition to the definitions
set forth elsewhere herein, the following terms shall have the
meanings indicated:
"$2,000,000 Loan" means indebtedness of the Company to
the Special General Partner evidenced by that certain Promissory
Note dated as of August 13, 1996, made by the Company payable to
the order of the Special General Partner in the original principal
amount of $2,000,000.
"$450,000 Loan" means indebtedness of the Company to the
Special General Partner evidenced by that certain Promissory Note
dated as of August 13, 1996, made by the Company payable to the
order of the Special General Partner in the original principal
amount of $450,000.
"Affiliate" of any Person is a Person that, directly or
indirectly, controls, is controlled by or is under common control
with such Person (and "control" means the power, directly or
indirectly, to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, or to elect a majority of a
Person's Board of Directors or equivalent governing body).
"BankBoston Credit Agreement" means that certain
Revolving Credit and Term Loan Agreement, dated as of December 30,
1997, by and among the Company (as borrower), BankBoston, N.A. (as
a lender and as agent), the guarantors parties thereto and the
lenders from time to time parties thereto, as such agreement may be
amended from time to time.
"Business Day" means any day other than a Saturday,
Sunday or a day on which commercial banks in Dallas, Texas are
required or authorized to close.
"Common Units" means the common limited partnership units
of the Company issued or authorized for issuance pursuant to the
Partnership Agreement.
"Credit Agreement" means the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997, among the Company
(as borrower), the Managing General Partner, the Special General
Partner, Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (as guarantors), and Varde (as
lender), as such agreement may be amended from time to time.
"Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Borrower (or other
specified Person) as liabilities, but in any event including
(without duplication);
(i) borrowed money;
(ii) indebtedness evidenced by notes, debentures or
similar instruments;
(iii) Capitalized Lease Obligations;
(iv) the deferred purchase price of assets, services
or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade
accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(v) mandatory redemption or dividend rights on
capital stock (or other equity);
(vi) reimbursement obligations, whether contingent
or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements (without duplication of
other Indebtedness supported or guaranteed thereby);
(vii) unfunded pension liabilities;
(viii) obligations that are immediately and
directly due and payable out of the proceeds of or production
from property;
(ix) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified
Person), whether or not the liability secured thereby shall
have been assumed; and
(x) all Guarantees in respect of Indebtedness of
others.
The term "Capitalized Lease Obligations" means the amount
of liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board. The term "Capitalized Lease" means any
lease which is required to be capitalized on the balance sheet of
the lessee in accordance with GAAP, including Statement Nos. 13 and
98 of the Financial Accounting Standards Board. The term "Interest
Rate Protection Agreement" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed rates, fixed interest
rates into variable rates or other similar arrangements. The term
"Lien" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the repayment of Indebtedness, whether arising by agreement or
under any statute or law, or otherwise. The term "Guarantee" of
any Person means any contract, agreement or understanding of such
Person pursuant to which such Person guarantees, or in effect
guarantees, any Indebtedness of any other Person in any manner,
whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property
constituting security therefor, (ii) to advance or supply funds (A)
for the purchase or payment of such Indebtedness, or (B) to
maintain net worth or working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness, (iii) to purchase
property, securities or service primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the
primary obligor to make payment of the Indebtedness, or (iv)
otherwise to assure the holder of the Indebtedness of the primary
obligor against loss in respect thereof; except that "Guarantee"
shall not include the endorsement by the Company in the ordinary
course of business of negotiable instruments or documents for
deposit or collection.
"Initial Issuance Date" means the date on which the first
issuance of Series E Units occurs, whether such phrase is used in
reference to Units issued on such date or on any subsequent date.
"Junior Securities" means the Common Units and any other
class or series of equity of the Company ranking junior to the
Series E Units as to distributions or upon liquidation, dissolution
or winding up, and the units thereof.
"Managing General Partner" means the corporation or other
entity designated to serve as managing general partner of the
Company pursuant to the Partnership Agreement.
"Note Purchase Agreement" means that certain Note
Agreement dated August 13, 1996, as amended, providing, among other
things, for the issuance by the Company of the Series A Unsecured
Note.
"Parity Securities" means any class or series of equity
of the Company ranking on a parity with the Series E Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof (including, without limitation, the Series F
Units).
"Partnership Agreement" means that certain Third Amended
and Restated Agreement of Limited Partnership of Pride Companies,
L.P., effective as of April 15, 1999, as such agreement may be
amended.
"Person" means an any individual, partnership, joint
venture, corporation, limited liability company, trust,
unincorporated organization or government or any department or
agency thereof.
"Pipeline Lease" means that certain Pipeline Lease
Agreement effective as of March 29, 1990, between the Company, as
lessee, and the Special General Partner, as lessor, as amended by
Amendment No. 1 to Pipeline Lease Agreement and Amendment No. 2 to
Pipeline Lease Agreement, each effective as of March 29, 1990, and
by Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 30, 1997.
"Pride SGP Equity Conversion Agreement" means the amended
and restated Agreement of Pride SGP, dated as of August 13, 1996,
by and between the Special General Partner and the Company,
together with the Subordination Agreement attached thereto.
"Restructuring Agreement" means that certain
Restructuring and Override Agreement, dated as of December 30,
1997, by and among the Company, the Managing General Partner, the
Special General Partner and Varde.
"Senior Securities" means any class or series of equity
of the Company ranking senior to the Series E Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Series A Term Loan" means the term loan in the aggregate
principal amount of $20,000,000 owed by the Company to Varde
pursuant to the Credit Agreement.
"Series A Unsecured Note" means the Convertible Unsecured
Series A Promissory Notes of the Company in the aggregate initial
principal amount of $2,500,000, issued by the Company to Varde
pursuant to the Note Purchase Agreement.
"Series B Units" means the Series B Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Amended and Restated
Certificate of Designations dated as of April 15, 1999, relating to
such series. Series B Units are Senior Securities.
"Series C Units" means the Series C Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Amended and Restated
Certificate of Designations dated as of April 15, 1999, relating to
such series. Series C Units are Senior Securities.
"Series D Units" means the Series D Cumulative Preferred
Units of the Company issued in accordance with the Partnership
Agreement and the Amended and Restated Certificate of Designations
dated as of April 15, 1999. Series D Units are Junior Securities
in relation to the Series B Units and Series C Units and Senior
Securities in relation to Series E Units and Series F Units.
"Series F Units" means the subordinate preferred limited
partnership units of the Company issued, as contemplated by
Section 2.1 of the Pride SGP Equity Conversion Agreement, upon the
conversion of the $450,000 Loan. Series F Units are Junior
Securities.
"SGP Guarantee" means the guarantee by the Special
General Partner of, among other things, (i) the distribution rights
and liquidation preferences of the Series B Units, the Series C
Units and the Series D Units and (ii) the obligations of the
Company to Varde under the Series A Unsecured Note.
"Special General Partner" means Pride SGP, Inc., a Texas
corporation, or any successor in its capacity as special general
partner of the Company.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture, limited
liability company or other business or corporate entity, enterprise
or organization which is directly or indirectly (through one or
more intermediaries) controlled by or owned fifty percent or more
by such person.
"Transfer Agent" means such agent or agents of the
Company as may be designated by the Managing General Partner as the
transfer agent for the Series E Units.
"Units" means all or any or each, as the context may
require, of the Series B Units, the Series C Units, the Series D
Units, the Series E Units and the Series F Units.
"Varde" means Varde Partners, Inc., a Delaware
corporation, and its successors and assigns.
Section 3. Distributions; Allocation of Income. (a) The
Company shall pay to the holders of the Series E Units, out of the
assets of the Company at any time legally available for the payment
of distributions, preferential quarterly distributions at the times
and at the rates provided for in this Section 3. To the extent not
paid currently, such preferred distributions on each Series E Unit
from and including the date of original issuance of such Series E
Unit to and including the date on which such Series E Unit shall
have been redeemed and the redemption price shall have been paid in
full as contemplated by Section 6 hereof shall accumulate and
compound (as described below).
(b) To the extent that funds are legally available
therefor, distributions shall be paid quarterly, on and as of the
fifth calendar day of each February, May, August and November
(each, a "Distribution Payment Date"), on each Series E Unit
outstanding at the following rates:
(i) subject to subsection (c) below, during
the three-year period beginning on the Initial Issuance Date
and ending on the date immediately preceding the third
anniversary thereof, at the rate of 6% per annum of the Stated
Value of the Series E Unit, payable in cash only;
(ii) during the two-year period beginning on
the third anniversary of the Initial Issuance Date and ending
on the date immediately preceding the fifth anniversary
thereof, at the rate of 12% per annum of the Stated Value of
the Series E Unit, payable in cash only; and
(iii) thereafter, at the rate of 15% per
annum of the Stated Value of the Series E Unit, payable in
cash only.
The amount of the distribution payable on each
Distribution Payment Date shall be determined by applying the
applicable rate from and including the date immediately following
the last previous Distribution Payment Date (or from and including
the date of original issuance of the Series E Unit, with respect to
the first distribution period) to and including the Distribution
Payment Date, on the basis of a year of 360 days.
(c) During the three-year period referred to in
subsection (b)(i) above, distributions on the Series E Units shall
be payable currently in cash or may be deferred, at the Company's
option; provided, however in the case of such deferrals, the amount
of such deferred distributions that will accumulate shall be
determined the rate of 8% per annum. Notwithstanding the foregoing
or anything else contained herein to the contrary, however,
distributions payable on any Redemption Date (as defined in Section
6 below) or on any final distribution date relating to a
dissolution, liquidation or winding up of the Company, shall be
payable in cash only and, if the payment date does not occur on a
regular Distribution Payment Date, shall be calculated on the basis
of the actual number of days elapsed including the Redemption Date
or such final distribution date. Distributions payable on the
Series E Units for any period of less than a full quarterly
distribution period shall be computed on the basis of actual days
elapsed, excluding the last preceding Distribution Payment Date and
including the last day of such period, and on the basis of 360
days.
(d) To the extent a preferred distribution is not
paid on a Distribution Payment Date with respect to a Series E
Unit, the amount with respect to which subsequent preferred
distributions or such Series E Unit shall be calculated shall
include such unpaid amount and such unpaid distributions, together
with all additional deferred distributions with respect thereto,
shall be payable prior to any distributions or payment being made
with regard to such Series E Units. Nothing in this subsection (d)
or any other provision hereof shall give the Company any right not
to pay any distribution as and to the extent required by subsection
(b) of this Section 3 or to defer or delay such payment beyond the
applicable Distribution Payment Date.
(e) Distributions payable on each Distribution
Payment Date shall be paid to record holders of the Series E Units
as they appear on the books of the Company at the close of business
on the tenth Business Day immediately preceding the respective
Distribution Payment Date.
(f) Except as otherwise provided in Section 1.1(f)
of the Restructuring Agreement, so long as any Series E Units are
outstanding:
(i) No distribution shall be declared or paid,
or set apart for payment on or in respect of any Junior
Securities, including, without limitation, distributions
payable in cash or other property or in units of any Junior
Security or other securities of the Company.
(ii) No distribution, except as described in
the next succeeding sentence, shall be declared or paid, or
set apart for payment on or in respect of any Parity
Securities, for any period unless full cumulative
distributions on all outstanding Series E Units have been or
contemporaneously are declared and paid for all distribution
periods terminating on or prior to the date set for payment of
such distribution on the Parity Securities. When
distributions are not paid in full, as aforesaid, on the
Series E Units and any Parity Securities, all distributions
declared upon such Parity Securities shall be declared and
paid pro rata with the Series E Units so that the amounts of
distributions per unit declared and paid on the Series E Units
and such Parity Securities shall in all cases bear to each
other the same ratio that unpaid cumulative distributions per
unit on the Series E Units and on such Parity Securities bear
to each other, and shall in all cases be paid to the same
extent in cash, other assets and/or securities of the same
class as the securities on which the respective distributions
are being paid.
(iii) Unless full cumulative distributions
on all outstanding Series E Units have been paid (or
contemporaneously are declared and paid) in cash for all prior
distribution periods (1) no rental payments shall be made to
the Special General Partner pursuant to the Pipeline Lease
unless Varde has received the full amount in cash to which it
is entitled under Section 1.1(f) of the Restructuring
Agreement and (2) the Special General Partner shall not
declare or pay, or set apart for payment, any dividend or
distribution in respect of any of the outstanding securities
of the Special General Partner.
For purposes of this subsection (f), unless expressly
stated otherwise herein, "distribution" shall include, without
limitation, any distribution by the Company of cash, evidences of
indebtedness, securities or other properties or assets of the
Company, or of rights to purchase or otherwise acquire any of the
foregoing, whether or not made out of profits, surplus or other
funds of the Company legally available for the payment of
distributions.
(g) The holders of Series E Units will be allocated
an amount of gross income equal to the amount of preferred
distributions paid on the Series E Units prior to any allocation of
income to the holders of Junior Securities.
Section 4. Certain Covenants and Restrictions. So long as
any Series E Units are outstanding:
(a) The Company shall not (i) issue, reissue, agree
to issue or authorize the issuance of any Senior Securities or any
Parity Securities or any units or other securities or any options,
warrants, notes, bonds, debentures or other instruments convertible
into, exchangeable for or having rights to purchase any Senior
Securities or any Parity Securities or (ii) reclassify or modify
any Junior Security so that it becomes a Parity Security or Senior
Security.
(b) The Company shall not (i) pay any principal or
interest on, or redeem, purchase or otherwise acquire for any
consideration any Parity Securities or Junior Securities (or pay
any money to a sinking fund or otherwise set apart any money,
property or other consideration for the purchase or redemption of
any Parity Securities or Junior Securities) or (ii) pay, provide or
distribute to the holders of any Parity Securities or Junior
Securities, as such, any money, property, rights or other
consideration, except for distributions to holders of Parity
Securities permitted by Section 3(f)(ii) hereof.
(c) The Company shall not effect any split, reverse
split or any other subdivision or combination of the Common Units
or any other class or series of equity securities of the Company.
(d) Neither the Company nor the Managing General
Partner shall amend, alter or rescind (whether by merger,
consolidation or otherwise) any of the provisions of the
Partnership Agreement, this Certificate of Designations, the
Articles of Corporation, bylaws or other organizational document of
the Managing General Partner or any agreement entered into for the
benefit of holders of Series E Units in any manner so as to affect
adversely any of the preferences, rights or powers of the Series E
Units.
(e) The Company shall not and shall not permit any
of its Subsidiaries to, create, assume, incur, guarantee or
otherwise become or be liable in respect of, or maintain or
otherwise allow to exist, any Indebtedness, except for the
following:
(i) So long as the Credit Agreement is in
effect, the Indebtedness permitted and set forth in
Section 7.1 of the Credit Agreement;
(ii) If the Credit Agreement is no longer in
effect, the Indebtedness set forth in Section 6.6 of the
BankBoston Credit Agreement (whether or not the BankBoston
Credit Agreement shall then be in effect).
(f) The Company will not, and will not permit any
of its Subsidiaries to, sell, lease, convey, transfer, issue or
otherwise dispose of, in one transaction or in a series of
transactions, whether involving assets or securities, all or a
substantial portion of any Company Business, or any shares or
partnership interests in any Subsidiary (whether such interests are
now or hereafter issued, outstanding or created) except a sale for
fair consideration (as determined by the Board of Directors of the
Managing General Partner) to a purchaser who is not an Affiliate of
the Company, the Managing General Partner or the Special General
Partner, which consideration shall consist solely of cash which is
applied by the Company as provided in subsection (h) of this
Section 4. As used in this subsection, "Company Business" means the
operations and assets of one of the following three primary lines
of business as currently conducted by the Company and its
Subsidiaries on January 1, 1998: (i) crude oil gathering and
exchange, (ii) refining and (iii) transportation and marketing of
refinery products.
(g) All money, property or other consideration
received by the Company or any Subsidiary outside the ordinary
course of business, including but not limited to consideration for
or in connection with the sale, lease, transfer or other
disposition of any assets or properties of the Company (other than
the sale of goods and services in the ordinary course of business),
or any shares or partnership interests in any Subsidiary (whether
such interests are now or hereafter issued, outstanding or created)
but excluding consideration received in connection with (A) the
sale or disposition of any asset of the Company which is sold for
fair consideration not in excess of $25,000 or in the aggregate not
in excess of $250,000 (provided that to the extent consideration
from any such excluded sale or disposition is applied by the
Company in accordance with this Section 4(g), the amount of such
consideration shall not be counted under the $250,000 aggregate
limitation) and (B) except as otherwise provided in the
Restructuring Agreement, Litigation Settlements or Equity
Offerings, shall be applied (or converted into cash and then
applied, if applicable) by the Company (i) first, to the payment of
all amounts outstanding and due under the Credit Agreement and the
BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note;
(iii) then, to the redemption of the outstanding Series B Units and
Series C Units in accordance with their respective Certificate of
Designations; (iv) then, to the redemption of the outstanding
Series D Units in accordance with its Certificate of Designations;
(v) then, to the redemption of the outstanding Series E Units and
Series F Units in accordance with Section 6 hereof and their
respective Certificates of Designation; provided, that funds
applied to the redemption of the Series B Units, the Series C
Units, Series D Units, the Series E Units and the Series F Units as
provided in clauses (iii), (iv) and (v) shall be so applied with
respect to the initial Stated Value of the Units being redeemed and
any portion of the Redemption Price of such Units attributable to
adjustments to Stated Value shall be paid out of other funds of the
Company.
(h) Except as otherwise provided in the
Restructuring Agreement, all consideration received by the Company
or any Subsidiary in connection with the resolution (by judgment or
otherwise) or settlement of any judicial, administrative or
arbitral proceeding ("Litigation Settlements") shall be applied (or
converted into cash and then applied, if applicable) by the Company
(i) first, to the payment of all amounts outstanding and due under
the Credit Agreement and the BankBoston Credit Agreement;
(ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the
outstanding Series B Units and Series C Units in accordance with
their respective Certificate of Designations; (iv) then, to the
redemption of the outstanding Series D Units in accordance with its
Certificate of Designations; and (v) then, to the redemption of the
outstanding Series E Units and Series F Units in accordance with
Section 6 hereof and their respective Certificates of Designation;
provided, that funds applied to the redemption of the Series B
Units, the Series C Units, Series D Units, the Series E Units and
the Series F Units as provided in clauses (iii), (iv) and (v) shall
be so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company.
(i) Except as provided in the next succeeding
sentence, all proceeds of public or private offerings of equity
securities by the Company ("Equity Offerings") shall consist of
cash and shall be applied (i) first, to the payment of all amounts
outstanding and due under the Credit Agreement and the BankBoston
Credit Agreement; (ii) next, to the payment of all amounts
outstanding and due under the Series A Unsecured Note; (iii) then,
to the redemption of the outstanding Series B Units and Series C
Units in accordance with their respective Certificate of
Designations; (iv) then, to the redemption of the outstanding
Series D Units in accordance with its Certificate of Designations;
and (v) then, to the redemption of the outstanding Series E Units
and Series F Units in accordance with Section 6 hereof and their
respective Certificates of Designation; provided, that funds
applied to the redemption of the Series B Units, the Series C
Units, Series D Units, the Series E Units and the Series F Units as
provided in clauses (iii), (iv) and (v) shall be so applied with
respect to the initial Stated Value of the Units being redeemed and
any portion of the Redemption Price of such Units attributable to
adjustments to Stated Value shall be paid out of other funds of the
Company The Company may use up to $4.5 million, in the aggregate,
of proceeds of Equity Offerings for capital expenditures in excess
of normal maintenance capital expenditures if, out of every dollar
so applied, no more than 60% is applied to such excess capital
expenditures and at least 40% is applied in the manner provided in
clauses (i), (ii), (iii) and (iv) of this Section 4(i).
(j) [intentionally omitted]
(k) The Company shall not cause or permit the
Pipeline Lease or any other agreement between the Company and any
Affiliate of the Company to be amended, supplemented, replaced or
modified in any manner that would increase the payments required to
be made by the Company thereunder or the costs of compliance by the
Company therewith.
(l) The Company shall deliver to each holder of
Series E Units one (1) copy of each of the following:
1. Monthly Statements. As soon as available,
and in any event within 30 days after the end of each calendar
month, copies of the consolidated balance sheet of the Company
as of the end of such month, and statements of income and
retained earnings and changes in financial position and cash
flows of the Company for that month and for the portion of the
fiscal year ending with such period, in each case setting
forth in comparative form the figures for the corresponding
period of the preceding fiscal year. Such statements shall be
in reasonable detail, with a certificate of the chief
financial officer of the Managing General Partner certifying
that such statements are true and correct in all material
respects to the best of his knowledge and prepared in
accordance with generally accepted accounting principles
("GAAP"), consistently maintained and applied, subject to
year-end audit adjustments.
2. Annual Statements. As soon as
available after each fiscal year end, and in any event within 90
days thereafter, copies of the consolidated balance sheet of the
Company as of the close of such fiscal year and statements of
income and retained earnings and cash flows of the Company for
such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in
reasonable detail and accompanied by an opinion thereon (which
shall be without a "going concern" or like qualification or
exception) of Ernst & Young or of other independent public
accountants of recognized national standing selected by the
Company and satisfactory to the holders of Series E Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series E Units, to the effect that such
consolidated financial statements have been prepared in
accordance with GAAP consistently maintained and applied
(except for changes in which such accountants concur) and that
the examination of such accounts in connection with such
financial statements has been made in accordance with
generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances.
(iii) SEC and Other Reports. Promptly upon
its becoming available, one copy of each financial statement,
report, notice or proxy statement sent by the Company to
equity owners generally and of each regular or periodic
report, registration statement or prospectus filed by the
Company with any securities exchange or the Securities and
Exchange Commission or any successor agency, and of any order
issued by any court or governmental authority in any
proceeding to which the Company is a party.
(iv) Other Information. Such other information
concerning the business, properties or financial condition of
the Company as the holders of Series E Units representing 51%
or more of the aggregate Stated Value of the outstanding
Series E Units shall reasonably request.
For purposes of this Section 4, "proceeds" means gross
amounts received without deduction of any related costs or
expenses, offset of any related losses or other reduction of any
kind, except that "proceeds" of Equity Offerings means gross sales
price less reasonable discounts and commissions of underwriters or
placement agents. Any noncash proceeds or other noncash assets
received by the Company and that are subject to the provisions of
subsection (h) or (i) of this Section 4 shall be converted to cash
by the Company as soon as practicable and applied as provided in
the applicable subsection, and shall not be sold, transferred or
otherwise disposed of by the Company other than for such purpose.
Notwithstanding the foregoing, the Company may allow any promissory
note or similar instrument that is subject to subsection (h) or (i)
of this Section 4 to remain outstanding in accordance with its
terms, provided that all payments received by the Company
thereunder, and the proceed of any sale, transfer or other
disposition thereof, shall be applied as provided in the applicable
subsection of this Section 4.
Compliance by the Company with any covenant contained in
this Section 4 may be waived in writing by the holders of Series E
Units representing 51% or more of the aggregate Stated Value of the
outstanding Series E Units. No such waiver shall be deemed to be
a continuing waiver nor a waiver with respect to any other covenant
of the Company or any other term, condition or provision hereof.
Section 5. Liquidation Preference. (a) In the event of
any liquidation, dissolution or winding up of the Company (in
connection with the bankruptcy or insolvency of the Company or
otherwise), whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or
surplus) shall be made to or set apart for the holders of Common
Units or any other class or series of Junior Securities, the holder
of each Series E Unit shall be entitled to receive in cash an
amount equal to the Stated Value per Unit plus an amount equal to
the aggregate dollar amount of all unpaid preferred distributions
through the date of final distribution to such holders (including
a prorated distribution from the most recent Distribution Payment
Date to such date of final distribution). No payment on account of
any such liquidation, dissolution or winding up of the Company
shall be made to the holders of any class or series of Parity
Securities unless there shall be paid at the same time to the
holders of the Series E Units proportionate amounts in cash
determined ratably in proportion to the full amounts to which the
holders of all outstanding Series E Units and the holders of all
such outstanding Parity Securities are respectively entitled with
respect to such distribution. Subject to the rights of the holders
of any class or series of Parity Securities or Senior Securities,
for purposes of this Section 5, neither a consolidation or merger
of the Company with one or more partnerships, corporations or other
entities nor a sale, lease, exchange or transfer of all or any part
of the Company's assets for cash, securities or other property
shall be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary if the surviving entity in any such
consolidation, merger, sale, lease, exchange or transfer assumes in
writing all the Company's obligations under this Certificate of
Designations, the Amended and Restated Registration Rights
Agreement, dated as of December 30, 1997, by and between the
Company and Varde and the Pride SGP Equity Conversion Agreement,
and the Warrants to Purchase Common Units, issued by the Company to
each holder of Series B Units or Series C Units.
(b) Subject to the rights of the holders of any
class or series of Parity Securities or Senior Securities, upon any
liquidation, dissolution or winding up of the Company, after
payment shall have been made in full to the holders of Series E
Units, as provided in this Section 5, any class or series of Junior
Securities shall, subject to the respective terms and provisions
(if any) applicable thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of
Series E Units shall not be entitled to share therein.
(c) At least 30 days prior to written notice of the
commencement of any proceeding for or that may result in any
liquidation, dissolution or winding up of the Company shall be
given to holders of Series E Units, but neither the giving of such
notice nor anything in this Section 5 or any other provision hereof
shall relieve the Company of its obligation to obtain consent from
holders of Units as provided in Section 9.
Section 6. Optional and Mandatory Redemption. (a) The
Company may, at the option of the Managing General Partner, redeem
for cash at any time after the Retirement Date, from any source of
funds legally available therefor, in whole or in part, in the
manner provided below any and all of the outstanding Series E Units
at a redemption price per Unit (the "Redemption Price") equal to
the Stated Value per Unit redeemed plus an amount in cash equal to
the aggregate dollar amount of all unpaid preferred distributions
through the Redemption Date (including a prorated distribution from
the most recent Distribution Payment Date to the Redemption Date)
that have not been added to the Stated Value of such Units.
"Redemption Date" means the date fixed by the Managing General
Partner for redemption. "Retirement Date" means the date on which
the Series A Term Loan, the Series B Term Loans, the Series C Term
Loan and the Series A Unsecured Note (each as defined in the Credit
Agreement) are repaid in full.
(b) The Company shall, at the Redemption Price and
in the manner provided in this Section 6, redeem for cash from any
source of funds legally available therefor, all Series E Units
outstanding on the first to occur of:
(i) 180 days after the Maturity Date, as
defined in the Credit Agreement;
(ii) the date that is 30 days after any default
(a "Cross-Default") by the Company in its obligations to make
payments under or with respect to any Indebtedness with an
outstanding principal amount in excess of $500,000; provided,
however, that the Company need not effect such mandatory
redemption because of a Cross-Default if such Cross-Default is
cured prior to the end of such 30-day period to the
satisfaction of the holders of Series E Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series E Units or the right to require the Company to effect
such redemption is waived in writing by the holders of 51% or
more in Stated Value (as adjusted, if applicable) of the
Series E Units; no such waiver shall be deemed to be a
continuing waiver nor a waiver with respect to any other or
subsequent Cross-Default;
(iii) the date that is 30 days after any
failure by the Company to pay in full in cash on any
Distribution Payment Date any distribution payable only in
cash on such Distribution Payment Date; or
(iv) the date that is 30 days after any default
or failure of compliance by the Company with any covenant or
restriction contained in Section 3(f) or Section 4 hereof,
unless such default or failure of compliance is cured prior to
the end of such 30-day period to the satisfaction of the
holders of Series E Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series E Units;
or
(v) the Business Day immediately preceding any
Change in Control of the Company. For this purpose, a "Change
in Control" means (1) a change in the direct or indirect power
to direct or cause the direction of the management and
policies of the Company, the Managing General Partner or the
Special General Partner, whether through the ownership of
voting securities, by contract or otherwise, or to elect a
majority of any of such entities' Boards of Directors or
equivalent governing bodies; (2) any reorganization,
reclassification or change in any outstanding securities of
the Company; (3) the Company's consolidation or merger with or
into another partnership, corporation or other entity; (4) the
sale, lease or other transfer of the property of the Company
as an entirety or substantially as an entirety; (5) the
termination of the SGP Guarantee or of the pledge of all of
the Special General Partner's assets securing its obligations
thereunder, or any event or circumstance as a result of which
the SGP Guarantee or such pledge shall no longer be in full
force and effect; or (6) the redemption, purchase or other
acquisition by the Special General Partner for any
consideration any of the Special General Partner's outstanding
securities (or the payment of any money to a sinking fund or
the setting apart of any money, property or other
consideration for the purchase or redemption of any such
securities) or the payment, provision or distribution to the
holders of any of its outstanding securities, as such, any
money, property, rights or other consideration, other than
ordinary pro rata dividends to all holders of a class of such
outstanding securities; provided, however, that in the case of
clause (2), (3) or (4) of this sentence, any reorganization,
reclassification, change, consolidation, merger, sale or
transfer that has been approved by the holders of Series E
Units representing 51% or more of the aggregate Stated Value
of the then outstanding Series E Units in accordance with
Section 9(b) shall not constitute a Change in Control.
The Managing General Partner shall cause the Redemption
Notice (as defined below) to be mailed sufficiently in advance of
the dates or events specified in this subsection (b) to permit the
redemption to occur on such dates.
If there are insufficient legally available funds for
redemption under this subsection (b), the Company shall redeem such
lesser number of Series E Units (on a pro rata basis from all
holders of Series E Units, in proportion to the number of Units
held), to the extent there are funds legally available therefor,
and shall redeem all or part of the remainder of the Series E Units
as soon as the Company has sufficient funds that are legally
available therefor. If the redemption is delayed because of
insufficient legally available funds, distributions shall continue
to accrue on Series E Units outstanding, and shall be added to and
become a part of the Redemption Price of such Units, until the
Redemption Price, as so adjusted, for such Units is paid in full.
(c) The Company also shall, at the Redemption Price
and in the manner provided in this Section 6, redeem Series E Units
using the funds received from the sources described in Section
4(g), (h) and (i), to the extent provided therein, promptly after
the Company's receipt of such funds.
(d) In connection with any optional or mandatory
redemption of Series E Units, at least 20 days and not more than 60
days prior to the Redemption Date, written notice (the "Redemption
Notice") shall be sent simultaneously by certified mail, return
receipt requested, and by telecopy to each holder of record of the
Series E Units at the post office address last shown on the records
of the Company for such holder. The Redemption Notice shall state:
(i) whether all or less than all the
outstanding Series E Units are to be redeemed and the total
number of Series E Units being redeemed;
(ii) the Redemption Date and the Redemption
Price;
(iii) that the holder is to surrender to
the Company, in the manner and at the place designated, the
certificate or certificates representing the Series E Units to
be redeemed; and
(iv) that an Escrow Account as described in the
following paragraph has been established at a bank specified
in the Redemption Notice.
Notwithstanding the foregoing, a Redemption Notice relating to a
mandatory redemption required by paragraph (ii), (iii) or (iv) of
subsection (b) of this Section 6 shall be mailed at least 15 days
and not more than 30 days prior to the mandatory Redemption Date.
Not later than the date on which a Redemption Notice is
mailed by the Company, the Company shall deposit in an escrow
account (the "Escrow Account") for the pro rata benefit of the
holders of the Series E Units to be redeemed the funds necessary
for such redemption with a bank or trust company having capital and
surplus of at least $500 million and approved in writing by the
holders of Series E Units representing 51% or more of the aggregate
Stated Value of the then outstanding Series E Units (the "Escrow
Agent"). Any such funds that are unclaimed at the end of two years
after the applicable Redemption Date shall revert to the general
funds of the Company and, upon such reversion, the Escrow Agent
shall, upon demand, pay such funds over to the Company and be
relieved of all responsibility in respect thereof and any holder of
Series E Units entitled to receive any of such funds shall
thereafter look only to the Company for the payment of the
Redemption Price. Any interest on funds included in the Escrow
Account shall be for the account of the Company. The failure to
establish the Escrow Account by the date specified in this
paragraph shall cause the Redemption Notice that required such
Escrow Account to have been established to be ineffective, and the
Company shall not have any right to redeem any Series E Units
pursuant to such Redemption Notice. Such failure shall not relieve
the Company of any obligation to effect a mandatory redemption of
Series E Units.
On or before the Redemption Date each holder of Series E
Units shall surrender to the Company the certificate or
certificates representing such Series E Units to be redeemed, in
the manner and at the place designated in the Redemption Notice,
and thereupon the Redemption Price for such Series E Units shall be
payable in cash on the Redemption Date to the Person whose name
appears on such certificate or certificates as the owner thereof,
and each surrendered certificate shall be canceled and retired. In
the event that less than all Series E Units represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed Series E Units.
In the event of a redemption of only a portion of the
then outstanding Series E Units, the Company shall effect such
redemption pro rata according to the number of Series E Units held
by each holder.
Unless the Company defaults in the payment in full of the
Redemption Price, distributions on the Series E Units called for
redemption shall cease to accumulate on the Redemption Date, and
the holders of such Units redeemed shall cease to have any further
rights with respect thereto on the Redemption Date, other than to
receive the Redemption Price without interest.
Section 7. Prohibitions on Issuance. All Series E Units
repurchased, redeemed or otherwise acquired by the Company shall be
retired and canceled and shall not be reissued. No authorized but
unissued Units shall be issued other than as distributions in kind
to the existing holders of Series E Units in accordance with
Section 3 hereof.
Section 8. Ranking. (a) The following equity securities
of the Company shall rank senior to the Series E Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series E Units
pursuant hereto: the Series B Units, the Series C Units and the
Series D Units. The Company shall not issue any debt security
(except as permitted by Section 4(e)).
(b) Series F Units of the Company shall rank on a
parity with the Series E Units with respect to the payments
required or permitted to be made to the holders thereof pursuant to
their respective governing instruments and the payments required to
be made to holders of the Series E Units pursuant hereto.
(c) Without limiting the definition of "Junior
Securities" contained in Section 2, the following equity securities
of the Company shall rank junior to the Series E Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series E Units
pursuant hereto: the Common Units.
Section 9. Voting. (a) So long as any Series E Units
remain outstanding, the Company will not, without the affirmative
vote at a meeting, or by written consent with or without a meeting,
of the holders of Series E Units representing two-thirds or more of
the aggregate Stated Value of the then outstanding Series E Units,
(i) create, authorize, issue or reissue any class or series of
Senior Securities, or any units of any such class or series, or
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series E Units that prescribe
the terms and conditions of the Series E Units; provided, however,
that any proposed amendment, alteration or rescission of any
provision of the Partnership Agreement or of the Certificate of
Designations of the Series E Units, as contemplated by clause (ii)
of this sentence, shall require the approval of the holders of
Series E Units representing two-thirds or more of the aggregate
Stated Value of the then outstanding Series E Units.
(b) So long as any Series E Units remain
outstanding, the Company will not, without the affirmative vote at
a meeting, or by written consent with or without a meeting, of the
holders of the Series E Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series E Units, (i)
create, authorize, issue or reissue any class or series of Parity
Securities, or any units of any such class or series, including
without limitation any authorized but unissued Series E Units; (ii)
amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series E Units that set forth
the restrictions and covenants of the Company (including without
limitation restrictions regarding capital expenditures, issuance of
Indebtedness and payment of distributions to holders of Parity
Securities or Junior Securities) that benefit or protect the rights
of holders of the Series E Units; (iii) commence any voluntary
proceeding (under bankruptcy, insolvency or similar laws or
otherwise) for or that may result in the liquidation, dissolution
or winding up of the Company, consent to the entry of an order for
relief in an involuntary proceeding under any federal or state
bankruptcy, insolvency or similar laws or to the appointment of a
receiver, liquidator, assignee, custodian, trustee or other similar
official of the Company or of any substantive part of its
properties, or make an assignment for the benefit of its creditors
or admit in writing its inability to pay its debts generally as
they become due; or (iv) reorganize, reclassify or change any
outstanding securities, consolidate or merge with or into another
partnership, corporation or other entity or sell or transfer the
property of the Company as an entirety or substantially as an
entirety.
(c) [intentionally omitted]
(d) [intentionally omitted]
(e) Except as expressly set forth herein or in the
Partnership Agreement or as required by applicable law, holders of
Series E Units shall not have any right to vote on any question
presented to the holders of voting securities of the Company.
Section 10. [intentionally omitted]
Section 11. [intentionally omitted]
Section 12. [intentionally omitted]
Section 13. Record Holders. The Company and the Transfer
Agent may deem and treat the record holder of any Units as the true
and lawful owner thereof for all purposes.
Section 14. Notices. Except as otherwise expressly
provided herein, all notices required or permitted to be given
hereunder shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt of such
notice or three Business Days after the mailing of such notice if
sent by registered or certified mail, return receipt requested,
with postage prepaid, addressed: (a) if to the Company, to the
offices of the Managing General Partner at 1209 N. 4th, Abilene,
Texas 79601 (Attention: Brad Stephens), fax no. (915) 676-8792, or
other agent of the Company designated as permitted hereby; or (b)
if to any holder of the Series E Units, to such holder at the
address of such holder as listed in the record books of the Company
(which shall include the records of the Transfer Agent), or to such
other address as the Company or holder, as the case may be, shall
have designated by notice similarly given. As of the Initial
Issuance Date, Varde's address for notice is:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
15. Successors and Transferees. The provisions
applicable to Series E Units shall bind and inure to the benefit of
and be enforceable by the Company, the respective successors to the
Company and by any holder of Series E Units.
IN WITNESS WHEREOF, this Certificate has been executed by
the Managing General Partner, on behalf of the Company, by its
Managing General Partner as of the 15th day of April, 1999
effective for all purposes on January 1, 1998.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By: ________________________________
Name: Dave Caddell
Title: Vice President
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS
of
SERIES F CUMULATIVE PREFERRED UNITS
of
PRIDE COMPANIES, L.P.
Pursuant to the Third Amended and Restated Agreement
of Limited Partnership
effective as of April 15, 1999
_____________________
Pride Refining, Inc., a Texas corporation, as Managing
General Partner of Pride Companies, L.P. (the "Company"), certifies
that (i) pursuant to authority contained in the Second Amended and
Restated Agreement of Limited Partnership effective as of
December 30, 1997, the Series F Cumulative Preferred Units of the
Company were duly established, and (ii) pursuant to authority
contained in the Third Amended and Restated Agreement of Limited
Partnership effective as of April 15, 1999, the Series F Cumulative
Preferred Units are hereby amended and restated so that such series
will have the designations, rights, powers, preferences,
qualifications, limitations and restrictions set forth below:
SERIES F CUMULATIVE PREFERRED UNITS
Section 1. Number of Units and Designation. There is hereby
established a series of preferred limited partnership units of the
Company with the designation "Series F Cumulative Preferred Units"
(herein referred to as the "Series F Units"), which shall consist
of a maximum of [2,000] Units, with a Stated Value per Unit of
$1,000.00 (the "Stated Value").
Section 2. Definitions. In addition to the definitions
set forth elsewhere herein, the following terms shall have the
meanings indicated:
"$2,000,000 Loan" means indebtedness of the Company to
the Special General Partner evidenced by that certain Promissory
Note dated as of August 13, 1996, made by the Company payable to
the order of the Special General Partner in the original principal
amount of $2,000,000.
"$450,000 Loan" means indebtedness of the Company to the
Special General Partner evidenced by that certain Promissory Note
dated as of August 13, 1996, made by the Company payable to the
order of the Special General Partner in the original principal
amount of $450,000.
"Affiliate" of any Person is a Person that, directly or
indirectly, controls, is controlled by or is under common control
with such Person (and "control" means the power, directly or
indirectly, to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise, or to elect a majority of a
Person's Board of Directors or equivalent governing body).
"BankBoston Credit Agreement" means that certain
Revolving Credit and Term Loan Agreement, dated as of December 30,
1997, by and among the Company (as borrower), BankBoston, N.A. (as
a lender and as agent), the guarantors parties thereto and the
lenders from time to time parties thereto, as such agreement may be
amended from time to time.
"Business Day" means any day other than a Saturday,
Sunday or a day on which commercial banks in Dallas, Texas are
required or authorized to close.
"Common Units" means the common limited partnership units
of the Company issued or authorized for issuance pursuant to the
Partnership Agreement.
"Credit Agreement" means the Sixth Restated and Amended
Credit Agreement dated as of December 30, 1997, among the Company
(as borrower), the Managing General Partner, the Special General
Partner, Desulfur Partnership, Pride Marketing of Texas (Cedar
Wind), Inc., and Pride Borger, Inc. (as guarantors), and Varde (as
lender), as such agreement may be amended from time to time.
"Indebtedness" means all obligations, contingent or
otherwise, which in accordance with GAAP are required to be
classified upon the balance sheet of the Borrower (or other
specified Person) as liabilities, but in any event including
(without duplication);
(i) borrowed money;
(ii) indebtedness evidenced by notes, debentures or
similar instruments;
(iii) Capitalized Lease Obligations;
(iv) the deferred purchase price of assets, services
or securities, including related noncompetition, consulting
and stock repurchase obligations (other than ordinary trade
accounts payable within six months after the incurrence
thereof in the ordinary course of business);
(v) mandatory redemption or dividend rights on
capital stock (or other equity);
(vi) reimbursement obligations, whether contingent
or matured, with respect to letters of credit, bankers
acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements (without duplication of
other Indebtedness supported or guaranteed thereby);
(vii) unfunded pension liabilities;
(viii) obligations that are immediately and
directly due and payable out of the proceeds of or production
from property;
(ix) liabilities secured by any Lien existing on
property owned or acquired by the Borrower (or such specified
Person), whether or not the liability secured thereby shall
have been assumed; and
(x) all Guarantees in respect of Indebtedness of
others.
The term "Capitalized Lease Obligations" means the amount
of liability reflecting the aggregate discounted amount of future
payments under all Capitalized Leases calculated in accordance with
GAAP, including Statement Nos. 13 and 98 of the Financial
Accounting Standards Board. The term "Capitalized Lease" means any
lease which is required to be capitalized on the balance sheet of
the lessee in accordance with GAAP, including Statement Nos. 13 and
98 of the Financial Accounting Standards Board. The term "Interest
Rate Protection Agreement" means any interest rate swap, interest
rate cap, interest rate hedge or other contractual arrangement that
converts variable interest rates into fixed rates, fixed interest
rates into variable rates or other similar arrangements. The term
"Lien" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention
arrangement, or any other interest in property designed to secure
the repayment of Indebtedness, whether arising by agreement or
under any statute or law, or otherwise. The term "Guarantee" of
any Person means any contract, agreement or understanding of such
Person pursuant to which such Person guarantees, or in effect
guarantees, any Indebtedness of any other Person in any manner,
whether directly or indirectly, including without limitation
agreements: (i) to purchase such Indebtedness or any property
constituting security therefor, (ii) to advance or supply funds (A)
for the purchase or payment of such Indebtedness, or (B) to
maintain net worth or working capital or other balance sheet
conditions, or otherwise to advance or make available funds for the
purchase or payment of such Indebtedness, (iii) to purchase
property, securities or service primarily for the purpose of
assuring the holder of such Indebtedness of the ability of the
primary obligor to make payment of the Indebtedness, or (iv)
otherwise to assure the holder of the Indebtedness of the primary
obligor against loss in respect thereof; except that "Guarantee"
shall not include the endorsement by the Company in the ordinary
course of business of negotiable instruments or documents for
deposit or collection.
"Initial Issuance Date" means the date on which the first
issuance of Series F Units occurs, whether such phrase is used in
reference to Units issued on such date or on any subsequent date.
"Junior Securities" means the Common Units and any other
class or series of equity of the Company ranking junior to the
Series F Units as to distributions or upon liquidation, dissolution
or winding up, and the units thereof.
"Managing General Partner" means the corporation or other
entity designated to serve as managing general partner of the
Company pursuant to the Partnership Agreement.
"Note Purchase Agreement" means that certain Note
Agreement dated August 13, 1996, as amended, providing, among other
things, for the issuance by the Company of the Series A Unsecured
Note.
"Parity Securities" means any class or series of equity
of the Company ranking on a parity with the Series F Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof (including, without limitation, the Series E
Units).
"Partnership Agreement" means that certain Third Amended
and Restated Agreement of Limited Partnership of Pride Companies,
L.P., effective as of April 15, 1999, as such agreement may be
amended.
"Person" means an any individual, partnership, joint
venture, corporation, limited liability company, trust,
unincorporated organization or government or any department or
agency thereof.
"Pipeline Lease" means that certain Pipeline Lease
Agreement effective as of March 29, 1990, between the Company, as
lessee, and the Special General Partner, as lessor, as amended by
Amendment No. 1 to Pipeline Lease Agreement and Amendment No. 2 to
Pipeline Lease Agreement, each effective as of March 29, 1990, and
by Amendment No. 3 to Pipeline Lease Agreement, effective as of
December 30, 1997.
"Pride SGP Equity Conversion Agreement" means the amended
and restated Agreement of Pride SGP, dated as of August 13, 1996,
by and between the Special General Partner and the Company,
together with the Subordination Agreement attached thereto.
"Restructuring Agreement" means that certain
Restructuring and Override Agreement, dated as of December 30,
1997, by and among the Company, the Managing General Partner, the
Special General Partner and Varde.
"Senior Securities" means any class or series of equity
of the Company ranking senior to the Series E Units as to
distributions or upon liquidation, dissolution or winding up, and
the units thereof.
"Series A Term Loan" means the term loan in the aggregate
principal amount of $20,000,000 owed by the Company to Varde
pursuant to the Credit Agreement.
"Series A Unsecured Note" means the Convertible Unsecured
Series A Promissory Notes of the Company in the aggregate initial
principal amount of $2,500,000, issued by the Company to Varde
pursuant to the Note Purchase Agreement.
"Series B Units" means the Series B Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Amended and Restated
Certificate of Designations dated as of April 15, 1999, relating to
such series. Series B Units are Senior Securities.
"Series C Units" means the Series C Cumulative
Convertible Preferred Units of the Company issued in accordance
with the Partnership Agreement and the Amended and Restated
Certificate of Designations dated as of April 15, 1999, relating to
such series. Series C Units are Senior Securities.
"Series D Units" means the Series D Cumulative Preferred
Units of the Company issued in accordance with the Partnership
Agreement and the Amended and Restated Certificate of Designations
dated as of April 15, 1999. Series D Units are Junior Securities
in relation to the Series B Units and Series C Units and Senior
Securities in relation to Series E Units and Series F Units.
"Series E Units" means the subordinate preferred limited
partnership units of the Company issued, as contemplated by
Section 2.1 of the Pride SGP Equity Conversion Agreement, upon the
conversion of the $2,000,000 Loan. Series E Units are Junior
Securities in relation to the Series B Units, Series C Units and
Series D Units.
"SGP Guarantee" means the guarantee by the Special
General Partner of, among other things, (i) the distribution rights
and liquidation preferences of the Series B Units, the Series C
Units and the Series D Units and (ii) the obligations of the
Company to Varde under the Series A Unsecured Note.
"Special General Partner" means Pride SGP, Inc., a Texas
corporation, or any successor in its capacity as special general
partner of the Company.
"Subsidiary" means, with respect to any Person, any
corporation, association, partnership, joint venture, limited
liability company or other business or corporate entity, enterprise
or organization which is directly or indirectly (through one or
more intermediaries) controlled by or owned fifty percent or more
by such person.
"Transfer Agent" means such agent or agents of the
Company as may be designated by the Managing General Partner as the
transfer agent for the Series F Units.
"Units" means all or any or each, as the context may
require, of the Series B Units, the Series C Units, the Series D
Units, the Series E Units and the Series F Units.
"Varde" means Varde Partners, Inc., a Delaware
corporation, and its successors and assigns.
Section 3. Distributions; Allocation of Income. (a) The
Company shall pay to the holders of the Series F Units, out of the
assets of the Company at any time legally available for the payment
of distributions, preferential quarterly distributions at the times
and at the rates provided for in this Section 3. To the extent not
paid currently, such preferred distributions on each Series F Unit
from and including the date of original issuance of such Series F
Unit to and including the date on which such Series F Unit shall
have been redeemed and the redemption price shall have been paid in
full as contemplated by Section 6 hereof shall accumulate and
compound (as described below).
(b) To the extent that funds are legally available
therefor, distributions shall be paid quarterly, on and as of the
fifth calendar day of each February, May, August and November
(each, a "Distribution Payment Date"), on each Series F Unit
outstanding at the following rates:
(i) subject to subsection (c), during the
three-year period beginning on the Initial Issuance Date and
ending on the date immediately preceding the third anniversary
thereof, at the rate of 6% per annum of the Stated Value of
the Series F Unit, payable in cash only;
(ii) during the two-year period beginning on
the third anniversary of the Initial Issuance Date and ending
on the date immediately preceding the fifth anniversary
thereof, at the rate of 12% per annum of the Stated Value of
the Series F Unit, payable in cash only; and
(iii) thereafter, at the rate of 15% per
annum of the Stated Value of the Series F Unit, payable in
cash only.
The amount of the distribution payable on each
Distribution Payment Date shall be determined by applying the
applicable rate from and including the date immediately following
the last previous Distribution Payment Date (or from and including
the date of original issuance of the Series F Unit, with respect to
the first distribution period) to and including the Distribution
Payment Date, on the basis of a year of 360 days.
(c) During the three-year period referred to in
subsection (b)(i) above, distributions on the Series F Units shall
be payable currently in cash or may be deferred, at the Company's
option; provided, however in the case of such deferrals, the amount
of such deferred distributions that will accumulate shall be
determined the rate of 8% per annum. Notwithstanding the foregoing
or anything else contained herein to the contrary, however,
distributions payable on any Redemption Date (as defined in Section
6 below) or on any final distribution date relating to a
dissolution, liquidation or winding up of the Company, shall be
payable in cash only and, if the payment date does not occur on a
regular Distribution Payment Date, shall be calculated on the basis
of the actual number of days elapsed including the Redemption Date
or such final distribution date. Distributions payable on the
Series F Units for any period of less than a full quarterly
distribution period shall be computed on the basis of actual days
elapsed, excluding the last preceding Distribution Payment Date and
including the last day of such period, and on the basis of 360
days.
(d) To the extent a preferred distribution is not
paid on a Distribution Payment Date with respect to a Series F
Unit, the amount with respect to which subsequent preferred
distributions or such Series F Unit shall be calculated shall
include such unpaid amount and such unpaid distributions, together
with all additional deferred distributions with respect thereto,
shall be payable prior to any distributions or payment being made
with regard to such Series F Units. Nothing in this subsection (d)
or any other provision hereof shall give the Company any right not
to pay any distribution as and to the extent required by subsection
(b) of this Section 3 or to defer or delay such payment beyond the
applicable Distribution Payment Date.
(e) Distributions payable on each Distribution
Payment Date shall be paid to record holders of the Series F Units
as they appear on the books of the Company at the close of business
on the tenth Business Day immediately preceding the respective
Distribution Payment Date.
(f) Except as otherwise provided in Section 1.1(f)
of the Restructuring Agreement, so long as any Series F Units are
outstanding:
(i) No distribution shall be declared or paid,
or set apart for payment on or in respect of any Junior
Securities, including, without limitation, distributions
payable in cash or other property or in units of any Junior
Security or other securities of the Company.
(ii) No distribution, except as described in
the next succeeding sentence, shall be declared or paid, or
set apart for payment on or in respect of any Parity
Securities, for any period unless full cumulative
distributions on all outstanding Series F Units have been or
contemporaneously are declared and paid for all distribution
periods terminating on or prior to the date set for payment of
such distribution on the Parity Securities. When
distributions are not paid in full, as aforesaid, on the
Series F Units and any Parity Securities, all distributions
declared upon such Parity Securities shall be declared and
paid pro rata with the Series F Units so that the amounts of
distributions per unit declared and paid on the Series F Units
and such Parity Securities shall in all cases bear to each
other the same ratio that unpaid cumulative distributions per
unit on the Series F Units and on such Parity Securities bear
to each other, and shall in all cases be paid to the same
extent in cash, other assets and/or securities of the same
class as the securities on which the respective distributions
are being paid.
(iii) Unless full cumulative distributions
on all outstanding Series F Units have been paid (or
contemporaneously are declared and paid) in cash for all prior
distribution periods (1) no rental payments shall be made to
the Special General Partner pursuant to the Pipeline Lease
unless Varde has received the full amount in cash to which it
is entitled under Section 1.1(f) of the Restructuring
Agreement and (2) the Special General Partner shall not
declare or pay, or set apart for payment, any dividend or
distribution in respect of any of the outstanding securities
of the Special General Partner.
For purposes of this subsection (f), unless expressly
stated otherwise herein, "distribution" shall include, without
limitation, any distribution by the Company of cash, evidences of
indebtedness, securities or other properties or assets of the
Company, or of rights to purchase or otherwise acquire any of the
foregoing, whether or not made out of profits, surplus or other
funds of the Company legally available for the payment of
distributions.
(g) The holders of Series F Units will be allocated
an amount of gross income equal to the amount of preferred
distributions paid on the Series F Units prior to any allocation of
income to the holders of Junior Securities.
Section 4. Certain Covenants and Restrictions. So long as
any Series F Units are outstanding:
(a) The Company shall not (i) issue, reissue, agree
to issue or authorize the issuance of any Senior Securities or any
Parity Securities or any units or other securities or any options,
warrants, notes, bonds, debentures or other instruments convertible
into, exchangeable for or having rights to purchase any Senior
Securities or any Parity Securities or (ii) reclassify or modify
any Junior Security so that it becomes a Parity Security or Senior
Security.
(b) The Company shall not (i) pay any principal or
interest on, or redeem, purchase or otherwise acquire for any
consideration any Parity Securities or Junior Securities (or pay
any money to a sinking fund or otherwise set apart any money,
property or other consideration for the purchase or redemption of
any Parity Securities or Junior Securities) or (ii) pay, provide or
distribute to the holders of any Parity Securities or Junior
Securities, as such, any money, property, rights or other
consideration, except for distributions to holders of Parity
Securities permitted by Section 3(f)(ii) hereof.
(c) The Company shall not effect any split, reverse
split or any other subdivision or combination of the Common Units
or any other class or series of equity securities of the Company.
(d) Neither the Company nor the Managing General
Partner shall amend, alter or rescind (whether by merger,
consolidation or otherwise) any of the provisions of the
Partnership Agreement, this Certificate of Designations, the
Articles of Corporation, bylaws or other organizational document of
the Managing General Partner or any agreement entered into for the
benefit of holders of Series F Units in any manner so as to affect
adversely any of the preferences, rights or powers of the Series F
Units.
(e) The Company shall not and shall not permit any
of its Subsidiaries to, create, assume, incur, guarantee or
otherwise become or be liable in respect of, or maintain or
otherwise allow to exist, any Indebtedness, except for the
following:
(i) So long as the Credit Agreement is in
effect, the Indebtedness permitted and set forth in
Section 7.1 of the Credit Agreement;
(ii) If the Credit Agreement is no longer in
effect, the Indebtedness set forth in Section 6.6 of the
BankBoston Credit Agreement (whether or not the BankBoston
Credit Agreement shall then be in effect).
(f) The Company will not, and will not permit any
of its Subsidiaries to, sell, lease, convey, transfer, issue or
otherwise dispose of, in one transaction or in a series of
transactions, whether involving assets or securities, all or a
substantial portion of any Company Business, or any shares or
partnership interests in any Subsidiary (whether such interests are
now or hereafter issued, outstanding or created) except a sale for
fair consideration (as determined by the Board of Directors of the
Managing General Partner) to a purchaser who is not an Affiliate of
the Company, the Managing General Partner or the Special General
Partner, which consideration shall consist solely of cash which is
applied by the Company as provided in subsection (h) of this
Section 4. As used in this subsection, "Company Business" means the
operations and assets of one of the following three primary lines
of business as currently conducted by the Company and its
Subsidiaries on January 1, 1998: (i) crude oil gathering and
exchange, (ii) refining and (iii) transportation and marketing of
refinery products.
(g) All money, property or other consideration
received by the Company or any Subsidiary outside the ordinary
course of business, including but not limited to consideration for
or in connection with the sale, lease, transfer or other
disposition of any assets or properties of the Company (other than
the sale of goods and services in the ordinary course of business),
or any shares or partnership interests in any Subsidiary (whether
such interests are now or hereafter issued, outstanding or created)
but excluding consideration received in connection with (A) the
sale or disposition of any asset of the Company which is sold for
fair consideration not in excess of $25,000 or in the aggregate not
in excess of $250,000 (provided that to the extent consideration
from any such excluded sale or disposition is applied by the
Company in accordance with this Section 4(g), the amount of such
consideration shall not be counted under the $250,000 aggregate
limitation) and (B) except as otherwise provided in the
Restructuring Agreement, Litigation Settlements or Equity
Offerings, shall be applied (or converted into cash and then
applied, if applicable) by the Company (i) first, to the payment of
all amounts outstanding and due under the Credit Agreement and the
BankBoston Credit Agreement; (ii) next, to the payment of all
amounts outstanding and due under the Series A Unsecured Note;
(iii) then, to the redemption of the outstanding Series B Units and
Series C Units in accordance with their respective Certificate of
Designations; (iv) then, to the redemption of the outstanding
Series D Units in accordance with its Certificate of Designations;
(v) then, to the redemption of the outstanding Series E Units and
Series F Units in accordance with Section 6 hereof and their
respective Certificates of Designation; provided, that funds
applied to the redemption of the Series B Units, the Series C
Units, Series D Units, the Series E Units and the Series F Units as
provided in clauses (iii), (iv) and (v) shall be so applied with
respect to the initial Stated Value of the Units being redeemed and
any portion of the Redemption Price of such Units attributable to
adjustments to Stated Value shall be paid out of other funds of the
Company.
(h) Except as otherwise provided in the
Restructuring Agreement, all consideration received by the Company
or any Subsidiary in connection with the resolution (by judgment or
otherwise) or settlement of any judicial, administrative or
arbitral proceeding ("Litigation Settlements") shall be applied (or
converted into cash and then applied, if applicable) by the Company
(i) first, to the payment of all amounts outstanding and due under
the Credit Agreement and the BankBoston Credit Agreement;
(ii) next, to the payment of all amounts outstanding and due under
the Series A Unsecured Note; (iii) then, to the redemption of the
outstanding Series B Units and Series C Units in accordance with
their respective Certificate of Designations; (iv) then, to the
redemption of the outstanding Series D Units in accordance with its
Certificate of Designations; and (v) then, to the redemption of the
outstanding Series E Units and Series F Units in accordance with
Section 6 hereof and their respective Certificates of Designation;
provided, that funds applied to the redemption of the Series B
Units, the Series C Units, Series D Units, the Series E Units and
the Series F Units as provided in clauses (iii), (iv) and (v) shall
be so applied with respect to the initial Stated Value of the Units
being redeemed and any portion of the Redemption Price of such
Units attributable to adjustments to Stated Value shall be paid out
of other funds of the Company.
(i) Except as provided in the next succeeding
sentence, all proceeds of public or private offerings of equity
securities by the Company ("Equity Offerings") shall consist of
cash and shall be applied (i) first, to the payment of all amounts
outstanding and due under the Credit Agreement and the BankBoston
Credit Agreement; (ii) next, to the payment of all amounts
outstanding and due under the Series A Unsecured Note; (iii) then,
to the redemption of the outstanding Series B Units and Series C
Units in accordance with their respective Certificate of
Designations; (iv) then, to the redemption of the outstanding
Series D Units in accordance with its Certificate of Designations;
and (v) then, to the redemption of the outstanding Series E Units
and Series F Units in accordance with Section 6 hereof and their
respective Certificates of Designation; provided, that funds
applied to the redemption of the Series B Units, the Series C
Units, Series D Units, the Series E Units and the Series F Units as
provided in clauses (iii), (iv) and (v) shall be so applied with
respect to the initial Stated Value of the Units being redeemed and
any portion of the Redemption Price of such Units attributable to
adjustments to Stated Value shall be paid out of other funds of the
Company The Company may use up to $4.5 million, in the aggregate,
of proceeds of Equity Offerings for capital expenditures in excess
of normal maintenance capital expenditures if, out of every dollar
so applied, no more than 60% is applied to such excess capital
expenditures and at least 40% is applied in the manner provided in
clauses (i), (ii), (iii) and (iv) of this Section 4(i).
(j) [intentionally omitted]
(k) The Company shall not cause or permit the
Pipeline Lease or any other agreement between the Company and any
Affiliate of the Company to be amended, supplemented, replaced or
modified in any manner that would increase the payments required to
be made by the Company thereunder or the costs of compliance by the
Company therewith.
(l) The Company shall deliver to each holder of
Series F Units one (1) copy of each of the following:
1. Monthly Statements. As soon as available,
and in any event within 30 days after the end of each calendar
month, copies of the consolidated balance sheet of the Company
as of the end of such month, and statements of income and
retained earnings and changes in financial position and cash
flows of the Company for that month and for the portion of the
fiscal year ending with such period, in each case setting
forth in comparative form the figures for the corresponding
period of the preceding fiscal year. Such statements shall be
in reasonable detail, with a certificate of the chief
financial officer of the Managing General Partner certifying
that such statements are true and correct in all material
respects to the best of his knowledge and prepared in
accordance with generally accepted accounting principles
("GAAP"), consistently maintained and applied, subject to
year-end audit adjustments.
2. Annual Statements. As soon as
available after each fiscal year end, and in any event within 90
days thereafter, copies of the consolidated balance sheet of the
Company as of the close of such fiscal year and statements of
income and retained earnings and cash flows of the Company for
such fiscal year, in each case setting forth in comparative
form the figures for the preceding fiscal year, all in
reasonable detail and accompanied by an opinion thereon (which
shall be without a "going concern" or like qualification or
exception) of Ernst & Young or of other independent public
accountants of recognized national standing selected by the
Company and satisfactory to the holders of Series F Units
representing 51% or more of the aggregate Stated Value of the
outstanding Series F Units, to the effect that such
consolidated financial statements have been prepared in
accordance with GAAP consistently maintained and applied
(except for changes in which such accountants concur) and that
the examination of such accounts in connection with such
financial statements has been made in accordance with
generally accepted auditing standards and, accordingly,
includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the
circumstances.
(iii) SEC and Other Reports. Promptly upon
its becoming available, one copy of each financial statement,
report, notice or proxy statement sent by the Company to
equity owners generally and of each regular or periodic
report, registration statement or prospectus filed by the
Company with any securities exchange or the Securities and
Exchange Commission or any successor agency, and of any order
issued by any court or governmental authority in any
proceeding to which the Company is a party.
(iv) Other Information. Such other information
concerning the business, properties or financial condition of
the Company as the holders of Series F Units representing 51%
or more of the aggregate Stated Value of the outstanding
Series F Units shall reasonably request.
For purposes of this Section 4, "proceeds" means gross
amounts received without deduction of any related costs or
expenses, offset of any related losses or other reduction of any
kind, except that "proceeds" of Equity Offerings means gross sales
price less reasonable discounts and commissions of underwriters or
placement agents. Any noncash proceeds or other noncash assets
received by the Company and that are subject to the provisions of
subsection (h) or (i) of this Section 4 shall be converted to cash
by the Company as soon as practicable and applied as provided in
the applicable subsection, and shall not be sold, transferred or
otherwise disposed of by the Company other than for such purpose.
Notwithstanding the foregoing, the Company may allow any promissory
note or similar instrument that is subject to subsection (h) or (i)
of this Section 4 to remain outstanding in accordance with its
terms, provided that all payments received by the Company
thereunder, and the proceed of any sale, transfer or other
disposition thereof, shall be applied as provided in the applicable
subsection of this Section 4.
Compliance by the Company with any covenant contained in
this Section 4 may be waived in writing by the holders of Series F
Units representing 51% or more of the aggregate Stated Value of the
outstanding Series F Units. No such waiver shall be deemed to be
a continuing waiver nor a waiver with respect to any other covenant
of the Company or any other term, condition or provision hereof.
Section 5. Liquidation Preference. (a) In the event of
any liquidation, dissolution or winding up of the Company (in
connection with the bankruptcy or insolvency of the Company or
otherwise), whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or
surplus) shall be made to or set apart for the holders of Common
Units or any other class or series of Junior Securities, the holder
of each Series F Unit shall be entitled to receive in cash an
amount equal to the Stated Value per Unit plus an amount equal to
the aggregate dollar amount of all unpaid preferred distributions
through the date of final distribution to such holders (including
a prorated distribution from the most recent Distribution Payment
Date to such date of final distribution). No payment on account of
any such liquidation, dissolution or winding up of the Company
shall be made to the holders of any class or series of Parity
Securities unless there shall be paid at the same time to the
holders of the Series F Units proportionate amounts in cash
determined ratably in proportion to the full amounts to which the
holders of all outstanding Series F Units and the holders of all
such outstanding Parity Securities are respectively entitled with
respect to such distribution. Subject to the rights of the holders
of any class or series of Parity Securities or Senior Securities,
for purposes of this Section 5, neither a consolidation or merger
of the Company with one or more partnerships, corporations or other
entities nor a sale, lease, exchange or transfer of all or any part
of the Company's assets for cash, securities or other property
shall be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary if the surviving entity in any such
consolidation, merger, sale, lease, exchange or transfer assumes in
writing all the Company's obligations under this Certificate of
Designations, the Amended and Restated Registration Rights
Agreement, dated as of December 30, 1997, by and between the
Company and Varde and the Pride SGP Equity Conversion Agreement,
and the Warrants to Purchase Common Units, issued by the Company to
each holder of Series B Units or Series C Units.
(b) Subject to the rights of the holders of any
class or series of Parity Securities or Senior Securities, upon any
liquidation, dissolution or winding up of the Company, after
payment shall have been made in full to the holders of Series E
Units, as provided in this Section 5, any class or series of Junior
Securities shall, subject to the respective terms and provisions
(if any) applicable thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of
Series F Units shall not be entitled to share therein.
(c) At least 30 days prior to written notice of the
commencement of any proceeding for or that may result in any
liquidation, dissolution or winding up of the Company shall be
given to holders of Series F Units, but neither the giving of such
notice nor anything in this Section 5 or any other provision hereof
shall relieve the Company of its obligation to obtain consent from
holders of Units as provided in Section 9.
Section 6. Optional and Mandatory Redemption. (a) The
Company may, at the option of the Managing General Partner, redeem for
cash at any time after the Retirement Date, from any source of funds
legally available therefor, in whole or in part, in the manner
provided below any and all of the outstanding Series F Units at a
redemption price per Unit (the "Redemption Price") equal to the
Stated Value per Unit redeemed plus an amount in cash equal to the
aggregate dollar amount of all unpaid preferred distributions
through the Redemption Date (including a prorated distribution from
the most recent Distribution Payment Date to the Redemption Date)
that have not been added to the Stated Value of such Units.
"Redemption Date" means the date fixed by the Managing General
Partner for redemption. "Retirement Date" means the date on which
the Series A Term Loan, the Series B Term Loans, the Series C Term
Loan and the Series A Unsecured Note (each as defined in the Credit
Agreement) are repaid in full.
(b) The Company shall, at the Redemption Price and
in the manner provided in this Section 6, redeem for cash from any
source of funds legally available therefor, all Series E Units
outstanding on the first to occur of:
(i) 180 days after the Maturity Date, as
defined in the Credit Agreement;
(ii) the date that is 30 days after any default
(a "Cross-Default") by the Company in its obligations to make
payments under or with respect to any Indebtedness with an
outstanding principal amount in excess of $500,000; provided,
however, that the Company need not effect such mandatory
redemption because of a Cross-Default if such Cross-Default is
cured prior to the end of such 30-day period to the
satisfaction of the holders of Series F Units representing 51%
or more of the aggregate Stated Value of the then outstanding
Series F Units or the right to require the Company to effect
such redemption is waived in writing by the holders of 51% or
more in Stated Value (as adjusted, if applicable) of the
Series F Units; no such waiver shall be deemed to be a
continuing waiver nor a waiver with respect to any other or
subsequent Cross-Default;
(iii) the date that is 30 days after any
failure by the Company to pay in full in cash on any
Distribution Payment Date any distribution payable only in
cash on such Distribution Payment Date; or
(iv) the date that is 30 days after any default
or failure of compliance by the Company with any covenant or
restriction contained in Section 3(f) or Section 4 hereof,
unless such default or failure of compliance is cured prior to
the end of such 30-day period to the satisfaction of the
holders of Series F Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series F Units;
or
(v) the Business Day immediately preceding any
Change in Control of the Company. For this purpose, a "Change
in Control" means (1) a change in the direct or indirect power
to direct or cause the direction of the management and
policies of the Company, the Managing General Partner or the
Special General Partner, whether through the ownership of
voting securities, by contract or otherwise, or to elect a
majority of any of such entities' Boards of Directors or
equivalent governing bodies; (2) any reorganization,
reclassification or change in any outstanding securities of
the Company; (3) the Company's consolidation or merger with or
into another partnership, corporation or other entity; (4) the
sale, lease or other transfer of the property of the Company
as an entirety or substantially as an entirety; (5) the
termination of the SGP Guarantee or of the pledge of all of
the Special General Partner's assets securing its obligations
thereunder, or any event or circumstance as a result of which
the SGP Guarantee or such pledge shall no longer be in full
force and effect; or (6) the redemption, purchase or other
acquisition by the Special General Partner for any
consideration any of the Special General Partner's outstanding
securities (or the payment of any money to a sinking fund or
the setting apart of any money, property or other
consideration for the purchase or redemption of any such
securities) or the payment, provision or distribution to the
holders of any of its outstanding securities, as such, any
money, property, rights or other consideration, other than
ordinary pro rata dividends to all holders of a class of such
outstanding securities; provided, however, that in the case of
clause (2), (3) or (4) of this sentence, any reorganization,
reclassification, change, consolidation, merger, sale or
transfer that has been approved by the holders of Series F
Units representing 51% or more of the aggregate Stated Value
of the then outstanding Series F Units in accordance with
Section 9(b) shall not constitute a Change in Control.
The Managing General Partner shall cause the Redemption
Notice (as defined below) to be mailed sufficiently in advance of
the dates or events specified in this subsection (b) to permit the
redemption to occur on such dates.
If there are insufficient legally available funds for
redemption under this subsection (b), the Company shall redeem such
lesser number of Series F Units (on a pro rata basis from all
holders of Series F Units, in proportion to the number of Units
held), to the extent there are funds legally available therefor,
and shall redeem all or part of the remainder of the Series F Units
as soon as the Company has sufficient funds that are legally
available therefor. If the redemption is delayed because of
insufficient legally available funds, distributions shall continue
to accrue on Series F Units outstanding, and shall be added to and
become a part of the Redemption Price of such Units, until the
Redemption Price, as so adjusted, for such Units is paid in full.
(c) The Company also shall, at the Redemption Price
and in the manner provided in this Section 6, redeem Series F Units
using the funds received from the sources described in Section
4(g), (h) and (i), to the extent provided therein, promptly after
the Company's receipt of such funds.
(d) In connection with any optional or mandatory
redemption of Series F Units, at least 20 days and not more than 60
days prior to the Redemption Date, written notice (the "Redemption
Notice") shall be sent simultaneously by certified mail, return
receipt requested, and by telecopy to each holder of record of the
Series F Units at the post office address last shown on the records
of the Company for such holder. The Redemption Notice shall state:
(i) whether all or less than all the
outstanding Series F Units are to be redeemed and the total
number of Series F Units being redeemed;
(ii) the number of Series F Units held by the
holder that the Company intends to redeem;
(iii) the Redemption Date and the
Redemption Price;
(iv) that the holder is to surrender to the
Company, in the manner and at the place designated, the
certificate or certificates representing the Series F Units to
be redeemed; and
(v) that an Escrow Account as described in the
following paragraph has been established at a bank specified
in the Redemption Notice.
Notwithstanding the foregoing, a Redemption Notice relating to a
mandatory redemption required by paragraph (ii), (iii) or (iv) of
subsection (b) of this Section 6 shall be mailed at least 15 days
and not more than 30 days prior to the mandatory Redemption Date.
Not later than the date on which a Redemption Notice is
mailed by the Company, the Company shall deposit in an escrow
account (the "Escrow Account") for the pro rata benefit of the
holders of the Series F Units to be redeemed the funds necessary
for such redemption with a bank or trust company having capital and
surplus of at least $500 million and approved in writing by the
holders of Series F Units representing 51% or more of the aggregate
Stated Value of the then outstanding Series F Units (the "Escrow
Agent"). Any such funds that are unclaimed at the end of two years
after the applicable Redemption Date shall revert to the general
funds of the Company and, upon such reversion, the Escrow Agent
shall, upon demand, pay such funds over to the Company and be
relieved of all responsibility in respect thereof and any holder of
Series F Units entitled to receive any of such funds shall
thereafter look only to the Company for the payment of the
Redemption Price. Any interest on funds included in the Escrow
Account shall be for the account of the Company. The failure to
establish the Escrow Account by the date specified in this
paragraph shall cause the Redemption Notice that required such
Escrow Account to have been established to be ineffective, and the
Company shall not have any right to redeem any Series F Units
pursuant to such Redemption Notice. Such failure shall not relieve
the Company of any obligation to effect a mandatory redemption of
Series F Units.
On or before the Redemption Date each holder of Series F
Units shall surrender to the Company the certificate or
certificates representing such Series F Units to be redeemed, in
the manner and at the place designated in the Redemption Notice,
and thereupon the Redemption Price for such Series F Units shall be
payable in cash on the Redemption Date to the Person whose name
appears on such certificate or certificates as the owner thereof,
and each surrendered certificate shall be canceled and retired. In
the event that less than all Series F Units represented by any such
certificate are redeemed, a new certificate shall be issued
representing the unredeemed Series F Units.
In the event of a redemption of only a portion of the
then outstanding Series F Units, the Company shall effect such
redemption pro rata according to the number of Series F Units held
by each holder.
Unless the Company defaults in the payment in full of the
Redemption Price, distributions on the Series F Units called for
redemption shall cease to accumulate on the Redemption Date, and
the holders of such Units redeemed shall cease to have any further
rights with respect thereto on the Redemption Date, other than to
receive the Redemption Price without interest.
Section 7. Prohibitions on Issuance. All Series F Units
repurchased, redeemed or otherwise acquired by the Company shall be
retired and canceled and shall not be reissued. No authorized but
unissued Units shall be issued other than as distributions in kind
to the existing holders of Series F Units in accordance with
Section 3 hereof.
Section 8. Ranking. (a) The following equity securities
of the Company shall rank senior to the Series F Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series F Units
pursuant hereto: the Series B Units, the Series C Units and the
Series D Units. The Company shall not issue any debt security
(except as permitted by Section 4(e)).
(b) Series E Units of the Company shall rank on a
parity with the Series F Units with respect to the payments
required or permitted to be made to the holders thereof pursuant to
their respective governing instruments and the payments required to
be made to holders of the Series F Units pursuant hereto.
(c) Without limiting the definition of "Junior
Securities" contained in Section 2, the following equity securities
of the Company shall rank junior to the Series F Units with respect
to the payments required or permitted to be made to the holders
thereof pursuant to their respective governing instruments and the
payments required to be made to holders of the Series F Units
pursuant hereto: the Common Units.
Section 9. Voting. (a) So long as any Series F Units
remain outstanding, the Company will not, without the affirmative
vote at a meeting, or by written consent with or without a meeting,
of the holders of Series F Units representing two-thirds or more of
the aggregate Stated Value of the then outstanding Series F Units,
(i) create, authorize, issue or reissue any class or series of
Senior Securities, or any units of any such class or series, or
(ii) amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series F Units that prescribe
the terms and conditions of the Series F Units; provided, however,
that any proposed amendment, alteration or rescission of any
provision of the Partnership Agreement or of the Certificate of
Designations of the Series F Units, as contemplated by clause (ii)
of this sentence, shall require the approval of the holders of
Series F Units representing two-thirds or more of the aggregate
Stated Value of the then outstanding Series F Units.
(b) So long as any Series F Units remain
outstanding, the Company will not, without the affirmative vote at
a meeting, or by written consent with or without a meeting, of the
holders of the Series F Units representing 51% or more of the
aggregate Stated Value of the then outstanding Series F Units, (i)
create, authorize, issue or reissue any class or series of Parity
Securities, or any units of any such class or series, including
without limitation any authorized but unissued Series F Units; (ii)
amend, alter or rescind (whether by merger, consolidation or
otherwise) any of the provisions of the Partnership Agreement, the
Certificate of Designations of the Series F Units that set forth
the restrictions and covenants of the Company (including without
limitation restrictions regarding capital expenditures, issuance of
Indebtedness and payment of distributions to holders of Parity
Securities or Junior Securities) that benefit or protect the rights
of holders of the Series F Units; (iii) commence any voluntary
proceeding (under bankruptcy, insolvency or similar laws or
otherwise) for or that may result in the liquidation, dissolution
or winding up of the Company, consent to the entry of an order for
relief in an involuntary proceeding under any federal or state
bankruptcy, insolvency or similar laws or to the appointment of a
receiver, liquidator, assignee, custodian, trustee or other similar
official of the Company or of any substantive part of its
properties, or make an assignment for the benefit of its creditors
or admit in writing its inability to pay its debts generally as
they become due; or (iv) reorganize, reclassify or change any
outstanding securities, consolidate or merge with or into another
partnership, corporation or other entity or sell or transfer the
property of the Company as an entirety or substantially as an
entirety.
(c) [intentionally omitted]
(d) [intentionally omitted]
(e) Except as expressly set forth herein or in the
Partnership Agreement or as required by applicable law, holders of
Series F Units shall not have any right to vote on any question
presented to the holders of voting securities of the Company.
Section 10. [intentionally omitted]
Section 11. [intentionally omitted]
Section 12. [intentionally omitted]
Section 13. Record Holders. The Company and the Transfer
Agent may deem and treat the record holder of any Units as the true
and lawful owner thereof for all purposes.
Section 14. Notices. Except as otherwise expressly
provided herein, all notices required or permitted to be given
hereunder shall be in writing, and all notices hereunder shall be
deemed to have been given upon the earlier of receipt of such
notice or three Business Days after the mailing of such notice if
sent by registered or certified mail, return receipt requested,
with postage prepaid, addressed: (a) if to the Company, to the
offices of the Managing General Partner at 1209 N. 4th, Abilene,
Texas 79601 (Attention: Brad Stephens), fax no. (915) 676-8792, or
other agent of the Company designated as permitted hereby; or (b)
if to any holder of the Series F Units, to such holder at the
address of such holder as listed in the record books of the Company
(which shall include the records of the Transfer Agent), or to such
other address as the Company or holder, as the case may be, shall
have designated by notice similarly given. As of the Initial
Issuance Date, Varde's address for notice is:
Varde Partners, Inc.
3600 West 80th Street
Suite 225
Minneapolis, Minnesota 55431
Attention: George Hicks
Tel: (612) 893-1554
Fax: (612) 893-9613
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Kenneth M. Schneider
Tel: (212) 373-3000
Fax: (212) 757-3990
Section 15. Successors and Transferees. The provisions
applicable to Series F Units shall bind and inure to the benefit of
and be enforceable by the Company, the respective successors to the
Company and by any holder of Series F Units.
IN WITNESS WHEREOF, this Certificate has been executed by
the Managing General Partner, on behalf of the Company, by its
Managing General Partner as of the 15th day of April, 1999
effective for all purposes on January 1, 1998.
PRIDE COMPANIES, L.P.
By: Pride Refining, Inc.,
its Managing General Partner
By: ________________________________
Name: Dave Caddell
Title: Vice President
<PAGE>
EXHIBIT 10.3
(11pt, right and left margins .75")
PURCHASE AND SALE AGREEMENT
BY AND AMONG
PRIDE COMPANIES, L.P.
AND
PRIDE SGP, INC.,
AS SELLERS
AND
SUN PIPE LINE SERVICES CO.,
AS BUYER
AUGUST 4, 1999
<PAGE>
TABLE OF CONTENTS
Page
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE 1 PURCHASE AND SALE OF ASSETS . . . . . . . . . . . . .1
1.1 Agreement to Purchase and Sell Assets. . . . . . . . .1
1.2 Assets . . . . . . . . . . . . . . . . . . . . . . . .2
1.3 Excluded Assets. . . . . . . . . . . . . . . . . . . .4
ARTICLE 2 PURCHASE PRICE; OTHER TRANSACTIONS . . . . . . . . . .5
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . .5
2.2 Post-Closing Adjustments to the Purchase Price . . . .5
2.3 Allocated Values . . . . . . . . . . . . . . . . . . .5
2.4 Assumption Agreement . . . . . . . . . . . . . . . . .6
2.5 Employment Matters . . . . . . . . . . . . . . . . . .6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . .8
3.1 Organization and Good Standing . . . . . . . . . . . .8
3.2 Conduct of Business. . . . . . . . . . . . . . . . . .9
3.3 Authorization of Agreement; No Violation; No Consents.9
3.4 Governmental Consents. . . . . . . . . . . . . . . . 10
3.5 Enforceability . . . . . . . . . . . . . . . . . . . 10
3.6 Brokers. . . . . . . . . . . . . . . . . . . . . . . 10
3.7 Suits. . . . . . . . . . . . . . . . . . . . . . . . 10
3.8 Permits. . . . . . . . . . . . . . . . . . . . . . . 10
3.9 Environmental Matters. . . . . . . . . . . . . . . . 11
3.10 Government Notices . . . . . . . . . . . . . . . . . 12
3.11 Payment of Taxes . . . . . . . . . . . . . . . . . . 12
3.12 Compliance with Contracts. . . . . . . . . . . . . . 13
3.13 Adverse Title Claims . . . . . . . . . . . . . . . . 13
3.14 Capital Expenditures . . . . . . . . . . . . . . . . 13
3.15 Supplemental Disclosure. . . . . . . . . . . . . . . 13
3.16 Compliance with Applicable Laws. . . . . . . . . . . 14
3.17 Employee Relations and Benefit Plans . . . . . . . . 14
3.18 Financial Statements. . . . . . . . . . . . . . . . .14
3.19 Capital Stock. . . . . . . . . . . . . . . . . . . . 15
3.20 Year 2000 Compliance . . . . . . . . . . . . . . . . 16
3.21 Material Compliance. . . . . . . . . . . . . . . . . 16
3.22 Volume of Certain Business . . . . . . . . . . . . . 16
3.23 Pride Borger . . . . . . . . . . . . . . . . . . . . 16
3.24 Diamond Shamrock Promissory Note. . . . . . . . . . 16
3.25 Survival of Representations and Warranties of Sellers16
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . 16
4.1 Organization and Good Standing . . . . . . . . . . . 17
4.2 Authorization of Agreement; No Violation; No Consents17
4.3 Governmental Consents. . . . . . . . . . . . . . . . 17
4.4 Enforceability . . . . . . . . . . . . . . . . . . . 17
4.5 Brokers. . . . . . . . . . . . . . . . . . . . . . . 17
4.6 Suits. . . . . . . . . . . . . . . . . . . . . . . . 18
4.7 Financing. . . . . . . . . . . . . . . . . . . . . . 18
4.8 Supplemental Disclosure. . . . . . . . . . . . . . . 18
4.9 Survival of Representations and Warranties of Buyer. 18
ARTICLE 5 COVENANTS OF SELLERS . . . . . . . . . . . . . . . . 18
5.1 General. . . . . . . . . . . . . . . . . . . . . . . 18
5.2 HSR Act. . . . . . . . . . . . . . . . . . . . . . . 18
5.3 Operations . . . . . . . . . . . . . . . . . . . . . 19
5.4 Restricted Activities. . . . . . . . . . . . . . . . 20
5.5 Noncompetition . . . . . . . . . . . . . . . . . . . 20
5.6 Injunctive Relief. . . . . . . . . . . . . . . . . . 21
5.7 Severability of Covenants. . . . . . . . . . . . . . 21
5.8 Independent Covenants. . . . . . . . . . . . . . . . 22
5.9 Materiality. . . . . . . . . . . . . . . . . . . . . 22
5.10 Access . . . . . . . . . . . . . . . . . . . . . . . 22
5.11 Payment of Pre-Closing Operating Expenses. . . . . . 22
5.12 Public Announcements . . . . . . . . . . . . . . . . 22
5.13 Exclusivity. . . . . . . . . . . . . . . . . . . . . 23
5.14 Cooperation and Obligation to Supplement Information 23
5.15 Review of Title and Consents . . . . . . . . . . . . 23
5.16 Assessment . . . . . . . . . . . . . . . . . . . . . 24
5.17 Tax. . . . . . . . . . . . . . . . . . . . . . . . . 26
5.18 Nonforeign Affidavit . . . . . . . . . . . . . . . . 27
ARTICLE 6 COVENANTS OF BUYER . . . . . . . . . . . . . . . . . 27
6.1 General. . . . . . . . . . . . . . . . . . . . . . . 27
6.2 Confidentiality. . . . . . . . . . . . . . . . . . . 27
6.3 HSR Act. . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 7 CONDITIONS TO OBLIGATIONS OF SELLERS . . . . . . . . 27
7.1 Representations. . . . . . . . . . . . . . . . . . . 27
7.2 HSR Act. . . . . . . . . . . . . . . . . . . . . . . 27
7.3 Performance. . . . . . . . . . . . . . . . . . . . . 28
7.4 Pending Matters. . . . . . . . . . . . . . . . . . . 28
7.5 Delivery . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 8 CONDITIONS TO OBLIGATIONS OF BUYER . . . . . . . . . 28
8.1 Representations. . . . . . . . . . . . . . . . . . . 28
8.2 HSR Act. . . . . . . . . . . . . . . . . . . . . . . 29
8.3 Performance. . . . . . . . . . . . . . . . . . . . . 29
8.4 Pending Matters. . . . . . . . . . . . . . . . . . . 29
8.5 Delivery . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE 9 CLOSING; ADJUSTMENTS TO PURCHASE PRICE . . . . . . . 30
9.1 Time and Place of Closing. . . . . . . . . . . . . . 30
9.2 Prorations . . . . . . . . . . . . . . . . . . . . . 30
9.3 Adjustments to the Purchase Price. . . . . . . . . . 31
9.4 Statement. . . . . . . . . . . . . . . . . . . . . . 32
9.5 Post-Closing Adjustments to the Purchase Price . . . 32
9.6 Allocation of Carrier Obligations and Proceeds . . . 33
9.7 Crude Oil Inventory. . . . . . . . . . . . . . . . . 33
ARTICLE 10 INDEMNITY . . . . . . . . . . . . . . . . . . . . . 34
10.1 General Indemnity. . . . . . . . . . . . . . . . . . 34
10.2 Release. . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 11 TAXES . . . . . . . . . . . . . . . . . . . . . . . 37
11.1 Allocation of Taxes. . . . . . . . . . . . . . . . . 37
11.2 Cooperation. . . . . . . . . . . . . . . . . . . . . 39
11.3 Certain Tax Sharing Agreements . . . . . . . . . . . 40
11.4 Relationship of Article 11 to Article 10 . . . . . . 40
ARTICLE 12 TERMINATION. . . . . . . . . . . . . . . . . . . . . 40
12.1 Termination At or Prior to Closing . . . . . . . . . 40
12.2 Effect of Termination. . . . . . . . . . . . . . . . 41
ARTICLE 13 OTHER AGREEMENTS OF THE PARTIES.. . . . . . . . . . 41
13.1 Pre-Closing Adjustments. . . . . . . . . . . . . . . 41
13.2 Risk of Loss . . . . . . . . . . . . . . . . . . . . 41
13.3 Records: Access and Retention. . . . . . . . . . . . 42
13.4 Names. . . . . . . . . . . . . . . . . . . . . . . . 43
13.5 Expenses . . . . . . . . . . . . . . . . . . . . . . 43
13.6 Independent Investigation. . . . . . . . . . . . . . 43
13.7 Disclaimer Regarding Assets. . . . . . . . . . . . . 43
13.8 Disclaimer Regarding Information . . . . . . . . . . 44
13.9 Waiver of Deceptive Trade Practices Acts . . . . . . 44
13.10 Transition Services. . . . . . . . . . . . . . . . 44
ARTICLE 14 OTHER PROVISIONS . . . . . . . . . . . . . . . . . 45
14.1 Applicable Law; Alternative Dispute Resolution . . . 45
14.2 No Third Party Beneficiaries . . . . . . . . . . . . 46
14.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . 46
14.4 Entire Agreement; Amendment. . . . . . . . . . . . . 46
14.5 Notices . . . . . . . . . . . . . . . . . . . . . . 47
14.6 No Assignment. . . . . . . . . . . . . . . . . . . . 47
14.7 Severability . . . . . . . . . . . . . . . . . . . . 48
14.8 Construction . . . . . . . . . . . . . . . . . . . . 48
14.9 Counterparts . . . . . . . . . . . . . . . . . . . . 48
14.10 Third-Party Consents to Assignment. . . . . . . . . 48
14.11 Further Assurances. . . . . . . . . . . . . . . . . 49
14.12 Execution and Delivery. . . . . . . . . . . . . . . 49
<PAGE>
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (the "Agreement"), dated August 4,
1999, is by and between Pride Companies, L.P., a Delaware limited
partnership ("Pride"), whose address is 1209 North 4th Street, Abilene,
Texas 79601, and Pride SGP, Inc., a Texas corporation ("Pride SGP"),
whose address is 1209 North 4th Street, Abilene, Texas 79601
(collectively, "Sellers") and Sun Pipe Line Services Co., a Delaware
corporation ("Buyer"), whose address is 1801 Market Street, Philadelphia,
Pennsylvania 19103. (References to "Buyer" herein may include Buyer's
parent, Affiliates, or subsidiaries.) Sellers collectively and Buyer
individually are sometimes referred to herein as a "Party" and Sellers
and Buyer collectively are sometimes referred to as the "Parties." All
capitalized terms used in this Agreement and the exhibits hereto (the
"Exhibits"), including both the singular and plural forms thereof, are
defined in Schedule 1.
RECITALS:
WHEREAS, Sellers are engaged in the purchasing, gathering,
transportation, storage and marketing of crude oil; and
WHEREAS, Sellers desire to sell, grant, transfer, convey, assign and
deliver to Buyer and Buyer desires to purchase and acquire from Sellers,
certain crude oil purchasing, gathering, marketing, storage and
transportation business, including all of the business and operations of
Pride Borger, Inc., a Delaware corporation ("Pride Borger"), whose
address is 1209 North 4th Street, Abilene, Texas 79601 (collectively,
the "Business") and related assets on the terms and subject to the
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises, representations, warranties, covenants, conditions and
agreements contained herein, the Parties intending to be legally bound
by the terms hereof, agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Agreement to Purchase and Sell Assets. On and subject to the
terms and conditions of this Agreement, Buyer agrees to buy from Sellers;
and Pride, and to the extent applicable, Pride SGP, agree to sell, grant,
deliver, transfer, assign and convey to Buyer, the Assets (as defined
below), effective as of October 1, 1999 (the "Closing Date").
1.2 Assets. Subject to Section 1.3, the term "Assets" shall mean
all of Sellers' right, title and interest (real, prescriptive or
otherwise) in and to:
(a) Pipeline Properties. The crude oil pipeline systems
which are commonly referred to as the Comyn System (including the major
trunk line segments and related pumping facilities now or previously
owned by Pride SGP, Inc. and which were acquired from SOCO Pipeline
Company and Scurlock Oil Company (the "SGP Assets")); the Tye to Refinery
line and the Refinery to Hawley line, all of which are described on
Schedule 1.2(a); the Texas Plains System (including the major trunk line
segments and related pumping facilities acquired from Scurlock Permian
and Diamond Shamrock), which are described on Schedule 1.2(a)(i); and an
additional approximately 300 miles of gathering lines, including, without
limitation, East Broadview, Carlsbad, and Keystone which are described
on Schedule 1.2(a)(ii); along with all main, trunk, gathering, lateral,
and feeder lines, together with all tanks, pumps, valves, meters,
regulators, and other associated structures, pipelines, equipment,
facilities and properties, whether real, personal or mixed, together with
all fixtures, accessions, additions, and attachments thereto, which are
used with the properties described on Schedules 1.2(a), 1.2(a)(i), and
1.2(a)(ii) for use in the gathering, storage and transportation of crude
oil (collectively, the "Pipeline Properties"), said Pipeline Properties
being depicted on a map described on Schedule 1.2(a)(iii);
(b) Equipment. The equipment, machinery, goods, vehicles,
trucks, truck spare parts, truck unloading stations, LACT/TACT units,
SCADA system, materials, and other personal property (including
inventories of tubular goods, supplies and tools, computer equipment and
spare parts, fixtures and improvements on the Pipeline Properties,
appurtenant thereto or used or obtained in connection with them, or with
the ownership, operation, use, possession, maintenance or occupancy of
the Pipeline Properties and the Business of Sellers (collectively, the
"Gathering Operations")), (collectively, the "Equipment"), which
Equipment is described on Schedule 1.2(b);
(c) Surface Contracts. All surface and subsurface
contracts, leases, easements, privileges, servitudes, permits or licenses
(including any railroad permits or licenses), rights of way, licenses,
whether written or unwritten, or other real property instruments or
agreements relating to the use or ownership of surface and subsurface
properties and structures thereon that are used or held for use in
connection with the Gathering Operations (collectively, the "Surface
Contracts"), which interests are described on Schedule 1.2(c);
(d) Real Property. The owned real property as listed on
Schedule 1.2(d), and all rights, easements, privileges, improvements and
appurtenances belonging, pertaining or relating to such real property
(collectively, the "Real Property");
(e) Contracts. To the extent assignable and subject to
Section 1.3(g), all contracts, commitments, agreements, and arrangements
of Sellers (other than insurance contracts held by or insuring Sellers)
that in any way relate to the Gathering Operations, together with (i) all
rights, privileges and benefits of Sellers thereunder arising on or after
the Closing Date; (ii) all rights of Sellers thereunder to audit the
records of any party thereto and to receive refunds of any nature
thereunder relating to periods on or after the Closing Date; (iii) all
claims of Sellers for take-or-pay or other similar payments arising on
or after the Closing Date not specifically excluded in Section 1.3(b)
below; (iv) all purchasing, gathering, storage, marketing and
transportation contracts and all other agreements relating to any of the
Gathering Operations, including, without limitation, all crude oil
purchase, sale, exchange, buy/sell and division order contracts; and (v)
to the extent assignable, all indemnity and other rights that Sellers
have received from the previous owners of the Assets, which contracts,
commitments, interests, agreements and arrangements are described on
Schedule 1.2(e) (collectively, the "Contracts"). Sellers further agree
to use commercially reasonable efforts to provide Buyer with such rights
under the Contracts. (last sentence intentionally omitted)
(f) Liability Insurance. Notwithstanding Section 1.2(e)
above, Buyer shall be entitled to become an additional insured under any
of Sellers' liability insurance policies in place on the Closing Date to
the extent those policies apply to incidents occurring prior to the
Closing Date and Sellers shall provide certificates to such effect at
Closing. Effective as of the Closing Date, Sellers shall assign all
claims and causes of action they have against insurance carriers
providing coverage for any Assumed Liabilities assumed by Buyer to the
extent such liabilities are assumed. Sellers shall provide Buyer access
to said insurance policies and endorsements on or before Closing, and
Buyer may make photocopies thereof as desired;
(g) Permits. To the extent assignable, all licenses,
permits, approvals, consents, privileges, certificates, and other
authorizations and other rights of Sellers granted by environmental
authorities, Governmental Authorities and private authorities and all
certificates of convenience or necessity, immunities, privileges, grants,
and other rights that relate to the Business (the "Permits"), which
Permits are described on Schedule 1.2(g);
(h) Records. Except as set forth in Section 1.3(g),
originals or photocopies of general corporate, financial and Tax records
of Pride Borger and Sellers' books, records, files, reports and similar
data, documents and materials that relate to the Pipeline Properties or
Gathering Operations, including without limitation, all drawings, title
records, operational records, technical records, processing records,
division orders (if applicable), measurement, tank strapping records,
network lease settlement reference and contract reference information,
plant property and right-of-way files, regulatory compliance files,
contract files, accounting files, and copies of computer spreadsheets
used for accounting and allocations;
(i) Pride Borger Stock. Notwithstanding Section 1.3, all
of the capital stock and all of the assets of Pride Borger;
(j) Crude Inventories. All of Sellers' inventory of crude
oil (including line fill) as of the Closing Date physically located in
the Assets (except line fill associated with the inactive gathering
systems) or relating to the Gathering Operations, which inventory shall
be determined in accordance with the Inventory and Close-Out Procedures
in Schedule 1.2(j); and
(k) Names. All of Sellers' rights in and to the names "Comyn
System" and "Texas Plains System" or any reasonable derivative thereof
and any logo, trade name, or trademark associated therewith.
1.3 Excluded Assets. Notwithstanding Sections 1.2(a)-(h) and
1.2(j)-(k), the Assets shall not include, and there are excepted, reserved
and excluded from the purchase and sale contemplated hereby, all assets,
rights and properties of Sellers and their Affiliates which are not
listed as Assets, including, without limitation, the following
(collectively, the "Excluded Assets"):
(a) subject to Section 9.2, all accounts receivable, notes
receivable, cash, and cash equivalents of Sellers with respect to the Assets
or Gathering Operations existing prior to the Closing Date, provided,
however, that Sellers agree to abide by all Applicable Laws in their efforts
to collect such accounts receivable and notes receivable, and that such
efforts will be consistent with Sellers' past practice and usual manner;
(b) all claims and causes of action of Sellers arising prior to
the Closing Date, provided, however, that Sellers agree to notify and
consult with Buyer regarding their intentions to seek recovery on any such
claim or cause of action prior to actually seeking or taking action to
effect such recovery;
(c) all general corporate, financial and tax (income and
franchise) records of Sellers (but not Pride Borger's), subject however to
Buyer's right of access under Section 5.10;
(d) all interest of Sellers in and to the names "Pride Companies,
Pride Borger, Pride Refining and Pride Pipeline" or any reasonable
derivative thereof and any logo, trade name, or trademark associated
therewith;
(e) all losses, carryovers, and rights or claims to receive
refunds with respect to any and all Taxes of Sellers (except Pride Borger)
of every nature and description, including interest payable with respect
thereto;
(f) Sellers' books, records, files, drawings, diagrams and
similar documents and materials, including those specifically identified on
Schedule 1.3(f), which (i) Sellers cannot legally
provide to Buyer without breaching confidentiality agreements with third
parties or (ii) which relate to the trade payables, royalty payables and
other liabilities retained by Seller;
(g) all of Sellers' royalty suspense accounts and all original
books and records (including lease files) relating thereto;
(h) all of Sellers' or Sellers' Affiliates' interest in their
Abilene Refinery and products storage and transportation business; and
(i) all assets, rights and properties deleted from the Assets
pursuant to this Agreement.
ARTICLE 2
PURCHASE PRICE; OTHER TRANSACTIONS
2.1 Purchase Price. Buyer agrees to pay Sellers a total amount of
Twenty-Six Million Dollars ($26,000,000) to be reduced by the outstanding
balance on the note (the "Diamond Shamrock Promissory Note") as of the
Closing Date in the approximate amount of $5,330,000 (the
"Purchase Price"). Buyer agrees to pay Sellers at Closing the Purchase
Price, as adjusted at Closing pursuant to Article 9, by means of a completed
wire-transfer of immediately available funds to an account designated by
Sellers.
2.2 Post-Closing Adjustments to the Purchase Price. The Purchase Price
shall be subject to a post-Closing adjustment in accordance with the
provisions of Article 9.
2.3 Allocated Values. Buyer and Sellers have agreed to allocate the
Purchase Price together with any assumed liabilities among the Assets for
federal income tax purposes pursuant to Section 1060 of the Internal Revenue
Code of 1986, as amended (the "Code"), in accordance with the allocation
Schedule attached hereto as Schedule 2.3. Schedule 2.3 will be adjusted by
Buyer and Sellers to the extent necessary to reflect any subsequent final
determination of the Purchase Price pursuant to Article 9. Sellers and
Buyer agree to execute any forms or other documentation to be filed with the
Internal Revenue Service which are consistent with the allocated Purchase
Price as set forth on Schedule 2.3, as adjusted. Sellers and Buyer each
agree that they and their Affiliates will not prepare any Tax Return or
report inconsistent with such agreed allocation, as adjusted.
2.4 Assumption Agreement. At the Closing, Buyer will enter into an
Assumption Agreement in the form of Exhibit A hereto pursuant to which Buyer
agrees to assume and be responsible for the Assumed Liabilities occurring
prior to the Closing.
2.5 Employment Matters.
(a) Employment. As soon as reasonably practicable after the date
hereof, and in any event within ten (10) days after the date hereof, Sellers
shall provide Buyer with a list of employees of Sellers that Sellers desire
to retain after the Closing Date ("Retained Employees").
Simultaneously, Sellers shall provide Buyer with a list of employees of
Sellers that Sellers do not intend to retain after the Closing Date (the
"Non-Retained Employees"). The list of Non-Retained Employees shall include
all employees of Sellers that are not on the list of Retained Employees.
During the period beginning ten (10) days after the date hereof, and ending
five (5) days prior to Closing, Sellers shall provide Buyer the opportunity
to review the employment records of the Business and meet with all of the
employees on the list of Non-Retained Employees, as requested by Buyer, to
obtain information needed to address transitional issues, including the
hiring of the Non-Retained Employees selected by Buyer. Buyer shall have
access to the Non-Retained Employees and their employment records during
normal business hours, and shall not unreasonably interfere with the
operation of Sellers' business. No more than thirty (30) days, but in any
event at least five (5) days prior to the Closing Date, Buyer shall provide
Sellers with a list of those employees from the list of Non-Retained
Employees that Buyer intends to employ after the Closing Date (the "Intended
Hired Employees"). Sellers' employees on the list of Non-Retained Employees
that are not included on the list of Intended Hired Employees, and employees
on the list of Intended Hired Employees who do not become employees of Buyer
in connection with the consummation of the transactions contemplated herein,
shall be referred to herein as "Excluded Employees". During the period from
the date hereof to the Closing Date, Sellers shall use their best efforts to
retain the services of their present officers and employees except, with
notice to Buyer, in instances in which Sellers reasonably believe that the
termination of any officer or employee is in the best interest of
Sellers or a termination for cause, and Sellers will maintain good employee
relationships consistent with past practices and comply with the terms of
applicable contracts in existence on the date hereof. On the Closing Date,
Sellers shall terminate all of the Non-Retained Employees and Buyer shall
hire all of the Intended Hired Employees who accept Buyer's offer of
employment (the "Hired Employees"). Sellers shall retain all liability for
any liability, claim or obligation relating to or arising out of the
employment by Sellers, or terminating of employment by Sellers, of Sellers'
employees, including, without limiting the foregoing, all claims for
workers' compensation, breach of express or implied employment contracts,
wrongful discharge, benefits under employee benefit or disability plans, or
violations of any federal, state or local laws prohibiting employment
discrimination. Sellers shall be responsible for any continuation group
health coverage required under Section 4980B of the Code or Sections 601
through 608 of ERISA with respect to all such employees.
(b) WARN ACT. Sellers shall be responsible for complying with
all requirements of the WARN Act, and any similar state or local statute,
applicable to Sellers and their business prior to the Closing Date.
(c) Severance. Buyer shall be under no obligation to provide
severance pay or any other termination benefit with respect to the
termination by Sellers of any Non-Retained Employees. Subject to Section
2.5(d)(ii), Sellers shall be responsible for severance benefits as specified
in Sellers' Employees Handbook related to the termination of the Excluded
Employees; provided, however, that Buyer shall reimburse Sellers for the
cost of any severance payment provided to any Excluded Employee if Buyer or
any of its Affiliates hires such Excluded Employee within six (6) months of
the Closing Date. If Buyer terminates any of the Hired Employees within
six (6) months after the Closing Date (the "Transition Period"), other than
for just cause, Buyer shall provide, or cause to be provided, if they have
not already received severance benefits from Sellers, severance benefits to
such terminated employees equal to those that would have been provided
pursuant to Sellers' Employee Handbook (as in effect on
June 1, 1999), to the Excluded Employees by Sellers; provided however, that
Sellers shall reimburse Buyer for the costs of such severance benefits if
Sellers or any of their Affiliates hire any such Hired Employee within six
(6) months of the end of the Transition Period.
(d) Benefits Following Closing.
(i) Sellers shall retain liability for all claims, costs,
expenses, liabilities and other obligations related to Hired Employees in
which damages or other remedies are sought based on incidents or events
occurring or arising prior to the Closing Date.
(ii) If any accruals for employee benefits or compensation
are included as current liabilities in the Financial Statements (such as
for Sellers' 401(k) and profit sharing plans and for bonuses under FAS 106),
Sellers shall, on and after the Closing Date, provide its employees
and former employees with such benefits or compensation to the full extent
of, on a basis consistent with, and for the same time period represented by
such accrual. In any event, Sellers shall pay to former employees of
Sellers (including Excluded Employees and Hired Employees) all benefits to
which they are entitled under Sellers' existing benefit plans to the extent
such benefits are funded under such benefit plans as of the Closing Date or
otherwise covered by insurance arrangements. Notwithstanding the foregoing,
Sellers shall be responsible for any claims incurred by a Non-Retained
Employee or his or her covered dependents under Sellers' medical insurance,
life insurance and all other welfare plans prior to the date of hire by
Buyer in accordance with the terms of Sellers' plans, and for all disability
benefits and worker's compensation payable to any Non-Retained Employee as
a result of events occurring prior to the Closing Date.
(iii) This Section 2.5 shall not require any acceleration
of benefits not otherwise required by the terms of any applicable benefit
plans.
(e) Vacation. Sellers shall retain all liabilities for unpaid,
accrued vacation of Non-Retained Employees as of the Closing Date. At the
time of termination of employment of the Non-Retained Employees, Sellers
shall pay to each Non-Retained Employee the unpaid, accrued vacation to
which such Non-Retained Employee is entitled as of the Closing Date. Except
as may be provided in Buyer's collective bargaining or Employee Association
Agreements with respect to Hourly Employees, service with both Sellers and
Buyer shall be taken into account in determining Hired Employees' vacation
under Buyer's Mid-Career Hires Vacation Guidelines. Buyer shall not
take into account service with Sellers of the Hired Employees for any other
purpose.
(f) Cooperation; Employment Records. The Parties agree to
furnish each other with such information concerning employees, and to take
such other action as is necessary and appropriate to effect the transactions
contemplated by this Section 2.5. At Closing, or as soon as possible
thereafter, Sellers will provide Buyer a list of Hired Employees who have
taken leave under the Family and Medical Leave Act within 12 months prior to
the Closing Date, including the type and length of such leave.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Pride, and to the extent applicable, Pride SGP, represent and warrant
to Buyer as of the date of this Agreement and, subject to the provisions of
Sections 3.15 and 3.25, as of the Closing, that:
3.1 Organization and Good Standing. Pride is a limited partnership
validly existing and in good standing under the Applicable Laws of the State
of Delaware, and in each state in which it conducts business, with full
partnership power, right and authority to own and lease the properties
and assets it currently owns and leases and to carry on its business as such
business is currently being conducted. Pride's federal tax identification
number is 75-2313597. Pride SGP is a corporation duly organized, validly
existing, and in good standing under the Applicable Laws of the State of
Texas and in each state in which it conducts business with full corporate
power, right, and authority to own and lease the properties and assets it
currently owns and leases and to carry on its business, as such business is
currently being conducted. Pride SGP's federal tax identification number is
75-1768862. Pride Borger is a corporation duly organized, validly existing,
and in good standing under the Applicable Laws of the State of Delaware, and
in each state in which it conducts business, with full corporate power,
right, and authority to own and lease the properties and assets it currently
owns and leases and to carry on its business as such business is currently
being conducted. Pride Borger's federal tax identification number is
75-1468070.
3.2 Conduct of Business. The Assets identified in Section 1.2
constitute all of the assets owned by Sellers and required for the operation
of the Business as currently conducted by Sellers,
other than the Excluded Assets.
3.3 Authorization of Agreement; No Violation; No Consents. This
Agreement has been duly executed and delivered by Sellers. Pride has the
full partnership power and authority to enter into this Agreement, to make
the representations, warranties, covenants, and agreements made herein
and to consummate the transactions contemplated hereby. The execution,
delivery, and performance of this Agreement, and the consummation of the
transactions contemplated hereby have been duly and validly authorized by
all requisite partnership action on the part of Sellers. Neither the
execution and delivery of this Agreement by Sellers nor the consummation by
Sellers of the transactions contemplated hereby (a) will conflict with,
result in a breach, default or violation of, or require consent of any third
party under (i) the terms, provisions or conditions of the Partnership
Agreement of Pride or any contract, agreement, instrument or restriction of
any kind to which Sellers are a party or by which Sellers are bound or to
which any of the Assets are subject or (ii) to the knowledge of Sellers, any
judgment, decree, or order or any governmental permit, certificate, license,
Applicable Law, statute, rule or regulation or any judgment, decree, or
order to which Sellers are a party or is subject, or to
which any of the Assets are subject, except for (A) consents and approvals
from Governmental Authorities that are customarily obtained after closing in
connection with a sale of properties, and for those permits or licenses for
street, road, canal, river, drainage, or other public or governmental
right-of-way for any pipeline crossing or passageway, (B) any conflict,
breach, default, violation, or consent that would not have, individually or
in the aggregate, a Material Adverse Effect, and (C) any applicable
requirement under the HSR Act, or (b) will result in the
creation of any lien, charge, or other encumbrance on any of the Assets.
For purposes of this Agreement, unless specifically set forth herein to
the contrary, the terms "knowledge," "known," or any similar term, as
applied to Sellers, Pride Borger or Buyer, shall mean the actual knowledge
of Sellers', Pride Borger's or Buyer's executive officers, respectively;
provided, however, that prior to the Closing, Sellers shall make inquiry of
and seek to obtain certificates from the employees identified on such
Schedule 3.3 with respect to the accuracy of Sellers' representations and
warranties herein.
3.4 Governmental Consents. To the knowledge of Sellers, no consent,
action, approval or authorization of, or registration, declaration or filing
with, any Governmental Entity is required to authorize, or is otherwise
required in connection with, the execution and delivery of this
Agreement by Sellers, or Sellers' performance of the terms of this
Agreement, or the validity or enforceability hereof against Sellers, except
for consents referenced in Sections 3.3 and 14.10, and except where the
failure to give notice to file or to obtain any authorization, consent or
approval would not have a Material Adverse Effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement.
3.5 Enforceability. This Agreement constitutes the legal, valid, and
binding obligation of Sellers enforceable against Sellers in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, and other similar Applicable Laws affecting creditors' rights
generally and general principles of equity.
3.6 Brokers. Simmons & Company International has acted as broker or
finder for or on behalf of Sellers and their Affiliates in connection with
this Agreement or the transactions contemplated by this Agreement, and no
other broker or finder has acted in such capacity. No broker or finder is
entitled to any brokerage or finder's fee, or to any commission, based in
any way on agreements, arrangements or understandings made on behalf of
Sellers or any Affiliate of Sellers for which Buyer has or will have any
liability or obligation (contingent or otherwise).
3.7 Suits. Except as set forth on Schedule 3.7, there are no Suits
pending or, to the knowledge of Sellers, threatened involving the Assets,
the Business, or the employees of the Business which could have a Material
Adverse Effect on Buyer's ownership of, use of or title to the Assets,
either known by, or upon which service has been effected on, Seller.
3.8 Permits. To the knowledge of Sellers, Sellers possess all
governmental licenses, permits, and certificates necessary for the operation
of the Business and the Assets, except to the extent that the failure to
possess such governmental licenses, permits, and certificates would not have
a Material Adverse Effect. Nothing in this Section 3.8 shall be deemed or
construed to constitute a representation or warranty with respect to
Environmental Laws which are covered exclusively by Section 3.9 and Article
10, respectively.
3.9 Environmental Matters. (a) Except as set forth on Schedule
3.9(a), and to the knowledge of Sellers, no Violation of Environmental Laws
exists with respect to the Business or any of the Assets, which Violation of
Environmental Laws would have a Material Adverse Effect.
(b) To the knowledge of Sellers and except as set forth on
Schedule 3.9(b), or as would not result in a Material Adverse Effect:
(i) There has been no spill, release, threatened release,
discharge or disposal of Hazardous Substances that has occurred or which is
presently occurring on, from, under or onto any Assets or from any adjacent
properties.
(ii) There has been no undisclosed spill, release, threatened
release, discharge or disposal of Hazardous Substances that has occurred or
which is presently occurring (i) on tracts neighboring and/or occupied by
any Assets or (ii) from any real property owned by Sellers as a result of
any construction on or operation or use of any Assets.
(iii) Except as set forth on Schedule 3.9(c), there are
no presently existing or threatened environmental claims.
(iv) Except as set forth on Schedule 3.9(d), in connection
with the construction on, or operation, maintenance and use of, any Assets,
as of the date of this Agreement, there has been no failure by Sellers to
comply with all applicable requirements of Environmental Laws relating to
Sellers, the operations of any Assets, or Sellers' manufacture, processing,
distribution, use, treatment, generation, recycling, reuse, sale, storage,
handling, transportation or disposal of any Hazardous Substance and Sellers
are not aware of any facts or circumstances which could materially impair
such compliance with all applicable Environmental Laws after the date of
this Agreement.
(v) Except as set forth on Schedule 3.9(e), Sellers are not
currently required to obtain any environmental permit to construct,
demolish, renovate, occupy, operate or use any buildings, improvements,
fixtures or equipment forming a part of any Assets that have not been
obtained and fully disclosed to Buyer.
(vi) Except as set forth on Schedule 3.9(f), there is no ACM
or Underground Storage Tank located on, in (including, with respect to ACM,
within building materials) or about any Assets nor has any ACM or
Underground Storage Tank at any time been removed from any Assets.
(vii) Except as set forth on Schedule 3.9(g), there are
no liens affecting any Assets arising out of or in connection with an
environmental claim and Sellers have not received any summons, directive,
citation, notice, investigation letter or other communication, whether
written or oral, from any Governmental Authority or any other Person
concerning any intentional or unintentional action or omission by Sellers or
any other Person which may result in an environmental claim or a breach of
any requirement of Environmental Law with regard to Sellers
or any Assets.
3.10 Government Notices. Except as set forth on Schedule 3.10, there
are no known notifications pending or, to the knowledge of Sellers,
threatened by any Governmental Entity relating to Sellers and the Assets or
relating to the discharge or release of materials into the environment or
otherwise relating to the protection of the public health or the
environment.
3.11 Payment of Taxes.
(a) No Taxes, including ad valorem, real or personal property
taxes, assessed against the Assets are delinquent. Sellers have properly
completed and filed or caused to be filed in a timely manner all material
reports or returns required to be filed with respect to such Taxes relating
to the Assets with any applicable taxing authority or, if not so timely
filed, all appropriate penalties with respect to same have been assessed and
paid or duly contested in good faith.
(b) Pride Borger has filed or caused to be filed all Tax Returns
with the exception of the federal return for the short period ending on the
Closing Date required to have been filed by or for it, and all material
information set forth in such Tax Returns is accurate and complete. Pride
Borger has paid or made adequate provision for all Taxes payable by it or
with respect to its assets. Pride Borger has not granted (and is not
subject to) any waiver of the period of limitations for the assessment of
Tax for any currently open taxable period, and no unpaid Tax has been
asserted against or with respect to Pride Borger by any taxing authority.
Pride Borger has collected or withheld all amounts required to be collected
or withheld by it for any Taxes, and all such amounts have been paid to the
appropriate governmental agencies or set aside in appropriate accounts for
future payment when due. Pride Borger is in compliance with, and its
records contain all information and documents necessary to comply with, all
applicable information reporting and Tax withholding requirements. Pride
Borger has not made or entered into, and does not hold any asset
subject to, a "safe harbor lease" subject to former Section 168(f)(8) of the
Internal Revenue Code and the regulations thereunder. There are no liens
for Taxes upon assets of Pride Borger other than for current Taxes not yet
due and payable. Pride Borger is not and has not been a party to any joint
venture, partnership, or other arrangement which could be treated as a
partnership for federal income tax purposes. Sellers have delivered to
Buyer correct and complete copies of all federal income Tax Returns and
state franchise Tax Returns, examination reports, proposed audit findings in
any cycle in which an examination report has not yet been issued and
statements of deficiencies assessed against or agreed to by Pride Borger
since December 1, 1994, as well as copies of any correspondence with Diamond
Shamrock regarding Tax liabilities or potential Tax liabilities of Pride
Borger. For purposes of this Section 3.11, Pride Borger shall mean Pride
Borger and Pride Texas Plains, L.P.
3.12 Compliance with Contracts. To Sellers' knowledge, neither Sellers,
Pride Borger, nor any other party to the Contracts, Surface Contracts or
Permits are in default or breach of any of the Contracts, Surface Contracts
or Permits that would have a Material Adverse Effect, nor do Sellers or
Pride Borger have knowledge of events that could result in a default or
breach of any Contract, Surface Contract or Permit.
3.13 Adverse Title Claims. At Closing, Sellers will have good and
indefeasible title to the Assets, free and clear of all liens, encumbrances,
security interests, equities or restrictions whatsoever, other than
Permitted Liens. Except as set forth on Schedule 3.13, to the knowledge of
Sellers,
(a) there are no liens or encumbrances with respect to any of the
Assets for delinquent Taxes and delinquent assessments;
(b) there are no liens, deeds of trust, mortgages, adverse title
claims, or similar encumbrances with respect to the Assets; and
(c) there are no materialmen's, mechanics', repairmen's,
employees', contractors', operators', and other similar liens or charges
arising in the ordinary course of business incidental to construction,
maintenance, or operation of any of the Assets prior to the Closing.
3.14 Capital Expenditures. Neither Sellers nor Pride Borger have made
or agreed to make any capital expenditures for additions to property, plant,
or equipment, other than in the ordinary course of business and consistent
with past practices, except as provided in Section 5.3.
3.15 Supplemental Disclosure. Sellers shall have the right and option
to amend the representations and warranties made by them herein, on the
Schedules and in all other certificates delivered by it to Buyer pursuant
hereto to ensure that such representations and warranties,
Schedules, and other certificates remain true and correct between the date
of this Agreement and the Closing. Sellers will provide Buyer with
reasonable notice of any amendments to the Schedules, and Buyer and Sellers
shall negotiate a pre-closing adjustment to the purchase price ("Pre-Closing
Adjustment") to reflect such amendment, if requested by either party. If
the Parties cannot agree on such Pre-Closing Adjustment, the issue shall be
resolved pursuant to Section 13.1.
3.16 Compliance with Applicable Laws. To the knowledge of Sellers,
neither Sellers nor Pride Borger are in default under any Applicable Laws,
which default would have a Material Adverse Effect upon the Assets or the
Business or the employees of the Business. Sellers and Pride
Borger have been granted all Permits from federal, state, and local
government regulatory bodies necessary or desirable to carry on the
Business, all of which are currently in full force and effect
except where any failure to obtain Permits would not have a Material Adverse
Effect upon the Assets or the Business.
3.17 Employee Relations and Benefit Plans. Set forth on Schedule 3.17
is an accurate and complete list of all agreements of any kind between
Sellers and their employees or group of employees, including, without
limitation, written or oral employment and benefit plans. Except as
provided in Section 2.5 hereof, Buyer shall not, by the execution and
delivery of this Agreement or otherwise, become obligated to employ any
employee of Sellers or Pride Borger or assume any liabilities or contractual
obligations with respect to such employees or otherwise become liable for or
obligated in any manner (contractual or otherwise) to any employee of
Sellers or Pride Borger, including, without limiting the generality of the
foregoing, any liability or obligation pursuant to any collective bargaining
agreement, employment agreement, or pension, profit sharing or other
employee benefit plan (within the meaning of Section 3(3) of the Employment
Retirement Income Security Act of 1974, as amended) or any other fringe
benefit program maintained by Sellers or to which Sellers contribute or any
liability for the withdrawal or partial withdrawal from or termination of
any such plan or program by Sellers or Pride Borger. Pride Borger has never
had any employees during the period in which Sellers have owned Pride
Borger. Sellers warrant that no labor union or employee organization has
been certified or recognized as the collective bargaining representative
of any employees of Sellers, nor are there any union organizations,
campaigns, representation proceedings, labor strikes, work stoppages, or
slow downs underway or, to Sellers' knowledge after reasonable inquiry,
threatened with respect to any of the employees of Sellers.
3.18 Financial Statements. Sellers have delivered to Buyer copies
of the Crude Oil Gathering Division consolidating balance sheets which
include Pride Pipeline Company, Pride Borger, and PHS Pipeline as of
December 31st, for the years 1995 through 1998 and for the three
months ending March 31, 1999 (the "Balance Sheet Dates"), Crude Oil
Gathering Division consolidating statements of income or earnings, cash flow
and retained earnings which include Pride Pipeline Company, Pride Borger,
and PHS Pipeline for the twelve months then ended and the three
months then ended, respectively (collectively, the "Financial Statements").
The Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"), applied on a consistent basis
throughout the periods indicated. The Financial Statements
are true, complete and correct with the exception that such Financial
Statements do not contain footnotes. Such Financial Statements present
fairly the financial condition and the results of the operations of the
Crude Oil Gathering Division for the periods indicated thereon. In
addition, Sellers have provided Buyer with copies of the Form 10K for the
years ended December 31, 1995 through 1998 and the Form 10Q for the quarter
ending March 31, 1999 which Form 10Ks include audited
financial statements for Pride (the "Publicly Filed Financial Statements").
Such Publicly Filed Financial Statements have the Crude Oil Gathering
Division consolidated in them. The Publicly Filed Financial Statements
include all material footnotes required by GAAP, each such footnote is
complete and accurate, and contains all information required by GAAP to be
contained therein. All reserves for contingent risks have been estimated in
accordance with GAAP and are appropriate and sufficient to cover all costs
reasonably expected to be incurred from such risks. The Publicly Filed
Financial Statements and the Financial Statements are consistent with the
books and records of Sellers (including without limitation those related to
the Crude Oil Gathering Division).
3.19 Capital Stock.
(a) The authorized capital stock of Pride Borger consists of
1,000 shares of common stock, of which 1,000 shares are issued and
outstanding. Schedule 3.19(a) accurately describes the ownership of Pride
Borger's capital stock as of the date hereof. Pride is and will be
on the Closing Date the record and beneficial owner and holder of, and has,
and on the Closing Date will have, good, valid and indefeasible record and
beneficial title to, Pride Borger's capital stock indicated on Schedule
3.19(a) to be owned by Pride, free and clear of any adverse claim of any
other Person, including without limitation, any encumbrance. All of the
outstanding shares of Pride Borger's capital stock have been duly authorized
and are validly issued, fully paid and nonassessable. All dividends and
other distributions declared with respect to the issued and outstanding
shares of Pride Borger's capital stock have been paid or distributed. There
are no existing subscriptions, rights, warrants, calls, options, commitments
or agreements of any character relating to Pride Borger's capital stock
which is authorized but unissued or held in the treasury or
relating to the purchase or redemption of Pride Borger's issued and
outstanding capital stock, and there are no outstanding securities or other
instruments convertible into or exchangeable for shares of such capital
stock and no commitments to issue such securities or instruments.
(b) The certificates representing Pride Borger's capital stock to
be delivered to Buyer at the Closing, and the signatures on the endorsements
thereof or stock powers delivered therewith, will be valid and genuine. The
stock certificates, endorsements, stock powers and other
documents to be delivered to Buyer on the Closing Date will transfer to and
vest in Buyer good, valid and indefeasible title to Pride Borger's capital
stock, free and clear of any adverse claims of any other Person.
3.20 Year 2000 Compliance. Except as set forth on Schedule 3.20,
Sellers are not aware of any areas in which the Assets will not be Year 2000
compliant upon completion of Sellers' Year 2000 Compliance plan. "Year 2000
Compliant" means as to any Person or entity that all software,
firmware, microprocessing chips and other data processing devices and
services (both as a recipient and as a provider), capabilities and
facilities utilized by, and material to the business operations or
financial condition of, that Person or entity will be able to record and
process all calendar dates (whether before, in and after the year 2000)
correctly with four-digit year processing and will be able to communicate
with other applicable systems to accept any two-digit year date data in a
manner that resolves any ambiguities as to century in a properly defined
manner.
3.21 Material Compliance. To the knowledge of Sellers, Sellers have
maintained the Assets in material compliance with Applicable Laws and in
accordance with good industry practice, except where any failure to do so
would not have a Material Adverse Effect on the Assets or the Business.
3.22 Volume of Certain Business. The lease acquisition and pipeline
transportation volumes shall not have changed materially since the levels
disclosed to Buyer in data as of December, 1998.
3.23 Pride Borger. Pride Borger was originally incorporated under the
name D-S Pipe Line Corporation ("D-S Pipe Line"), which was the subject of
the stock purchase agreement between Pride Refining, Inc. ("Pride Refining")
as Buyer, and Diamond Shamrock Refining and Marketing Company ("Diamond
Shamrock") as Seller dated September 1, 1994. The corporate name of D-S
Pipe Line was changed to Pride Borger on March 8, 1995.
3.24 Diamond Shamrock Promissory Note. Sellers are current on all
principal and interest payments and the Diamond Shamrock Promissory Note is
not in default.
3.25 Survival of Representations and Warranties of Sellers. The
representations and warranties of Sellers set forth in this Agreement shall
not continue to be made after Closing, except that Sellers shall be and
remain liable for any damages, losses or claims arising from Sellers' breach
of or inaccuracy in any such representation or warranty in accordance with
Article 10.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as of the date of this
Agreement and, subject to the provisions of Sections 4.8 and 4.9, as of the
Closing, that:
4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the Applicable Laws
of the State of Delaware and in each state in which it conducts business
with full corporate power, right, and authority to own and lease the
properties and assets it currently owns and leases and to carry on its
business as such business is currently being conducted. Buyer's federal tax
identification number is 23-2052191.
4.2 Authorization of Agreement; No Violation; No Consents. This
Agreement has been duly executed and delivered by Buyer. Buyer has the full
corporate power and authority to enter into this Agreement, to make the
representations, warranties, covenants, and agreements made herein and
to consummate the transactions contemplated hereby. The execution, delivery,
and performance of this Agreement, and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate action on the part of Buyer. To the knowledge of Buyer,
neither the execution and delivery of this Agreement by Buyer nor the
consummation by Buyer of the transactions contemplated hereby (a) will
conflict with, result in a breach, default or violation of, or require the
consent of a third party under (i) the terms, provisions, or conditions of
Buyer's articles of incorporation, bylaws, or any other corporate document
(and any amendments thereto) or (ii) any judgment, decree, or order or any
governmental permit, certificate, material agreement, license, Applicable
Laws, statute, rule, or regulation or any judgment, decree, or order to
which Buyer is a Party or is subject, or to which the business, assets or
operations of Buyer are subject, except for (A) post-closing consents, (B)
any conflict, breach, default, or violation that would not
have, individually or in the aggregate, a material adverse effect on Buyer,
and (C) any applicable requirements under the HSR Act, or (b) will result in
the creation of any lien, charge, or other encumbrance on any property or
assets of Buyer.
4.3 Governmental Consents. To the knowledge of Buyer, no consent,
action, approval or authorization of, or registration, declaration or filing
with, any Governmental Entity is required to authorize, or is otherwise
required in connection with the execution and delivery of this
Agreement by Buyer, or Buyer's performance of the terms of this Agreement,
or the validity or enforceability hereof against Buyer, except for
post-closing consents set forth on Schedule 14.10 and
any applicable requirements under the HSR Act, and except where the failure
to give notice to file or to obtain any authorization, consent or approval
would not have a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement.
4.4 Enforceability. This Agreement constitutes a legal, valid, and
binding obligation of Buyer enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, and other similar Applicable Laws affecting creditors' rights
generally and general principles of equity.
4.5 Brokers. No broker or finder has acted for or on behalf of Buyer
or any Affiliate of Buyer in connection with this Agreement or the
transactions contemplated by this Agreement. No broker or finder is entitled
to any brokerage or finder's fee, or to any commission, based in any way
on agreements, arrangements or understandings made by or on behalf of Buyer
or any Affiliate of Buyer for which Sellers have or will have any liability
or obligation (contingent or otherwise).
4.6 Suits. There are no Suits pending, or to Buyer's knowledge
threatened, which could prohibit Buyer's acquisition or ownership of the
Assets or which could have a material adverse effect on the Buyer's
consummation of the transactions contemplated hereby.
4.7 Financing. Buyer has currently available all funds necessary to
pay the Purchase Price and any other amounts contemplated by this Agreement.
Buyer's ability to consummate the transactions contemplated hereby is not
contingent on its ability to complete any financing prior to
or upon the Closing.
4.8 Supplemental Disclosure. Buyer shall have the right and option to
amend the representations and warranties made by it herein, on the Schedules
and in all other certificates delivered by it to Sellers pursuant hereto to
ensure that such representations and warranties, Schedules, and other
certificates remain true and correct between the date of this Agreement and
the Closing. Buyer will provide Sellers with reasonable notice of any
amendments to the Schedules.
4.9 Survival of Representations and Warranties of Buyer. The
representations and warranties of Buyer set forth in this Agreement shall
not continue to be made after Closing, except that Buyer shall be and
remains liable for any breach of or inaccuracy in any such representation or
warranty in accordance with Article 10.
ARTICLE 5
COVENANTS OF SELLERS
Pride, and to the extent applicable, Pride SGP, covenant and agree,
except as otherwise contemplated by this Agreement or as otherwise approved
by Buyer in writing, that from the date hereof through the Closing Date (or
after the Closing Date, as required by Section 5.3(i)):
5.1 General. Sellers will use their best efforts to take all actions
and to do all things necessary or advisable in order to consummate and make
effective the transactions contemplated by this Agreement, including
satisfaction of the closing conditions.
5.2 HSR Act. Upon the execution of this Agreement, Sellers will, if
required, file a notification under the HSR Act relating to the purchase and
sale contemplated hereby with the Justice Department and the FTC. Sellers
will (a) promptly file any other required notification under
the HSR Act relating to the purchase and sale contemplated hereby with the
Justice Department and the FTC, (b) respond to inquiries from the Justice
Department and the FTC in connection with such notification, (c) request
early termination or waiver of any applicable waiting period under the HSR
Act and (d) provide to Buyer copies of all filings and correspondence
between Sellers and the Justice Department and the FTC regarding the
purchase and sale contemplated hereby.
5.3 Operations. Sellers and Pride Borger shall:
(a) use their best efforts to conduct the Business consistent
with past practice in their usual manner and maintain their books of account
in a manner that fairly and accurately reflects
their income, expenses and liabilities;
(b) use their best efforts to duly and punctually perform all of
their material contractual obligations in the ordinary course of business;
(c) give prompt written notice to Buyer of any notice
received by either of them of any material default or breach or alleged
material default or breach under any instrument or agreement to which either
of them is a party or by which either of them is bound and take all
reasonable steps to cure any such default or breach;
(d) give prompt written notice to Buyer pertaining to releases or
discharges of Hazardous Substances from the Assets or material violations of
Applicable Laws and provide copies of any written correspondence relating
thereto received by Sellers from any Governmental Authority;
(e) use their best efforts to preserve the goodwill of, and their
good relationships with, their suppliers, customers, landlords and others
having business relations with them;
(f) use their best efforts to preserve the Business intact and
retain the services of their present officers, employees and agents except,
with notice to Buyer, in instances in which Sellers reasonably believe that
the termination of any officer, employee or agent is in the best
interests of Sellers or a termination for cause;
(g) use their best efforts to cause all conditions to the
consummation of the transactions contemplated hereby to be satisfied;
(h) use their best efforts to cooperate and coordinate the
scheduling of Crude Oil movements with Buyer between the date hereof and the
Closing Date and act as Buyer's agent as directed by Buyer where necessary;
and
(i) use their best efforts to clean and make gas free all
inactive storage tanks associated with the Merton and Alan Reed locations,
which tanks are described on Schedule 5.3(i), within 60 days after Closing.
5.4 Restricted Activities. Without the prior written consent of
Buyer, which shall not be unreasonably withheld, neither Sellers nor Pride
Borger shall:
(a) enter into any employment agreement or increase the rate of
compensation payable or to become payable by Sellers or Pride Borger to any
of their directors, officers, employees or agents (other than in connection
with merit or longevity-related raises consistent with past practices of
Sellers);
(b) incur or agree to incur, or otherwise guarantee or become
liable for, any indebtedness for money borrowed or any commitment,
obligation or liability, absolute or contingent, other than in the ordinary
course of business;
(c) fail to maintain the Assets and tangible properties in the
ordinary course of business;
(d) except in the ordinary course of business, make or permit any
material change in the Assets, liabilities or financial condition;
(e) enter into or assume any mortgage, pledge, conditional sale
or other title retention agreement, or cause or permit any lien, security
interest, mortgage, encumbrance or charge of any kind to attach upon any of
the Assets, whether now owned or hereafter acquired, except for
capital leases and liens for taxes, assessments or governmental charges or
levies which are not delinquent;
(f) enter into any new crude oil purchase or sale agreements for
volumes greater than 500 barrels per day which exceed a three (3) month term
or renew any existing purchase or sale agreement except on substantially
similar terms; or
(g) agree to do any of the things described in clauses (a)
through (f) of this Section 5.4.
5.5 Noncompetition. Sellers agree that for a period of three (3)
years following the Closing Date, they shall not, directly or indirectly,
through a subsidiary or Affiliate, without the prior express written consent
of Buyer:
(a) engage, as shareholder, owner, partner, joint venturer,
investor, lender, agent, sales representative, in a managerial capacity, or
otherwise, in the business of purchasing, gathering, transportation or
marketing of crude oil, in each case, within the following states: Texas
and New Mexico (the "Territory");
(b) call upon (in person, telephonically, by mail, or by
electronic transmission) any person who is, at that time, within the
Territory, an employee of Buyer in a managerial capacity for the purpose or
with the intent of enticing such employee away from or out of the employ of
Buyer;
(c) call upon (in person, telephonically, by mail, or by
electronic transmission) any person or entity which is, at that time, or
which has been, within one year prior to the Closing Date, a customer of
Sellers or Buyer, as the case may be, within the Territory for the purpose
of purchasing, gathering, transportation or marketing of crude oil, in each
case, within the Territory;
(d) disclose the identity of Buyer's or Sellers' customers,
whether in existence or proposed, to any Person, firm, partnership,
corporation or business for any reason or purpose whatsoever; or
(e) promote or assist, financially or otherwise (including,
without limitation, lending, guaranteeing loans or otherwise providing
financial assurance in any way), any Person, firm, partnership, corporation
or other entity whatsoever to do any of the above.
Notwithstanding the above, the foregoing covenant shall not be deemed
to prohibit Sellers or any of its partners from (i) acquiring as an
investment not more than one percent of the capital
stock of a competing business, whose stock is traded on a national
securities exchange or over-the-counter or (ii) conducting any of the
businesses (other than the Business) currently conducted by
Sellers or their Subsidiaries.
5.6 Injunctive Relief. Because of the difficulty of measuring
economic losses to Buyer as a result of the breach of the covenant in
Section 5.5, and because of the immediate and irreparable
damage that would be caused to Buyer for which it would have no other
adequate remedy, Sellers agree that, in the event of breach by Sellers of
the foregoing covenant, the covenant may be enforced
by Buyer by, without limitation, injunctions and restraining orders.
5.7 Severability of Covenants. The covenants in Sections 5.5 through
5.9 are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction
shall determine that the scope, time or territorial restrictions set forth
are unreasonable, then it is the intention of the Parties
that such restrictions be enforced to the fullest extent which the court
deems reasonable, and the Agreement shall thereby be reformed.
5.8 Independent Covenants. All of the covenants in Sections 5.5
through 5.9 shall be construed as an agreement independent of any other
provision of this Agreement, and the existence of any claim or cause of
action of Sellers against Buyer, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by Buyer of
such covenants. It is specifically agreed that the duration of the
noncompetition covenants stated above shall be computed
by excluding from such computation any time during which Sellers are in
violation of any provision of Sections 5.5 through 5.9 and any time during
which there is pending in any court of competent jurisdiction any action
(including any appeal from any judgment) brought by any Person, whether
or not a party to this Agreement, in which action Buyer seeks to enforce the
agreements and covenants of Sellers or in which any Person contests the
validity of such agreements and covenants or their enforceability or seeks
to avoid their performance or enforcement.
5.9 Materiality. Sellers hereby agree that the covenants in Section
5.5 through 5.9 are a material and substantial part of this transaction.
5.10 Access. Sellers will permit Buyer's officers, employees, agents,
and advisors to have reasonable access to Seller's employees, the Assets
(including, without limitation, the Contracts) and Sellers' records as
described in Sections 1.2(h) and 1.3(c), and Buyer will be permitted to make
copies thereof. With respect to Buyer's access to Sellers' customers,
Sellers acknowledge the importance of the successful transfer of Sellers'
customers' business to Buyer. Accordingly, Sellers and Buyer agree to
jointly prepare an announcement to Sellers' customers following the
execution of this Agreement. Sellers and Buyer agree to cooperate regarding
any contact of Sellers' customers by Buyer prior to Closing. Buyer shall
not, however, contact any of Sellers' customers (other than UDS and
Gary-Williams) to discuss the Contracts or the Business of Sellers prior to
Closing without the prior written consent of Sellers, which consent shall
not be unreasonably delayed or withheld.
5.11 Payment of Pre-Closing Operating Expenses. The Parties agree that
any customary operating expenses and all taxes (including severance taxes)
actually incurred by Sellers in the operation of the Assets and attributable
solely to periods of time prior to the Closing Date shall be for the account
of, and paid by, Sellers in accordance with Sellers' customary practice and
Applicable Law, and Buyer shall not be responsible for the payment thereof.
5.12 Public Announcements. No press release, public announcement,
confirmation or other information regarding this Agreement or the contents
hereof shall be made by Buyer or Sellers
without prior consent of the other Party, except as may be necessary in the
opinion of counsel to any party to meet the requirements of any Applicable
Law or regulations, the determination of any court, or the requirements of
any stock exchange on which the securities of such Party may be listed. If
the transactions contemplated herein are not consummated, neither Buyer nor
Sellers shall disclose to any third party or publicly discuss the proposed
transaction contemplated hereby, except as otherwise permitted hereinabove
and except as agreed in advance, in writing, by the Parties or
otherwise required by Applicable Law, in which case the Party so compelled
will give reasonable written notice in advance to the other Parties.
5.13 Exclusivity. After the signing of this Agreement until the
Closing Date or the termination of this Agreement, neither Sellers nor any
of its Affiliates as representatives shall (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person or entity
relating to the acquisition of any capital stock or other voting securities
of, or any substantial portion of the Assets of, Sellers (including any
acquisition structured as a merger, consolidation, or share exchange) or
(ii) participate in any negotiations or discussions regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any
Person or entity in favor of such acquisition (including any acquisition
structured as a merger, consolidation, or share exchange). Sellers will
notify Buyer if any Person or entity makes any written unsolicited proposal
or offer with respect to any of the foregoing.
5.14 Cooperation and Obligation to Supplement Information. Sellers
(and each of Pride's general partners) shall at all times prior to the
Closing Date cooperate fully with Buyer for the purpose of consummating the
transactions contemplated hereby. Sellers shall, from time to time
through the Closing Date, supplement the Schedules, lists and other
documents referred to herein and delivered pursuant hereto to reflect
changes in the subject matter thereof occurring through the Closing Date.
Sellers shall deliver to Buyer supplements to the disclosure Schedules
promptly after the occurrence of any event which materially changes any
representation or warranty made by Sellers in this Agreement or any
statement made in the disclosure Schedules or in any supplement.
Sellers shall use their best efforts prior to and after the Closing Date, to
cooperate with Buyer in transferring all electronic and other data related
to the Business, including, without limitation, to the extent available, the
data set forth on Schedule 5.14 in a format reasonably acceptable to Buyer.
5.15 Review of Title and Consents. Buyer acknowledges that its
remedies for defects in title shall be limited to the representation in
Section 3.13 and this Section 5.15 and that except as provided in these
sections, the Assets are being transferred without warranty of title on an
"AS IS" "WHERE IS" basis. During the due diligence review, Buyer shall be
entitled to review the Surface Contracts, Real Property and Permits to
determine whether Sellers have good title and whether any consents or
approvals are required for their assignment or conveyance. Sellers will
provide Buyer with access to Sellers' right of way files covering the
Surface Contracts, Real Property and Permits. At Buyer's request, Sellers
will further provide Buyer with access to copying privileges at Buyer's
sole cost. If Buyer discovers a "Material Title Defect" (as defined below)
during its due diligence review, Buyer shall immediately notify Sellers in
writing of the defect. Sellers shall have the right to cure such defect by
giving Buyer written notice of such election prior to Closing. If Sellers
elect not to cure such defect, Buyer and Sellers may agree to delete the
affected Asset or portions thereof from the Assets. If Seller elects not to
cure, and Buyer and Sellers cannot agree to the deletion, the
amounts at issue in excess of the aggregate amount of $200,000 referenced
below shall be treated as a Pre-Closing Adjustment in accordance with
Section 13.1. For the purposes of this paragraph, a "Material Title Defect"
shall mean a lapse, gap or title defect (other than a Material Consent, as
defined below) to any individual title or tract relating to property which
is currently actively used or operated by Sellers or Pride Borger, for which
(a) the cost of curing title or obtaining rights to use, occupancy and
possession or (b) if (a) is not applicable, the damages from loss of use by
deletion of the property would exceed TEN THOUSAND AND NO/100 DOLLARS
($10,000.00) and in the aggregate (a) the cost of curing title or obtaining
rights to use, occupancy and possession or (b) if (a) is not applicable, the
damages from loss of use by deletion of the property would exceed TWO
HUNDRED THOUSAND DOLLARS ($200,000.00). Buyer agrees that any circumstance
in which Sellers have reasonable claims to prescriptive rights shall not be
considered a Material Title Defect.
During the due diligence review, Buyer will identify in writing to
Sellers all Material Consents required for assignment of any of the
Contracts, Surface Contracts and Permits. Prior to
Closing, Sellers will use reasonable efforts to obtain all Material Consents
so identified, and after Closing, Sellers will cooperate and assist Buyer in
obtaining any remaining Material Consents and approvals required for the
assignment of Contracts, Surface Contracts and Permits. For purposes
of this paragraph, a "Material Consent" shall mean a consent which is
required on the face of the Contracts, Surface Contracts and Permits and
which is required to be obtained from an individual or entity other than a
public or quasi-public entity or a business entity which grants consents in
the normal course of business and the cost of obtaining such consent would
exceed FIVE THOUSAND AND NO/100 DOLLARS ($5,000.00) and in the aggregate,
the cost of obtaining all required Material Consents would exceed
SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS ($75,000.00). If Sellers elect not
to expend amounts in excess of these amounts to obtain the
consents, or if Sellers cannot provide the Buyer the benefit of the
Contracts, Surface Contracts and Permits in accordance with Section 14.10,
the amounts at issue in excess of the aggregate amount of $75,000 referenced
above shall be treated as a Pre-Closing Adjustment in accordance with
Section 13.1. If consents or approvals (other than any consents or
approvals which constitute Material Consents) are required, Sellers shall
endeavor to obtain such consents and/or approvals, and Buyer
and/or Sellers shall execute any reasonable documentation requested by the
parties whose consent or approval may be required.
5.16 Assessment.
(a) Buyer, at its own risk and expense, may conduct a due
diligence review of the Assets as Buyer considers necessary or advisable.
The due diligence review must be completed without delaying the Closing and
must be coordinated and scheduled between designated representatives of
Buyer and Sellers. The Parties agree that environmental due diligence will
be conducted pursuant to the initial work plan set forth in Schedule 5.16,
and that with the prior written consent of Sellers, which consent shall not
be unreasonably withheld or delayed, environmental due diligence by Buyer
may be expanded from such initial work plan based on the results of such
initial work plan.
(b) If, as a result of Buyer's due diligence review, either a
"Material Physical Defect" or a "Material Environmental Condition" (each
defined below) is discovered, Buyer shall immediately notify Sellers in
writing, describing such Material Physical Defect or Material
Environmental Condition and the reasonable estimate of the cost to repair,
correct or remediate. Sellers and Buyer may agree that Sellers shall repair
the Material Physical Defect or remediate or
correct the Material Environmental Condition or delete the affected asset or
portions thereof from the Assets being sold. If Sellers elect not to repair
the Material Physical Defect or remediate or correct the Material
Environmental Condition or delete the affected Assets or portion thereof, or
Buyer does not agree to the repair, remediation, correction or deletion,
amounts in excess of the aggregate amount of $750,000 referenced below for
Material Physical Defects and the aggregate amount of $250,000 referenced
below for Material Environmental Conditions will be treated as Pre-Closing
Adjustments in accordance with Section 13.1. For purposes of this paragraph
only, a "Material Physical Defect" shall mean physical defects in the Assets
for which (a) the cost of repair or (b) if (a) is not applicable, the
damages from loss of use by deletion of the Asset would exceed
a cumulative total of SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($750,000.00). To be included in the calculation of the cumulative amount,
(a) the cost of repair or (b) if (a) is not applicable, the damages from
loss of use by deletion of the Asset due to a defect in any individual
component of the Assets must exceed THIRTY-FIVE THOUSAND AND NO/100
DOLLARS ($35,000.00). Equipment or Pipeline Properties not being actively
used by Sellers as of the Closing Date shall not be subject to review for
Material Physical Defects. For purposes of this
paragraph only, a "Material Environmental Condition" shall mean a condition
of any soils, surface water, groundwater or air caused by Sellers or their
predecessors in their operation of the Assets where a Governmental Authority
would mandate correction or remediation of such conditions under
applicable Environmental Laws, for which (a) the cost of correction or
remediation or (b) if (a) is not applicable, damages from loss of use by
deletion of the property would exceed a cumulative total
of TWO HUNDRED AND FIFTY THOUSAND AND NO/100 DOLLARS ($250,000.00). To be
included in the calculation of the cumulative amount of Material
Environmental Condition, (a) the correction or remediation of an applicable
individual condition or (b) if (a) is not applicable, the damages from loss
of use by deletion of the property must exceed TWENTY THOUSAND
DOLLARS ($20,000.00).
(c) Right of Entry. Sellers will provide Buyer (or its
contractor) with reasonable access to the Assets to conduct the due
diligence review. If Sellers do not have legal right to allow
Buyer such access, then Sellers and Buyer shall work together to obtain the
access. Buyer shall submit schedules to Sellers which show when Buyer plans
to access the Assets. Said schedules shall be provided to Sellers
sufficiently in advance of the date or dates of access to enable Sellers to
arrange to have an inspector(s) present. Buyer agrees to exercise
precautions and conduct all actions at or on the Assets in a way that will,
in so far as reasonably possible, assure the safety of persons
and property. IN ADDITION TO ARTICLE 10, BUYER SHALL RELEASE, INDEMNIFY AND
HOLD HARMLESS SELLERS, THEIR OFFICERS, DIRECTORS, EMPLOYEES,
REPRESENTATIVES, SUCCESSORS, AND ASSIGNS (HEREINAFTER INDIVIDUALLY AND
COLLECTIVELY, THE "INDEMNITEE") AGAINST ANY CLAIMS ASSERTED AGAINST
INDEMNITEE BY ANY PERSON FOR INJURY TO PERSONS OR DAMAGE TO PROPERTY
ARISING OUT OF THE DUE DILIGENCE REVIEW, EXCEPT TO THE EXTENT THAT ANY
SUCH INJURY OR DAMAGE ARISES OUT OF THE NEGLIGENCE OR WILLFUL
MISCONDUCT OF SELLERS. IF SUCH INJURY TO PERSONS OR DAMAGE TO PROPERTY
IS THE RESULT OF JOINT NEGLIGENCE OR WILLFUL MISCONDUCT OF SELLERS AND
BUYER (WHICH TERMS, FOR PURPOSES OF THIS PARAGRAPH SHALL INCLUDE
SELLERS' AND BUYER'S RESPECTIVE EMPLOYEES, CONTRACTORS AND AGENTS),
BUYER'S DUTY OF INDEMNIFICATION SHALL BE REDUCED TO THE EXTENT OF
SELLERS' PROPORTIONATE SHARE OF SUCH JOINT NEGLIGENCE OR WILLFUL
MISCONDUCT.
(d) Buyer may, at its sole discretion, delete inactive gathering
lines from the Assets, without adjusting the Purchase Price. Portions of
the Jacksboro facility not necessary to its operations will be deleted from
the Assets and retained by Sellers.
5.17 Tax. Between the date hereof and the Closing Date, to the extent
Sellers have knowledge with respect to Pride Borger of the commencement or
scheduling of any Tax audit, the assessment of any Tax, the issuance of any
notice of Tax due or any bill for collection of any Tax due, or the
commencement or scheduling of any other administrative or judicial
proceeding with respect to the determination, assessment or collection of
any Tax of Pride Borger (including as a former partner of Pride Texas
Plains, L.P.), Sellers shall provide prompt notice to Buyer of such
matter setting forth information (to the extent known) describing any
asserted Tax liability in reasonable detail and including copies of any
notice or other documentation received from the applicable Tax authority
with respect to such matter. Sellers shall cause Pride Borger not to take
any of the following actions: (i) make, revoke or amend any Tax election;
(ii) execute any waiver of restrictions on assessment or collection of any
Tax; or (iii) enter into or amend any agreement or settlement with any Tax
authority.
5.18 Nonforeign Affidavit. Sellers shall furnish Buyer an affidavit,
stating, under penalty of perjury, the Sellers' United States taxpayer
identification number and that the Sellers are not a foreign person,
pursuant to Section 1445(b)(2) of the Internal Revenue Code.
ARTICLE 6
COVENANTS OF BUYER
Buyer covenants and agrees, except as otherwise contemplated by this
Agreement or as otherwise approved by Sellers in writing, that from the date
hereof through the Closing Date:
6.1 General. Buyer will use all reasonable efforts to take all actions
and to do all things necessary or advisable in order to consummate and make
effective the transactions contemplated by this Agreement, including
satisfaction of the closing conditions.
6.2 Confidentiality. Buyer agrees to maintain the confidentiality of
all confidential information disclosed hereunder pursuant to the terms of
the Parties' Confidentiality Agreement.
6.3 HSR Act. Upon the execution of this Agreement, Buyer will, if
required, file a notification under the HSR Act relating to the purchase and
sale contemplated hereby with the Justice Department and the FTC. Buyer will
(a) promptly file any other required notifications under the HSR Act
relating to the purchase and sale contemplated hereby with the Justice
Department and the FTC, (b) respond to inquiries from the Justice Department
and the FTC in connection with such notification, (c) request early
termination or waiver of any applicable waiting period under the HSR
Act and (d) provide to Sellers copies of all filings and correspondence
between Buyer and the Justice Department and the FTC (other than Buyer's
internal economic analysis and management presentation) regarding the
purchase and sale contemplated hereby.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF SELLERS
The obligations of Sellers to consummate the transactions contemplated
by this Agreement are subject, at the option of Sellers, to the following
conditions:
7.1 Representations. The representations and warranties of Buyer
herein contained shall be true and correct in all material respects on the
Closing Date.
7.2 HSR Act. Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have
lapsed or terminated (by early termination or otherwise).
7.3 Performance. Buyer shall have performed all material obligations,
covenants, and agreements contained in this Agreement to be performed or
complied with by it at or prior to the Closing.
7.4 Pending Matters. No Suits shall be pending or threatened that
seeks to restrain, enjoin, or otherwise prohibit the consummation of the
transactions contemplated by this Agreement.
7.5 Delivery. Buyer shall have delivered to Sellers:
(a) the Purchase Price as contemplated by Sections 2.1;
(b) an executed counterpart of this Agreement;
(c) an executed counterpart of the assignments and conveyances of
Surface Contracts (in the form set forth in Exhibit B attached hereto), an
executed counterpart of the deeds for the fee tracts constituting part of
the Assets (in the form set forth in Exhibit C attached hereto)
and any other agreements, documents, certificates, or other instruments
reasonably necessary to consummate the transactions contemplated by this
Agreement;
(d) an executed counterpart of the Assignment and Bill of Sale
(in the form set forth in Exhibit D attached hereto);
(e) incumbency certificates for all signatory officers of Buyer;
(f) certified resolutions of Buyer authorizing all aspects of
transactions contemplated herein; and
(g) an executed counterpart of the Assumption Agreement (in the
form set forth in Exhibit A attached hereto).
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement are subject, at the option of Buyer, to the following
conditions:
8.1 Representations. The representations and warranties of Sellers
herein contained shall be true and correct in all material respects on the
Closing Date.
8.2 HSR Act. Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under the HSR Act shall have
lapsed or terminated (by early termination or otherwise).
8.3 Performance. Sellers shall have performed all material
obligations, covenants, and agreements contained in this Agreement to be
performed or complied with by it at or prior to the Closing.
8.4 Pending Matters. No Suits shall be pending or threatened that
seeks to restrain, enjoin, or otherwise prohibit the consummation of the
transactions contemplated by this Agreement.
8.5 Delivery. Sellers shall have delivered to Buyer:
(a) an executed counterpart of this Agreement;
(b) an executed counterpart of the assignments and conveyances of
Surface Contracts (in the form set forth in Exhibit B attached hereto for
each county where the same are located), an executed counterpart of the
deeds for the fee tracts constituting part of the Assets (in the
form set forth in Exhibit C attached hereto) and any other agreements,
documents, certificates, or
other instruments reasonably necessary to consummate the transactions
contemplated by this Agreement;
(c) an executed counterpart of the Assignment and Bill of Sale
(in the form set forth in Exhibit D attached hereto);
(d) an executed counterpart of the Assumption Agreement (in the
form set forth in Exhibit A attached hereto);
(e) the capital stock of Pride Borger, endorsed in blank by
Pride;
(f) termination or assignment to Buyer of the management
agreement between Pride and Pride Borger;
(g) incumbency certificates for all signatory officers of
Sellers;
(h) certified resolutions of Sellers authorizing all aspects of
transactions contemplated herein; and
(i) an opinion of Pride's counsel in the form set forth in
Exhibit E;
(j) certification by an officer of Sellers that there have been
no changes in the Assets between the date hereof and the Closing Date that
would have a Material Adverse Effect.
(k) intentionally omitted
(l) intentionally omitted
(m) intentionally omitted
(n) intentionally omitted
ARTICLE 9
CLOSING; ADJUSTMENTS TO PURCHASE PRICE
9.1 Time and Place of Closing. If the conditions referred to in
Articles 7 and 8 have been satisfied or waived in writing, the transactions
contemplated by this Agreement (the "Closing") shall take place at the
offices of Andrews & Kurth L.L.P., on October 1, 1999, to be effective as of
the Closing Date, or at such place or on such earlier date as may be
mutually agreed upon by Buyer and Sellers. Buyer and Sellers shall also use
their reasonable efforts to close before November 30,
1999.
9.2 Prorations.
(a) All proceeds, accounts receivable and other amounts
attributable to periods of time prior to the Closing Date (excluding those
belonging to Pride Borger), less reasonable out-of-pocket expenses paid to
third parties (not including overhead expenses), shall belong to and be paid
over to Sellers, and all other proceeds, accounts receivable and other
amounts attributable to the Assets shall belong to Buyer. Buyer and Sellers
agree that after the Closing Date, they will hold and promptly transfer and
deliver to the other, from time to time, as and when received, any cash,
checks or other property that they may receive on or after the Closing Date,
which properly belongs to the other party, including, without limitation,
any payments on account, and will account to the other for such cash, checks
or other property with receipts. Neither Party shall have the right of
offset to proceeds that properly belong to the other Party or any obligation
to collect amounts for the other Party as described in this Section 9.2.
(b) Pride warrants that the Closing Balance Sheet for Pride
Borger shall reflect a 1-to-1 ratio of current assets to adjusted current
liabilities (the "Current Ratio"). Adjusted current assets and liabilities
shall include current assets and liabilities other than the current portion
of the Diamond Shamrock Promissory Note and the Taxes covered under Section
9.3(b)(ii). Therefore, to the extent that current assets exceed adjusted
current liabilities, Pride shall be entitled to additional
cash from Buyer until the Current Ratio is 1-to-1 and, to the extent
adjusted current liabilities exceed current assets, Pride shall pay
additional cash to Buyer until the Current Ratio is 1-to-1.
9.3 Adjustments to the Purchase Price.
(a) The Purchase Price shall be increased by the following
amounts:
(i) an amount equal to all prepaid expenses attributable to
the Assets after the Closing Date that are paid by or on behalf of Sellers;
and
(ii) the market value of Sellers' inventory of crude oil
owned by Sellers which shall be determined as provided in Schedule 1.2(j).
(b) The Purchase Price shall be decreased by the following
amounts:
(i) proceeds received by Sellers prior to the Closing Date
attributable to the Assets that are, in accordance with GAAP, attributable
to the period of time on or after the Closing Date;
(ii) an amount properly accruable under GAAP on the Closing
Date for Pre-Closing Period Taxes of Pride Borger due after the Closing
Date, and Pre-Closing Period Taxes based upon or measured by the ownership
of the Assets due after the Closing Date reduced by the accrued tax benefit
arising from the anticipated carryback of a federal income tax net operating
loss, if any, for the short taxable period of Pride Borger beginning on
January 1, 1999; and
(iii) any amount which may be due from Sellers as agreed
upon by Buyer and Sellers in writing.
(c) The Purchase Price, as adjusted by the adjustments described
in Sections 9.3(a) and (b) above (which adjustments are hereinafter referred
to as the "Purchase Price Adjustments") and Sections 13.1, 13.2, 3.15, 5.15
and 5.16 shall be the "Purchase Price" due at the
Closing pursuant to Article 2 hereof.
9.4 Statement. Not later than three (3) business days prior to the
Closing Date, Sellers shall prepare and deliver to Buyer a statement of the
reasonably estimated Purchase Price Adjustments (the "Statement"), which
Statement shall be prepared by Sellers reasonably, in good faith and in
accordance with GAAP. At Closing, Buyer shall pay the Purchase Price, as
adjusted by the estimated amounts reflected on the Statement.
9.5 Post-Closing Adjustments to the Purchase Price.
(a) On or before ninety (90) days after the Closing Date, Sellers
shall prepare and deliver to Buyer a revised Statement (except for Taxes
that are addressed in Article 11 hereof) setting forth the actual Purchase
Price Adjustments. To the extent reasonably required by Sellers, Buyer
shall assist in the preparation of the revised Statement. Sellers shall
provide Buyer such data and information as Buyer may reasonably request
supporting the amounts reflected on the revised Statement in order to permit
Buyer to perform or cause to be performed an audit. The revised
Statement shall become final and binding upon the Parties on the 60th day
following receipt thereof by Buyer (the "Final Settlement Date") unless
Buyer gives written notice of its disagreement (a "Notice of Disagreement")
to Sellers prior to such date. Time is of the essence with respect to the
Notice of Disagreement. Any Notice of Disagreement shall specify an estimate
of the dollar amount, nature, and a general description or statement of the
basis of any disagreement so asserted. If a Notice of Disagreement is not
received by Sellers in a timely manner, then the Statement shall
become final and binding on the Parties in accordance with clause (i) or
(ii) below (the "Final Statement"), and the Final Settlement Date shall be
the earlier of (i) the date Sellers and Buyer agree in writing with respect
to all matters specified in the Notice of Disagreement or (ii) the date on
which the arbitrators issue a final ruling as provided in Section 14.1
below.
(b) If the amount of the Purchase Price as set forth on the Final
Statement exceeds the amount of the estimated Purchase Price paid at
Closing, then Buyer shall pay to Sellers the amount by which the Purchase
Price as set forth on the Final Statement exceeds the amount of the
estimated Purchase Price paid at Closing within five (5) business days after
the Final Settlement Date. If the amount of the Purchase Price as set forth
on the Final Statement is less than the amount of the estimated Purchase
Price paid at Closing, then Sellers shall pay to Buyer the amount by which
the Purchase Price as set forth on the Final Statement is less than the
amount of the estimated Purchase Price paid at Closing within five (5)
business days after the Final Settlement Date. Any post-Closing payment made
pursuant to this Section 9.5(b) shall be made by means of a wire transfer
of immediately available funds.
9.6 Allocation of Carrier Obligations and Proceeds.
(a) To the extent that crude oil, condensates, natural gasoline,
or basic sediment and water (collectively, the "Crude Oil") has been offered
for shipment in the Assets under a published tariff or pursuant to rights
under a private transportation agreement, but not yet delivered
to Sellers, Buyer shall receive Crude Oil for transportation in the normal
course of business. Tariff revenues with respect to Crude Oil delivered
from the Assets prior to the Closing Date shall be credited to Sellers, and
tariff revenues with respect to Crude Oil delivered from the Assets on or
after the Closing Date shall be credited to Buyer. Deficiency obligations
or rentals due to Sellers under private transportation agreements or
pipeline leases to third parties with respect to the Assets shall
be allocated between Sellers and Buyer as of the Closing Date. Buyer shall
exert reasonable efforts to continue to provide substantially equivalent
transportation service between current origin and destination points on the
Assets for shippers for ninety (90) days following the Closing Date.
(b) Sellers shall provide a notice to existing shippers on the
Assets (as set forth in Schedule 9.6(b)) in mutually agreeable form not
later than ten days after the Closing Date concerning the proposed sale of
Assets. Immediately after Closing, Sellers and Buyer shall coordinate the
delivery of notices to all shippers on the Assets of the (i) conveyance of
the Assets, and (ii) intention to honor existing Texas Railroad Commission
("TRC") tariffs, where appropriate, until existing TRC tariffs are canceled
by Sellers and new TRC tariffs are posted by Buyer. Sellers and Buyer shall
coordinate the filing by Sellers of appropriate TRC tariff cancellations and
the filing by Buyer of new TRC tariffs, as appropriate, with respect to
those portions of the Assets where TRC tariffs are in place, as soon as
practicable after Closing, but not later than the next tender of shipment
date after the Closing.
(c) Sellers shall provide confirmation to Buyer as soon as
reasonably possible after Closing from exchange contract customers as to the
amount of any imbalances as of one (1) month prior to the Closing Date and
as of the Closing Date. Sellers shall zero balance or reconcile
any exchange contract imbalance, other than the exchange imbalance related
to line fill associated with the UDS contract described in Section 1.2(e).
9.7 Crude Oil Inventory. The Assets may contain crude oil which is
held for the account of shipper(s). It is understood that title to the
contents of the Assets will remain with the shipper(s) and that Buyer
assumes the obligation to deliver such contents in accordance with Sellers'
existing arrangements with the shipper(s), whether under a published tariff
or a private transportation or storage agreement. Tariff charges for
transportation of "Physical Inventory," will be in accordance
with Section 9.6. The system will be gauged on or before 7:00 a.m. Central
Time on the Closing Date, at which time the custody of all Crude Oil will be
transferred to Buyer, and Buyer shall become responsible to each shipper for
Crude Oil in Buyer's custody. Crude Oil inventory will be handled in the
manner designated by Schedule 1.2(j). Line fill in the
inactive tanks and gathering systems shall not be considered crude oil
inventory for purposes of Schedule 1.2(j). Only fifty percent (50%) of the
measurable crude oil in tank bottoms (2% or greater BS&W) shall be
considered crude oil inventory for purposes of Schedule 1.2(j).
ARTICLE 10
INDEMNITY
10.1 General Indemnity.
(a) EXCEPT AS PROVIDED BY ARTICLE 13 AND SUBJECT TO SECTIONS
10.1(d) AND 10.2, PRIDE, AND TO THE EXTENT APPLICABLE, PRIDE SGP, SHALL
INDEMNIFY, REIMBURSE, DEFEND, AND HOLD HARMLESS BUYER, ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, REPRESENTATIVES, SHAREHOLDERS,
AFFILIATES AND SUBSIDIARIES (COLLECTIVELY, THE "BUYER INDEMNITEES") FROM
AND AGAINST ANY AND ALL CLAIMS, LIABILITIES, LOSSES, CAUSES OF ACTION,
COSTS, AND EXPENSES, INCLUDING COURT COSTS AND REASONABLE ATTORNEYS'
FEES ("LOSSES"), REGARDLESS (IN EACH CASE) WHETHER KNOWN OR UNKNOWN,
ASSERTED AGAINST, RESULTING FROM, IMPOSED UPON, OR INCURRED BY ANY OF
BUYER INDEMNITEES FOR: (i) ANY INACCURACY IN ANY REPRESENTATION OR
WARRANTY OF SELLERS UNDER THIS AGREEMENT, THE DISCLOSURE SCHEDULES,
AS UPDATED AND SUPPLEMENTED AS OF THE CLOSING DATE, OR ANY AGREEMENT,
CERTIFICATE OR OTHER DOCUMENT DELIVERED OR TO BE DELIVERED BY SELLERS
PURSUANT HERETO IN ANY RESPECT, OR ANY BREACH OR NON-FULFILLMENT OF
ANY COVENANT, AGREEMENT OR OTHER OBLIGATION OF SELLERS UNDER THIS
AGREEMENT, (ii) THE BUSINESS OF SELLERS OR THE OCCUPANCY, CONDITION,
MANAGEMENT, OWNERSHIP, OPERATION OR USE OF SELLERS' ASSETS PRIOR TO
THE CLOSING DATE EXCEPT TO THE EXTENT ASSUMED BY BUYER PURSUANT TO
THE ASSUMPTION AGREEMENT; (iii) THE RETAINED LIABILITIES AND (iv) THE
TRANSPORTATION OR DISTRIBUTION OF REFINED PRODUCTS WHICH HAS BEEN
CONDUCTED BY SELLERS PRIOR TO AND AFTER THE CLOSING DATE; PROVIDED,
HOWEVER, THAT SELLERS' INDEMNITY AND LIABILITY FOR ANY LOSSES SHALL BE
LIMITED TO OR BY THE FOLLOWING:
(i) ANY SUCH LOSSES WHICH ARE ASSERTED OR CLAIMED
WITHIN TWENTY-FOUR MONTHS AFTER THE CLOSING DATE (OR, IF LONGER, WITHIN
THE APPLICABLE STATUTE OF LIMITATIONS PERIOD, IF ANY, ON CLAIMS ASSERTED
OR MADE RELATING TO SELLERS' REPRESENTATIONS IN SECTIONS 3.11, 3.17 OR 3.18)
BY THE INDEMNIFIED PARTY GIVING NOTICE OF SUCH CLAIM OR ASSERTION TO
SELLERS PURSUANT HERETO;
(ii) SELLERS SHALL NOT BE RESPONSIBLE FOR LOSSES
(EXCLUDING POST-CLOSING OBLIGATIONS SET FORTH HEREIN) UNTIL THE
INDIVIDUAL LOSS CONDITION EXCEEDS SEVEN THOUSAND FIVE HUNDRED
DOLLARS ($7,500.00);
(iii) SELLERS SHALL NOT, IN ANY CASE, BE REQUIRED TO
MAKE PAYMENTS HEREUNDER IN EXCESS OF THE PURCHASE PRICE; AND
(iv) SELLERS SHALL NOT, IN ANY CASE, BE REQUIRED TO
INDEMNIFY BUYER FOR LOSSES RESULTING FROM BUYER'S OWNERSHIP OR
OPERATION OF THE ASSETS AFTER CLOSING.
(b) EXCEPT AS PROVIDED IN SECTION 10.1(a) ABOVE, AND SUBJECT
TO SECTION 10.1(c), BUYER SHALL INDEMNIFY, RELEASE, DEFEND AND HOLD
HARMLESS SELLERS, THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
REPRESENTATIVES, SHAREHOLDERS, AFFILIATES, SUBSIDIARIES, SUCCESSORS, AND
ASSIGNS (COLLECTIVELY, THE "SELLERS' INDEMNITEES") FROM AND AGAINST ANY
AND ALL LOSSES REGARDLESS OF (IN EACH CASE) WHETHER KNOWN OR
UNKNOWN, ASSERTED AGAINST, RESULTING FROM, IMPOSED UPON OR INCURRED
BY ANY OF SELLERS' INDEMNITEES AS A RESULT OF, OR ARISING OUT OF (i) THE
ASSUMED LIABILITIES OR (ii) THE OWNERSHIP OR OPERATION OF THE ASSETS BY
BUYER, ATTRIBUTABLE ONLY TO PERIODS OF TIME AFTER THE CLOSING DATE, SO
LONG AS SUCH LOSSES ARE NOT ATTRIBUTABLE TO THE SOLE, JOINT, AND/OR
CONCURRENT NEGLIGENCE, STRICT LIABILITY, OR OTHER FAULT OF ANY SELLERS'
INDEMNITEE; PROVIDED, HOWEVER, THAT BUYER'S INDEMNITY AND LIABILITY
FOR ANY LOSSES UNDER SUBSECTION (ii) ABOVE SHALL BE LIMITED TO OR BY THE
FOLLOWING:
(i) ANY SUCH LOSSES WHICH ARE ASSERTED OR CLAIMED
WITHIN TWENTY-FOUR MONTHS AFTER THE CLOSING DATE BY THE INDEMNIFIED
PARTY GIVING NOTICE OF SUCH CLAIM OR ASSERTION TO BUYER PURSUANT
HERETO; AND
(ii) BUYER SHALL NOT BE RESPONSIBLE FOR LOSSES UNTIL
THE INDIVIDUAL LOSS CONDITION EXCEEDS SEVEN THOUSAND FIVE HUNDRED
DOLLARS ($7,500.00).
(c) NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY'S INDEMNITEES FOR ANY EXEMPLARY, PUNITIVE, SPECIAL, INDIRECT,
CONSEQUENTIAL, REMOTE, OR SPECULATIVE DAMAGES, EVEN IF CAUSED BY THE
SOLE, JOINT, AND/OR CONCURRENT NEGLIGENCE, STRICT LIABILITY, OR OTHER
FAULT OF SUCH PARTY.
(d) All claims for indemnification under Sections 10.1(a) or
10.1(b) shall be asserted and resolved pursuant to this Section 10.1(d).
Any Person claiming indemnification hereunder is hereinafter referred to as
the "Indemnified Party" and any Person against whom such claims are asserted
hereunder is hereinafter referred to as the "Indemnifying Party." In the
event that any Losses are asserted against or sought to be collected from an
Indemnified Party by a third party, said Indemnified Party shall with
reasonable promptness provide to the Indemnifying Party a written
notice of claim specifying in reasonable detail (to the extent known at the
time) the nature of the Losses and the estimated amount of such Losses
("Claim Notice"). The Indemnifying Party shall not be obligated to indemnify
the Indemnified Party with respect to any such Losses if the Indemnified
Party fails to notify the Indemnifying Party thereof in accordance with the
provisions of this Agreement, but only to the extent that the Indemnifying
Party is prejudiced by such failure to notify. The Indemnifying Party shall
have thirty (30) days from the personal delivery or receipt of the Claim
Notice (the "Notice Period") to notify the Indemnified Party (i) if the
Indemnifying Party disputes the liability of the Indemnifying Party to the
Indemnified Party hereunder with respect to such Losses and/or (ii) if the
Indemnifying Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Losses; provided, however, that any
Indemnified Party is hereby authorized prior to and during the Notice Period
to file any motion, answer or other pleading that it
shall deem necessary or appropriate to protect its interests or those of the
Indemnifying Party (and of which it shall have given reasonable notice to
the Indemnifying Party). In the event that the Indemnifying Party notifies
the Indemnified Party within the Notice Period that it desires to defend
the Indemnified Party against such Losses, the Indemnifying Party shall have
the right to defend all appropriate proceedings, and with counsel of its own
choosing, which proceedings shall be promptly settled or prosecuted by them
to a final conclusion. If the Indemnified Party desires to participate
in, but not control, any such defense or settlement, it may do so at its
sole cost and expense, unless the Indemnified Party shall in good faith
determine that there exists actual or potential conflict(s)
of interest which make representation by the same counsel inappropriate, in
which case the Indemnified Party may hire independent counsel, in
consultation with the Indemnifying Party, at the Indemnifying Party's cost
and expense. If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any Losses that the Indemnifying Party elects to defend or, if
appropriate and related to the claim in question, in making any counterclaim
or reconvention demand against the Person asserting the third party Losses,
or any cross Claim against any Person. In the event the Indemnifying Party
is not disputing its liability to the Indemnified Party with respect to a
claim, no such claim may be settled or otherwise compromised without the
prior written consent of the Indemnifying Party. Anything in this Article
to the contrary notwithstanding, the Indemnifying Party shall not, without
the Indemnified Party's prior written consent, settle or compromise any
proceeding or consent to the entry of any judgment with respect to any Suit
for anything other than money damages paid by the Indemnifying Party. The
Indemnifying Party may, without the Indemnified Party's prior written
consent, settle or compromise any such Suit or consent to entry of any
judgment with respect to any such Suit that requires solely the payment of
money damages by the Indemnifying Party and that includes as an
unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Party from all liability in respect of such
Suit.
10.2 Release. EXCEPT TO THE EXTENT THAT SELLERS HAVE ASSIGNED
CLAIMS TO BUYER PURSUANT TO SECTIONS 8.5(k), 8.5(l) and 8.5(m), AS OF THE
CLOSING DATE, BUYER (ON BEHALF OF ITSELF AND EACH OF THE OTHER BUYER
INDEMNITEES) RELEASES AND DISCHARGES ANY AND ALL CLAIMS AT LAW OR IN
EQUITY, KNOWN OR UNKNOWN, WHETHER NOT EXISTING OR ARISING IN THE
FUTURE, CONTINGENT OR OTHERWISE, AGAINST SELLERS OR ANY OF SELLERS'
INDEMNITEES WITH RESPECT TO ANY MATTER OR CIRCUMSTANCE RELATING TO
THE ASSUMED LIABILITIES.
ARTICLE 11
TAXES
11.1 Allocation of Taxes.
(a) Buyer shall be liable for documentary, recording, stamp,
transfer or similar taxes, assessments or fees arising from the transactions
contemplated by this Agreement regardless upon whom such taxes, assessments
or fees are levied or imposed by Applicable Law. Should Applicable Law
require such taxes, assessments or fees to be paid by Sellers, Buyer shall
remit the amount of such taxes, assessments or fees to Sellers at the
Closing or thereafter when required to be paid to a county and/or the State
of Texas. Sellers agree to claim the occasional sale exemption from
Texas sales tax and New Mexico gross receipts tax for the transfer of Assets
hereunder. Notwithstanding anything contained herein to the contrary, Buyer
shall not be responsible for any state or federal income taxes associated
with any gain on the disposition of the Assets that may be assessed on such
Assets sale under this Agreement and Buyer shall be responsible for sales,
use or similar taxes that may be assessed on such Assets sale under this
Agreement.
(b) All ad valorem, property (whether real or personal) and
similar taxes (the "Property Taxes") with respect to the Assets for any tax
period in which the Closing Date occurs, shall be prorated pursuant to
Section 9.3(b)(ii) (with Buyer economically responsible for the
Property Taxes for the portion of the tax period on or after the Closing
Date). Buyer shall file or cause to be filed all required reports and
returns coming due after Closing incident to the Property
Taxes and shall pay or cause to be paid to the taxing authorities all
Property Taxes relating to the tax period in which the Closing Date occurs.
Sellers shall reasonably cooperate with Buyer in the preparation, filing and
payment of the Property Taxes. In addition to Buyer's right of access
pursuant to Section 5.10, and within 30 days of the Closing Date, Sellers
shall provide Buyer with copies of (i) all of Sellers' filings which relate
to Property Taxes and (ii) all bills or notices received by Sellers which
relate to Property Taxes, since January 1, 1998. Buyer shall furnish
Sellers with a statement setting forth the apportionment of any Property
Taxes paid.
(c) Except as set forth in Sections 11.1(a) and (b), Sellers
shall be liable for, and shall indemnify, defend and hold Buyer harmless
from and against, any and all Taxes imposed on or with respect to Pride
Borger or its respective assets, operations or activities, or with respect
to the Assets, for any Pre-Closing Period. Except as set forth in Sections
11.1(a) and (b), Buyer shall be liable for, and shall indemnify, defend and
hold Sellers harmless from and against, any and all Taxes imposed on or with
respect to Pride Borger or its respective assets, operations or activities,
or with respect to the Assets, for any Post-Closing Period. For purposes of
this Article, in the case of any Taxes that are imposed on a periodic basis
and are payable for a taxable period that includes (but does not end on) the
Closing Date, the portion of such Tax which relates to the portion of such
taxable period ending on the Closing Date shall (x) in the case of any Taxes
other than Taxes based upon or related to income or receipts, be deemed to
be the amount of such Tax for the entire taxable period multiplied by a
fraction, the numerator of which is the number of days in the portion of the
taxable period ending on the Closing Date, and the denominator of which is
the number of days in the entire taxable period, and (y) in the case of any
Tax based upon or related to income or receipts, be deemed equal to the
amount which would be payable if the books were closed on the Closing
Date. Any credits relating to a taxable period that begins before and ends
after the Closing Date shall be taken into account as though the books were
closed on the Closing Date.
(d) Sellers shall be responsible for the preparation and filing
of any Tax Returns or reports related to the Assets that are required to be
filed on or before the Closing Date or pertain to Taxes which are required
by Applicable Law to be paid by Sellers. Buyer, with the cooperation
of Sellers, shall be responsible for the preparation and filing of all other
Tax Returns or reports related to the Assets. Notwithstanding the
foregoing, Sellers shall be responsible for the preparation
and Buyer shall have the right to review and be responsible for filing of,
any Tax Returns of Pride Borger for all period ending on or prior to the
Closing Date which are due after the Closing Date, and Buyer shall be
responsible for the preparation and filing of any Tax Return of Pride Borger
for any Straddle Period. Buyer shall furnish Sellers with a statement
setting forth an allocation of any Taxes due on or after the Closing Date
computed in accordance with Section 11.1(c).
(e) If the sum of Sellers' pro rata portion of the Property Taxes
computed in accordance with Section 11.1(b), plus Sellers' portion of Taxes
on any Tax Returns filed by Buyer computed in accordance with Section
11.1(c) and (d), reduced by the amount of any refund attributable to the
carryback of any federal income tax net operating loss of Pride Borger
arising from the short taxable year beginning January 1, 1999, exceeds that
amount deducted from the Purchase Price pursuant to Section 9.3(b)(ii),
Sellers shall pay to Buyer such excess within thirty (30) days of the date
of the statements setting forth the foregoing calculations. If the amount
deducted from the Purchase Price pursuant to Section 9.3(b)(ii) exceeds the
sum of Sellers' pro rata portion of the Property Taxes computed in
accordance with Section 11.1(b) plus Sellers' portion of the Taxes on any
Tax Returns filed by Buyer computed in accordance with Section 11.1(c) and
(d), reduced by the amount of any refund attributable to the carryback of
any federal income tax net operating loss of Pride Borger arising from the
short taxable year beginning January 1, 1999, Buyer shall pay Sellers such
excess within thirty (30) days of the date of the statements setting forth
the foregoing calculations. If the Parties fail to agree as to the amount
of Taxes and the apportionment thereof between the Parties within forty-five
(45) days of the statement dates, then the dispute will be resolved in
accordance with Section 14.1 hereof.
11.2 Cooperation. Buyer and Sellers will cooperate with each other and
with each other's respective agents, including accounting firms and legal
counsel, in connection with the preparation or audit of any Tax Return or
report and any Tax claim or litigation that include whole or partial
taxable periods, activities, operations or events on or prior to the Closing
Date, which cooperation shall include, but not be limited to, making
available employees, if any, or original documents, or either of them, for
the purpose of providing testimony and advice. In the event of a contest
with a taxing authority regarding Taxes relating to the Assets for which
Sellers are wholly responsible hereunder, Sellers shall have the right to
control the contest, provided, however, that Sellers shall keep Buyer
reasonably informed as to the progress of such contest, give the
Buyer the opportunity to review and comment in advance on all written
submissions and filings relevant to issues raised in such contest, and
consider in good faith any suggestions made by Buyer about the conduct of
such contest and shall not settle any Tax claim against Pride Borger without
the prior written consent of Buyer, which consent shall not be unreasonably
delayed or withheld, if settlement would increase the amount of Taxes
payable by Buyer after the Closing Date. In the event that Buyer refuses to
consent to a settlement acceptable to the applicable taxing authority and
Sellers, Buyer shall be obligated to defend at its expense any action or
proceeding thereafter brought against Sellers by the Tax authority relating
to the Tax subject to the approved settlement and shall reimburse Sellers
for any Taxes, penalties, interests and costs incurred by Sellers in excess
of those that would have been incurred by Sellers if the matter had been
settled as Sellers proposed. In the event of a contest with
a taxing authority regarding Taxes related to the Assets for which Sellers
and Buyer are jointly responsible hereunder, Sellers and Buyer shall jointly
control the contest in good faith with each other. Reasonable out-of-pocket
expense with respect to such contests shall be borne by the Parties
pro rata in accordance with their responsibility for such Taxes as set forth
in this Agreement.
11.3 Certain Tax Sharing Agreements. All Tax sharing agreements or
similar agreements with respect to or involving Pride Borger shall be
terminated as of the Closing Date and, after the
Closing Date, Pride Borger shall not be bound hereby or have any liability
thereunder.
11.4 Relationship of Article 11 to Article 10. The indemnities
provided in this Article 11 are in addition to, but not in duplication of,
the indemnities provided in Article 10. To the extent of any inconsistency
between Article 11 and other provisions of this Agreement, Article 11 shall
apply. Article 10 shall apply to Tax claims and liabilities to which
Article 11 does not apply.
ARTICLE 12
TERMINATION
12.1 Termination At or Prior to Closing. This Agreement may be
terminated at any time on or prior to the Closing Date:
(a) by mutual written consent of the Parties;
(b) by Sellers on the Closing Date if the conditions set forth in
Article 7 have not been satisfied in all material respects by Buyer, other
than through failure of Sellers to comply fully with its obligations
hereunder, and shall not have been waived by Sellers on or before the
Closing Date;
(c) by Buyer on the Closing Date if the conditions set forth in
Article 8 have not been satisfied in all material respects by Sellers, other
than through failure of Buyer to comply fully with its obligations
hereunder, and shall not have been waived by Buyer on or before the Closing
Date.
(d) by either Buyer or Sellers if the Closing shall not have
occurred on or before November 30, 1999, due to the failure to obtain the
necessary approval or consent under the HSR Act; provided, however, that no
Party can so terminate this Agreement if such Party is at such time
in material breach of any provision of this Agreement;
(e) by any Party on the Closing Date if any Governmental Entity
shall have issued an order, judgment or decree restraining, enjoining,
prohibiting or invalidating the consummation of any of the transactions
contemplated herein;
(f) by Buyer or Sellers in accordance with Section 13.1; or
(g) by Buyer if it determines, at its sole discretion, that
Sellers have not materially complied with all Applicable Laws pertaining to
their employees, and such non-compliance will have a Material Adverse
Effect.
12.2 Effect of Termination. In the event that Closing does not occur as
a result of any Party exercising its right to terminate pursuant to Section
12.1, then this Agreement shall be null and void and no Party shall have any
rights or obligations under this Agreement, except that (a) nothing
herein shall relieve any Party from any liability for any breach hereof and
(b) the waiver under Section 13.9 and the confidentiality obligations under
Sections 5.12 and 6.2 shall survive any such termination.
ARTICLE 13
OTHER AGREEMENTS OF THE PARTIES
Buyer, Pride, and, to the extent applicable, Pride SGP, hereby agree
that:
13.1 Pre-Closing Adjustments. If the Parties cannot agree on the
amount of any Pre-Closing Adjustments hereunder, the Parties shall submit
such Pre-Closing Adjustments to binding arbitration pursuant to Section
14.1(b). If, after such binding arbitration, the cumulative total of
Pre-Closing Adjustments hereunder, whether agreed upon by the Parties or
determined by binding arbitration hereunder, equal or exceed $1,000,000,
either Party may terminate this Agreement on or prior to the Closing Date.
If either Party terminates this Agreement in accordance with this
Section 13.1, both Parties shall be relieved of all liabilities and
obligations hereunder, except for any indemnity provisions, which shall
survive such termination.
13.2 Risk of Loss. If prior to the Closing either (i) "Material Damage
or Destruction" occurs by fire or other casualty to all or any portion of
the Assets, or (ii) a taking of a "Material Portion" of the Assets occurs by
condemnation or eminent domain or by agreement in lieu thereof,
Sellers shall immediately notify Buyer thereof. Sellers shall have the
right to rebuild, repair or replace such lost, damaged, or governmentally
taken portion of the Assets, by giving Buyer written
notice of such election within thirty (30) days after the damage or
destruction or governmental taking or by giving notice at any time prior to
Closing, if the damage or destruction or governmental taking
occurs less than thirty (30) days prior to Closing. If Sellers elect for
any reason not to cure such loss or damage prior to the Closing, Buyer and
Sellers may, before the Closing, negotiate a Pre-Closing
Adjustment to fairly reflect the value represented by the lost or damaged
Assets, or the Assets taken by condemnation, and in each case the damages
from loss of use. If the Parties cannot agree on such Pre-Closing
Adjustment, the issue shall be resolved pursuant to Section 13.1. For
purposes of this paragraph only, a loss by fire or other casualty shall be
deemed "Material Damage or Destruction" if the cost of repairing the damage
done to any individual component of the Assets, and the damages
from loss of use exceeds TEN THOUSAND DOLLARS ($10,000.00). For purposes of
this paragraph only, a taking by condemnation, or as otherwise provided
herein, shall be deemed a taking of a "Material Portion" if the cost of
replacement and the damages from loss of use exceeds TEN THOUSAND DOLLARS
($10,000.00).
13.3 Records: Access and Retention.
(a) After Closing, Buyer and Sellers shall give the other Parties
and their authorized representatives such access, during normal business
hours, to the employees, books, records and files being conveyed, assigned
and transferred to Buyer, or retained by Sellers, hereunder, as may be
reasonably required, including with respect to post-closing audits, provided
that such access does not unreasonably interfere with the ongoing operations
of the other. Sellers and Buyer shall be entitled to keep or obtain extracts
and copies of such books, records and files. Any information obtained
pursuant to this Section is subject to Sections 5.12 and 6.2 regarding
confidentiality.
(b) Buyer shall preserve and retain all books, records and files
being conveyed, assigned and transferred to Buyer hereunder in accordance
with its current document retention policy; provided, however, that in the
event that Buyer transfers all or a portion of the Assets to any
third party during such period, Buyer may transfer to such third party all
or a portion of the books, records and files related thereto, provided such
third party transferee expressly agrees in writing to preserve and maintain
them for a period of seven (7) years and Buyer first offers to Sellers the
opportunity, at Sellers' expense, to copy the books, records and files to be
transferred.
(c) Subject to (and in addition to the requirements of) the
provisions of Sections 13.3(a) and (b), the Parties shall maintain a true
and correct set of records pertaining to their performance of this Agreement
and all transactions related thereto and shall retain all such records
for a period of not less than three (3) years after completion of
performance under this Agreement. Any representative or representatives
authorized by either Party may audit any and all such records
of the other Party at any time during performance of this Agreement and
during the three (3) year period after completion of performance.
13.4 Names. (a) As soon as reasonably possible after Closing, but in
no event later than one hundred eighty (180) days after Closing, Buyer shall
remove the names of Sellers and their Affiliates, and all variations
thereof, from all of the Assets and make the requisite filings with, and
provide the requisite notices to, the appropriate federal, state or local
agencies to place the title or other evidence of ownership, including
operation of the Assets, in a name other than any name of
Sellers or any of their Affiliates, or any variations thereof.
(b) As soon as reasonably possible after Closing, but in no event
later than forty-five (45) days after Closing, Buyer shall change the
corporate name of Pride Borger to a new corporate name which shall not
include the word "Pride."
13.5 Expenses. Each Party shall be solely responsible for all
expenses, including due diligence expenses, incurred by it in connection
with this transaction, and neither Party shall be entitled to any
reimbursement for such expenses from the other Party hereto.
Without limiting the generality of the foregoing, Buyer will be solely
responsible for recording fees and taxes relating to the conveyances to be
delivered pursuant to this Agreement.
13.6 Independent Investigation. BUYER REPRESENTS AND ACKNOWLEDGES
THAT IT IS KNOWLEDGEABLE OF THE CRUDE OIL GATHERING BUSINESS AND THE
BUSINESS OF OPERATING PIPELINES AND STORAGE FACILITIES AND THAT IT HAS
HAD ACCESS TO THE ASSETS, THE OFFICERS, AND EMPLOYEES OF SELLERS, AND
THE BOOKS, RECORDS AND FILES OF SELLERS RELATING TO THE ASSETS AND IN
MAKING THE DECISION TO ENTER INTO THIS AGREEMENT AND CONSUMMATE THE
TRANSACTIONS CONTEMPLATED HEREBY. BUYER HAS RELIED ON THE BASIS OF
ITS OWN INDEPENDENT DUE DILIGENCE INVESTIGATION OF THE ASSETS AND UPON
THE REPRESENTATIONS AND WARRANTIES MADE IN ARTICLE 3. ACCORDINGLY,
BUYER ACKNOWLEDGES THAT SELLERS HAVE NOT MADE, AND SELLERS HEREBY
EXPRESSLY DISCLAIMS AND NEGATES ANY REPRESENTATION OR WARRANTY
(OTHER THAN THOSE EXPRESS REPRESENTATIONS AND WARRANTIES MADE IN
ARTICLE 3), EXPRESS, IMPLIED, BY LAW, BY STATUTE OR OTHERWISE, RELATING
TO THE ASSETS.
13.7 Disclaimer Regarding Assets. Except as otherwise expressly
provided in Article 3, BUYER ACKNOWLEDGES THAT SELLERS HAVE NOT MADE, AND
SELLERS HEREBY EXPRESSLY DISCLAIM AND NEGATE, ANY REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, RELATING TO THE CONDITION OF THE ASSETS
INCLUDING, WITHOUT LIMITATION, ANY FACILITY, IMMOVABLE PROPERTY, MOVABLE
PROPERTY, EQUIPMENT, INVENTORY, MACHINERY, FIXTURES AND PERSONAL
PROPERTY CONSTITUTING PART OF THE ASSETS, INCLUDING, WITHOUT
LIMITATION, (a) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (b)
ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE,
(c) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS, (d) ANY RIGHTS OF BUYER UNDER APPROPRIATE
STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE
PURCHASE PRICE, (e) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM
PATENT OR TRADEMARK INFRINGEMENT, (f) ANY AND ALL IMPLIED WARRANTIES
EXISTING UNDER APPLICABLE LAW NOW OR HEREAFTER IN EFFECT, (g) ANY
IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE
RELEASE OF MATERIALS INTO THE ENVIRONMENT OR PROTECTION OF THE
ENVIRONMENT OR HEALTH, AND (h) THE VOLUME OF INVENTORY OF CRUDE OIL
LOCATED IN THE ASSETS, IT BEING THE EXPRESS INTENTION OF BUYER AND
SELLERS THAT (EXCEPT TO THE EXTENT EXPRESSLY PROVIDED IN ARTICLES 3 AND
11), THE ASSETS SHALL BE CONVEYED TO BUYER AS IS AND IN THEIR PRESENT
CONDITION AND STATE OF REPAIR AND BUYER REPRESENTS TO SELLERS THAT
BUYER HAS MADE OR CAUSED TO BE MADE SUCH INSPECTIONS WITH RESPECT TO
THE ASSETS AS BUYER DEEMS APPROPRIATE AND BUYER WILL ACCEPT THE
ASSETS AS IS, IN THEIR PRESENT CONDITION AND STATE OF REPAIR.
13.8 Disclaimer Regarding Information. Except as set forth in Article
3 hereof and in the Schedules referred to therein, Sellers hereby expressly
negates and disclaims, and Buyer hereby waives and acknowledges that Sellers
have not made, any representation or warranty, express or implied, relating
to the accuracy, completeness or materiality of any information, data or
other materials (written or oral) now, heretofore, or hereafter furnished to
Buyer by or on behalf of Seller; provided, however, nothing in this Section
13.8 will limit, reduce, diminish or impair (i) any of Sellers'
representations and warranties in Article 3
hereof or (ii) the provisions of Article 11.
13.9 Waiver of Deceptive Trade Practices Acts. BUYER WAIVES ITS RIGHTS
UNDER THE DECEPTIVE TRADE PRACTICES ACT SECTION 17.41 et seq. TEXAS
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS,
AND UNDER SIMILAR STATUTES ADOPTED IN OTHER STATES. AFTER
CONSULTATION WITH AN ATTORNEY OF ITS SELECTION, BUYER CONSENTS TO THIS
WAIVER.
13.10 Transition Services. Sellers shall use their best efforts to
provide Buyer, at Buyer's option, the manpower to operate the SCADA System
through December 31, 1999 or earlier. Buyer shall pay Sellers their direct
costs for these services. Sellers will be under no obligation to replace
employees who are terminated or resign.
ARTICLE 14
OTHER PROVISIONS
14.1 Applicable Law; Alternative Dispute Resolution.
(a) This Agreement shall be governed by and construed in
accordance with the Applicable Laws of the State of Texas, excluding its
principles of conflicts of laws that might refer the matter to the
Applicable Laws of another jurisdiction. All assignments and instruments of
conveyance to be executed in accordance with this Agreement shall be
governed by and construed in accordance with the Applicable Laws of the
State of Texas.
(b) Any dispute arising under this Agreement shall be resolved
pursuant to this Section 14.1(b):
(i) Any Party has the right to request the other to meet to
discuss a dispute. The Party requesting the meeting will give at least ten
(10) business days notice in writing of the subject it wishes to discuss,
provide a written statement of the dispute, and designate an officer
of the company with complete power to resolve the dispute to attend the
meeting. Within three (3) business days after receipt of such request, the
Party receiving the request will provide a responsive written statement and
will designate an officer of the company who will attend the meeting with
complete power to resolve the dispute.
(ii) If the meeting fails to resolve the dispute by a signed
agreement among the officers, the dispute shall be submitted for
nonappealable, binding determination through arbitration by either Sellers
or Buyer by written notice of submission to the other Party, which notice
also shall name one (1) arbitrator. The Party receiving such notice, shall,
by written notice to the other Party within ten (10) days thereafter, name
the second arbitrator, or failing to do so, the Party giving notice of
submission shall name the second arbitrators. The two (2) arbitrators so
appointed shall name a third arbitrator, or, failing to do so within ten
(10) days, the third arbitrator shall be appointed by the Judicial
Arbitration and Mediation Services, Houston, Texas. If such person fails
to make such an appointment within ten (10) days after being requested to do
so by Sellers or Buyer, either such Party may request that such appointment
be made by the Judicial Arbitration and Mediation Services, Houston, Texas;
the first such appointment to be communicated to Sellers and
Buyer shall be effective hereunder. The Parties agree that an officer with
complete authority to resolve the dispute for each entity shall attend the
arbitration. Unless otherwise agreed by the Parties, the arbitrators shall
be persons with at least eight years of professional experience in the crude
oil purchasing, gathering, transportation and marketing industry and who are
not, and have not previously been, employed by either Party (or an Affiliate
thereof), and do not have a direct or indirect interest in either Party (or
an Affiliate thereof) or the subject matter of the arbitration.
(iii) The arbitrators so appointed, after giving the
Parties due notice of the date of a hearing and reasonable opportunity to be
heard, shall promptly hear the controversy in Houston, Texas and shall
thereafter render their decision determining the controversy no later than
ninety (90) days after such board has been appointed. Any decision requires
the support of a majority of the arbitrators. If the board of arbitration is
unable to reach such decision, new arbitrators will be named and shall act
hereunder, at the request of either Party, in a like manner as if none had
been previously named.
(iv) The decision of the arbitrators shall be rendered in
writing and supported by written reasons. The decision of the arbitrators
shall be final and binding upon the Parties and will be complied with by
Sellers and Buyer. Each Party shall bear the expenses of its chosen
arbitrator, and the expenses of the third arbitrator shall be borne
equally by Sellers and Buyer. Each Party shall bear the compensation and
expenses of its legal counsel, witnesses, and employees.
(v) The arbitrators can award only the amounts proposed by
Buyer or the amounts proposed by Sellers.
14.2 No Third Party Beneficiaries. Nothing in this Agreement
shall provide any benefit to any third party or entitle any third party to
any claim, cause of action, remedy or right of any kind, it being the intent
of the Parties that this Agreement shall not be construed as a third party
beneficiary contract; provided, however, that the indemnification provisions
in this Agreement shall inure to the benefit of Buyer Indemnitees and
Sellers' Indemnitees as provided herein.
14.3 Waiver. Except as expressly provided in this Agreement, neither
the failure nor any delay on the part of any Party hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, or of
any other right, power or remedy; nor shall any single or partial
exercise of any right, power or remedy preclude any further or other
exercise thereof, or the exercise of any other right, power or remedy.
Except as expressly provided herein, no waiver of any of the
provisions of this Agreement shall be valid unless it is in writing and
signed by the Party against whom it is sought to be enforced.
14.4 Entire Agreement; Amendment. This Agreement, the Schedules and
Exhibits hereto, and any agreements, instruments or documents executed and
delivered by the Parties pursuant to this Agreement, constitute the entire
agreement and understanding between the Parties, and it is understood and
agreed that all previous undertakings, negotiations and agreements between
the Parties regarding the subject matter hereof are merged herein. This
Agreement may not be modified orally, but only by an agreement in writing
signed by Buyer and Sellers.
14.5 Notices. Any and all notices or other communications
required or permitted under this Agreement shall be given in writing and
delivered in person or sent by United States certified or registered mail,
postage prepaid, return receipt requested, or by overnight express mail, or
by telex, facsimile or telecopy to the address of such Party set forth
below.
Any such notice shall be effective upon receipt or three days after placed
in the mail, whichever is earlier.
If to Buyer: Sun Pipe Line Services Co.
1801 Market Street
Philadelphia, Pennsylvania 19103
Attn: Richard G. Taylor, Vice-President
Fax No.: 215-977-3637
Jeffrey W. Wagner, Chief Counsel
Fax No.: 215-977-6878
If to Pride: Pride Companies, L.P.
1209 North 4th Street
Abilene, Texas 79601
Attn: Brad Stephens, Chief Executive Officer
Dave Caddell, General Counsel
Fax No.: 915-676-8792
If to Pride SGP: Pride SGP, Inc.
1209 North 4th Street
Abilene, Texas 79601
Attn: Brad Stephens, Chief Executive Officer
Dave Caddell, General Counsel
Fax No.: 915-676-8792
Any Party may, by notice so delivered, change its address for notice
purposes hereunder.
14.6 No Assignment. Neither this Agreement nor any rights or
obligations hereunder shall be assigned or transferred in any way whatsoever
by either Party hereto except (i) to Affiliates of such Party, or (ii) to
other Persons with prior written consent of the other Party hereto, which
consent such Party shall not unreasonably withhold, and any assignment or
attempted assignment without such consent shall have no force or effect with
respect to the non-assigning Party. In the event of an assignment to an
Affiliate, Buyer and/or Sellers, as the case may be, shall retain the
obligations set forth in this Agreement. Subject to the preceding sentence,
this Agreement shall be binding on and inure to the benefit of the Parties
hereto and their permitted successors and assigns.
14.7 Severability. If any provision of this Agreement is invalid,
illegal or unenforceable, the balance of this Agreement shall remain in full
force and effect and this Agreement shall be construed in all respects as if
such invalid, illegal or unenforceable provision were omitted. If any
provision is inapplicable to any Person or circumstance, it shall,
nevertheless, remain applicable to all other Persons and circumstances.
14.8 Construction. Any section headings in this Agreement are for
convenience of reference only, and shall be given no effect in the
construction or interpretation of this Agreement or any provisions thereof.
No provision of this Agreement will be interpreted in favor of, or against,
any Party by reason of the extent to which any such Party or its counsel
participated in the drafting thereof or by reason of the extent to which any
such provision is inconsistent with any prior draft hereof or thereof.
14.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and which together
shall constitute but one and the same instrument.
14.10 Third-Party Consents to Assignment. Buyer acknowledges that
certain of the Contracts, Surface Contracts and Permits included in the
Assets may not be readily assignable to Buyer. If a consent by a third
party is required to the assignment of any Contract, Surface Contract
or Permit contemplated to be assigned under the terms of this Agreement, at
Buyer's direction Sellers will initiate prior to Closing the notices and/or
requests for consents in a form approved by Buyer and will cooperate with
Buyer to obtain such consents. If any required consent is not obtained
following Sellers' bona fide efforts to obtain the same, Sellers will
continue to make efforts to obtain the consent(s), and, if the consent(s)
is/are not obtained, will retain and administer the specific
Contract, Surface Contract and Permit, provided Buyer does not assume any
additional risk (economic or otherwise) or expense, and Buyer will perform
and carry out the obligations pursuant to the terms of such Contract,
Surface Contract and Permit until such Contract, Surface Contract and
Permit expires in accordance with its terms, with all economic benefits and
burdens being with Buyer, except Sellers will not be entitled to any
overhead, profit or fee for its retention and administration of the
Contract, Surface Contract and Permit but will be entitled to charge Buyer
for any reasonable and prudently incurred direct out-of-pocket expenses. In
the event that Sellers' proposed retention and administration of the
Contracts, Surface Contracts or Permits result in additional risk or expense
to Buyer, the consents shall be addressed in accordance with the
provisions of Section 5.15.
14.11 Further Assurances. After the Closing Date, each Party at
the reasonable request of the other and without additional consideration,
shall execute and deliver, or shall cause to be executed and delivered, from
time to time, such further certificates, agreements or instruments of
conveyance and transfer, assumption, release and acquittance and shall take
such other action as the other Party hereto may reasonably request, to
convey and deliver the Assets to Buyer, to assure to Sellers the assumption
of the liabilities and obligations intended to be assumed by Buyer
hereunder, and to otherwise consummate or implement the transactions
contemplated by this Agreement.
14.12 Telecopy Execution and Delivery. A facsimile, telecopy or
other reproduction of this Agreement, or any other documents required for
Closing, may be executed by one or more Parties hereto, and an executed copy
of this Agreement, or such other documents, may be delivered by one
or more Parties hereto by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such
Party can be seen, and such execution and delivery shall be considered
valid, binding and effective for all purposes. At the request of any Party
hereto, all Parties hereto agree to execute an original of this Agreement,
or such other documents, as well as any facsimile, telecopy or other
reproduction hereof.
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement on the date first written above.
SELLERS:
PRIDE COMPANIES, L.P.
By:______________________________
PRIDE SGP, INC.
By:______________________________
BUYER:
SUN PIPE LINE SERVICES CO.
By:______________________________
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